Exam 7: Methods of Carrying on Business

Kent incorporated Dynamite Data Ltd., which worked with small businesses in developing graphs and charts from their data for presentations to bankers, shareholders, etc.Kent loaned the company $25 000 by way of a shareholder's loan and took as security computers, plotters, and printers under a chattel mortgage document.An employee of the corporation, Jack, while delivering some graphs to a customer, Roth, got into an argument with Roth, who complained that the graph was in red and not in pink as requested.It ended with Jack punching Roth, who fell onto a microscopic camera.The damage to Roth's nose and the camera totalled $35 000.Which of the following is true?

Joe, Sam, and Harry set up an accounting partnership in a small town.To earn money on the side, Harry did some accounting for friends at night, for which he received a fee.When Joe and Sam found out about this, they demanded that the fees received be paid into the partnership business.Explain Harry's legal position.

It is possible through a partnership agreement to create different classes of partners.

A secured creditor has first claim against assets used as security.

Which one of the following is correct with respect to the rights of partners unless they have agreed otherwise?

Explain "lifting the corporate veil."

Partners can agree among themselves as to what portion of liability they each will bear, and their losses will be limited to that portion when being sued by outsiders.

With regard to the liability of partners, which of the following is true?

Norma and Janet decide to form a partnership to sell gourmet picnic baskets.To raise sufficient capital, they convince their mothers to invest $5000 each as limited partners.Norma's mother is an experienced restaurateur and watches the new business with great interest.On several occasions, she advises Norma and Janet on the business and contacts former business associates to buy surplus stock.She even fills in by taking orders in the office when needed.A customer who was made ill by eating contaminated food from a tin can supplied in one picnic basket sues.What would be the liability, if any, of the mothers?

Explain the standard of care that a director must live up to in carrying out his duty toward the corporation.

There is one common method of creating corporations used across Canada.

If Carol introduces Mary to a client as a partner in circumstances where it is reasonable for the client to believe that there is a business relationship between them (although there is not), Mary will not be able to deny it later if the client sues her as a partner because a partnership has been formed by estoppel.

Explain how the principle of fiduciary duty works in a partnership relationship.

Jones is a partner in a law firm in a small town, and he is also doing legal work out of his home in the evenings for himself.Explain the rights of his partners in this situation.

Indicate the main disadvantages to incorporation.

What are the advantages and disadvantages of being a sole proprietor?

Dave and his sister Chris make unusual kites.They both create the designs and Dave makes the patterns.Friends have always wanted to buy their kites.After Chris completes a post-secondary marketing program, she begins to talk to Dave about going into business selling kites.Ed, a friend of Chris, wants to be involved.He says he could buy the supplies and do other odd chores.They decide to try to make a go of it and to share the profits as follows: Dave, 35%; Chris, 35%; and Ed, 30%.Things go well for seven months.They even hire George to deliver kites to the increased number of stores buying them.Unfortunately for the business, Chris and Ed become romantically involved.This is followed by a heated dispute.Ed disappears with $1300 collected from customers and $600 worth of supplies, which he had bought on behalf of the business from its regular supplier.At about the same time, George negligently breaks a customer's $200 lamp while delivering a kite.On these facts, which of the following is true?

Another term commonly used where a bond is involved is:

Shareholders in a closely held corporation can control the rights and responsibilities they have to each other through a shareholders' agreement.

Explain what is meant by limited liability related to corporations.