Exam 7: Methods of Carrying on Business

Directors owe a fiduciary duty to the public.

Joe sold Harry his barber shop for $100 000.He was paid $20 000 in cash, the other $80 000 to be paid by Harry giving Joe 20% of the profits of the business until the amount is paid off.Unfortunately, a customer, Sam, is injured by Harry, who manages to cut off Sam's right ear while shaving him.Sam sues both Harry and Joe.Explain his likelihood of success.

Which of the following is correct with respect to sole proprietorships?

Which one of the following statements is correct with respect to sole proprietorships?

Joe Smith owns a bookstore as a sole proprietor.He is also a partner in a hotel, which borrowed $100 000 from the bank.Which of the following statements is true?

Where a corporation is not able to pay the debts it owes, the creditors can turn to the shareholders for payment.

Preferred shareholders usually get preference when dividends are declared, but receive no vote.

Which of the following is a fiduciary relationship?

Explain the significance of the determination that a corporation is a broadly held corporation as opposed to a closely held corporation.

Jack Kihn incorporated and put $20 000 into the corporation by way of a shareholder's loan and took back a chattel mortgage on the corporation's equipment.The corporation created decorative boxes.An employee of the company delivered some boxes to a customer, who complained about the colour used.The employee became so angry that he shoved the customer, who fell into a glass display case, causing $30 000 damage to the customer and the case.On these facts, which of the following is false?

Explain under what circumstances a partnership can come to an end.

Which of the following is an example of a breach of a fiduciary duty?

"Partners must make clear in their partnership agreement any limitations on authority they wish to impose on each other when entering into contracts with outsiders." Discuss the accuracy of this statement.

Explain what is meant by a preferred share.

A shareholder has an obligation not to compete with the corporation.

Four years ago, Ben Ratzi incorporated a corporation and became the sole shareholder, director, and officer.He loaned the corporation $10 000 and took a debenture from the corporation as security for repayment of the loan.The corporation prospered.Last year, your brother began supplying the corporation with office supplies.He was paid at the end of each month for supplies delivered during that month.For the last six months, however, he has not been paid.He learned that other suppliers had not been paid either because sales dropped drastically, apparently due to Ratzi's harsh management style, which has upset the entire staff.Which of the following is true?

In a franchise arrangement one business enters into a contract with another to sell its product exclusively.Which of the following is true with respect to a franchise?

Andrea agreed to form a corporation with two friends, but lay awake last night rethinking her decision.They agreed that they all wanted to be directors and officers and that they all would have signing authority with the bank from whom the corporation is borrowing the money.Nevertheless, Andrea began to review her assumptions.Which of the following is true?

The biggest issue for a sole proprietor is unlimited liability.

A partner's liability for the torts of his or her partners extends beyond those committed on company business.