Deck 15: Managing a Business: Business Ownership

Question 1

John McLeod and his daughter Lucy form a partnership to buy and sell exotic guinea pigs.They agree to share the profits equally but do not make any mention in the partnership agreement of how any business capital is to be shared.John originally contributes equipment worth $2000 and Lucy contributes her expertise as a breeder.When the partnership is dissolved Lucy insists upon receiving half of the value of the equipment.Is Lucy entitled to claim this amount?

A)Yes, the equipment has become partnership property.
B)No, the equipment still belongs to John.
C)Yes, Lucy is entitled to half of everything John owns.
D)No, because Lucy's expertise cannot be 'halved'.

Answer 1

A

Question 2

The implied authority of each partner to bind the other partners in the partnership does not include authority to:

A)hire employees.
B)buy and sell trading stock.
C)give a guarantee on behalf of the partnership.
D)write cheques on behalf of the partnership.

Answer 2

C

Question 3

Which special legislation applies to a sole trader business, as distinct from a business that has another structure?

A)The Sole Traders Act 2000 (Cth)
B)The Solo Trading Act 2000 (Qld)
C)None
D)The Australian Small Business Act 2009 (Cth)

Answer 3

C

Question 4

Which of the following is one of the disadvantages of a partnership?

A)Unlimited liability of partners
B)Lack of formalities
C)Limited to not-for-profit
D)Separate legal personality

Question 5

In relation to torts and crimes partners are:

A)always liable for each other.
B)only jointly liable.
C)liable for acts committed within the scope of each other's authority.
D)independently liable for their own acts.

Question 6

The express authority of each partner is the authority:

A)implicitly conferred upon each partner by the managing partner.
B)assumed by a person dealing with the partner.
C)set out in the partnership legislation.
D)explicitly and intentionally agreed upon by the partners.

Question 7

Which of the following is not one of the fiduciary obligations of a partner at common law?

A)Not to profit personally from their position or from information gained from their position without consent.
B)Not to allow themselves to be in a position where there may be a conflict of interest without keeping the other partners informed.
C)To account for private profits made in the course of acting in the course of the partnership.
D)To compete fairly with the partnership in any personal business they have and to comply with the consumer law.

Question 8

A sole trader is:

A)entitled to business profits but not responsible for business losses.
B)the owner of a business that is a legal entity separate from its owner.
C)personally liable for business debts and losses.
D)jointly and severally liable for business losses.

Question 9

Venardos and Aaberg agreed to enter into a partnership to farm kangaroos for their meat and pelts.Aaaberg agreed to pay Venardos $30 000 for a half share in the business.Venardos told Aaaberg that this amount mostly represented the cost of buying the kangaroos.Venardos did not tell Aaaberg that the he had not paid anything for the kangaroos, but had in fact simply saved them from being shot by a farmer who regarded them as a pest on his land and was glad to see them gone.Has Venardos breached any of his fiduciary duties to Aaaberg?

A)No.The maxim 'caveat emptor' is applicable to the transaction.
B)Yes.He should not have profited personally from his position as a partner at the expense of Aaaberg.
C)Yes.Venardos owes Aaaberg a fiduciary duty under the Australian Consumer Law.
D)No.Venardos has no duty to disclose to Aaaberg information that was gained prior to his entry into the partnership.

Question 10

'Mutual liability' in relation to a partnership means that:

A)each partner is responsible for their own actions, and is not liable for the actions of the other partners.
B)each partner is personally liable for the whole of the debts of the partnership.
C)each partner is both the principal and the agent of the other partners, and as such is liable for the actions of the other partners.
D)each partner is jointly and severally liable with the other partners for the debts of the partnership.

Question 11

The authority directly and overtly given by all those people in a partnership to a particular partner, orally or in writing, is called that partner's:

A)express authority.
B)implied authority.
C)apparent authority.
D)ostensible authority.

Question 12

'Joint and several liability' of partners means that if a third party sues one partner and recovers some but not all of the full amount of the debt they can:

A)obtain a floating charge over the assets of the partnership.
B)sue the other partners for the balance.
C)sue the partnership for the balance.
D)seek punitive damages and compounding interest.

Question 13

The silent partners in a tyre manufacturing business decide to sell their interest to the active partners.In order to calculate a fair price, the silent partners request that their accountant be given access to the partnership archived financial records held at the tyre warehouse under mountains of old boxes.The active partners refuse since the partnership legislation provides only for a right of access to the records by 'a partner'.What is the true position?

A)All partners are entitled to have the records inspected by an agent for appropriate purposes.
B)Only the active partners are entitled to have the records inspected by an agent.
C)The silent partners are not allowed to have the records inspected by an agent.
D)The silent partners can have the records inspected by an accountant but not an agent of any other kind.

Question 14

A partner:

A)is not personally liable for business debts.
B)directly owns the business assets with the other partners.
C)does not pay tax on their share of partnership income.
D)cannot be sued by partnership creditors.

Question 15

Partners do not have an implied authority to:

A)hire employees for the partnership.
B)borrow money and charge the partnership assets.
C)give a guarantee on behalf of the partnership.
D)sell the trading stock of the business.

Question 16

Each partner in a partnership is liable for the actions of:

A)the other partners.
B)creditors.
C)independent contractors.
D)all of the options listed.

Question 17

Fred Fender, Dan Dunlop and David Harley are partners in a concreting business.They also happen to be strict members of the Church of the Tawdry Saints which advocates sanctification through motorcycling, whole body tattooing, 'two eyes for an eye' retribution, complete devotion to the God of speed, and raising hell on earth before the time of the second coming.Fender who has backslidden in his faith, has left the church and is spreading rumours about some of its practices to the media, including its connection with some recent gang warfare.Dunlop and Harley expel him from the concreting partnership on this basis.Assuming the partnership agreement purports to gives a majority of the partners the power to expel another partner for misconduct, can Fender be legally expelled from the partnership?

A)Yes.A partner can be expelled from the partnership if the partnership expressly gives this power to the majority of the partners.
B)No.Regardless of the terms of the partnership agreement the power to dismiss a partner must be exercised in good faith and for proper purposes.
C)Yes.The partnership is unworkable and it is not unreasonable for the partners to want to end their association with Fender.
D)No.Partners cannot expel each other from the partnership, even by majority agreement regardless of the terms of any partnership agreement.

Question 18

X and Y are partners.Z is a third party who deals with Y.X will not be liable for an act by Y done in the usual way of business of the kind carried on by the partnership if:

A)Y has express authority to act for the partnership in the particular matter.
B)Z knows that Y has authority.
C)Z believes Y to be a partner.
D)Z does not know that Y is a partner.

Question 19

In relation to torts and crimes, the partnership legislation states that if one partner causes damage to another person (tort) or incurs a penalty (crime) all the partners will be liable if:

A)the other partners did not authorise the action.
B)the partner who committed the wrongful act was acting in the ordinary course of business of the partnership.
C)the partner who committed the act should not be held personally responsible for their action.
D)the other partners knew about the wrongful act.

Question 20

Doris and Dillon Davies were partners in the crystal jewellery making business, Crystal Balls.Doris was the more outgoing and active partner in the business and Dillon agreed to sell his share to her for $20 000.After the sale, Dillon discovered that Doris had not disclosed to him all of the assets of the business and that his share was in fact worth three times as much as the $20 000 they agreed upon.He threatened to sue her for a breach of her duty to him.Which of the following does not represent a basis on which he might bring a claim against her for breach of her fiduciary duty as a partner?

A)Doris has breached her duty of disclosure to him.
B)Doris has profited personally from her position within the partnership.
C)Doris has not accounted for the profits she has made from the transaction.
D)Doris has been guilty of misleading and deceptive conduct within the terms of the Australian Consumer Law.

Question 21

Which of the following duties is not owed by a trustee to its beneficiaries?

A)The duty to preserve and protect trust property.
B)The duty not to delegate their responsibilities as trustee.
C)The duty to invest trust funds, manage the trust property reasonably and keep proper accounts.
D)The duty to avoid disclosure of conflicts of interests.

Question 22

The feature that distinguishes a 'discretionary' trust from other forms of trust is:

A)the trust property is divided into units by the settlor.
B)the beneficiaries are members the settler's family.
C)the trust has not been expressly created.
D)the trustee has some choice about how trust property is distributed.

Question 23

A trustee is the legal owner of the trust property, and is obliged to look after it for the benefit of the:

A)settlor.
B)beneficiaries.
C)shareholders.
D)directors.

Question 24

Which of the following would be known as a business format franchise?

A)The franchisee is a manufacturer who makes and distributes products of the franchisor.
B)The franchisee is a retailer who sells the franchisor's product directly to the public.
C)The franchisee is provided with the product, the business name and a comprehensive system for operating the business.
D)The franchisee is provided with a system for selling a product.

Question 25

Which of the following is not one of the franchisor's disclosure obligations under the Franchising Code of Conduct?

A)To provide a copy of the Code
B)To provide a disclosure document
C)To inform the franchisee about any materially relevant fact within 30 days of becoming aware of it
D)To provide a copy of the franchise document in the form that it is to be signed

Question 26

X and Y buy a house together, each contributing half of the cost.The house is registered in the name of X, that is, X is the legal owner of the house.X will be a trustee and Y will be a beneficiary under:

A)an express trust.
B)a constructive trust.
C)a discretionary trust.
D)a unit trust.

Question 27

If a franchisor breaches the Franchising Code of Conduct, the court is least likely to:

A)grant an injunction to stop the conduct.
B)order corrective advertising.
C)order the franchisor to pay damages.
D)impose a jail term upon the franchisor.

Question 28

Which of the following is not true of the Franchising Code of Conduct?

A)It is administered and enforced by the ACCC.
B)It is a voluntary industry code.
C)It provides a dispute resolution scheme for franchisees and franchisors.
D)It aims to make sure franchisees are properly informed about the Code and any franchise they consider entering into.

Question 29

What does a franchisee usually pay to the franchisor in exchange for being allowed to use the franchisor's name, their products and business systems?

A)Nothing, as franchise agreements are related to the marketing of the franchise.
B)A nominal fee, as franchise agreements are related to the marketing of the franchise.
C)A regular fixed fee and/or percentage of the income or profits of the franchise.
D)An up-front fixed amount one-off fee.

Question 30

As the trustee owns the trust property on behalf of the beneficiaries, the trust property is not available to the trustee's creditors in the event of:

A)bankruptcy only.
B)death of the trustee.
C)liquidation only.
D)bankruptcy or liquidation.

Question 31

Each partner is obliged to act in good faith for the common good of the partnership, which includes an obligation to:

A)profit personally from their position.
B)put themselves in a position of conflict of interest without keeping the other partners informed.
C)compete with the partnership.
D)fully disclose to the other partners all matters likely to affect the partnership.

Question 32

Jill sets up a trust for the benefit of her grandson, Joe.The trust property - a small hotel - is to be legally owned by the trustee, Jack, for the benefit of Joe.Unfortunately, Joe falls terminally ill and passes away shortly after the trust is established.What happens to the trust property?

A)It belongs completely to Jack, who is now the legal owner and the equitable owner of the property.
B)Jack is still the trustee but the beneficiaries are now Joe's other relatives.
C)Jack is still the trustee but the beneficiary is now Jill under a resulting trust.
D)The trust property automatically passes back to Jill who is now the legal owner.

Question 33

X and Y are partners.Z is a third party who deals with Y.X will not be liable for an act by Y done in the usual way of business of the kind carried on by the partnership if:

A)Y has no express authority to act for the partnership in the particular matter and Z is aware of Y's lack of authority.
B)Z knows that Y has authority.
C)Z believes X to be a partner.
D)Z knows that Y is a partner.

Question 34

Which of the following best describes the relationship between a franchisee and franchisor?

A)Employee and employer
B)Partnership
C)Principal and agent
D)Parties to a contract

Question 35

A trust, as a business structure, need not have:

A)a trustee.
B)a beneficiary.
C)trust property.
D)a trust deed.

Question 36

What restrictions in relation to franchising agreements are not found in the Code?

A)A restriction on the franchisee's right to seek an injunction for a breach of the Code.
B)A restriction on the franchisor's right to limit its liability under the franchise.
C)A restriction on the franchisor's ability to prevent the franchisee from forming a lawful association.
D)A restriction on the franchisor's right to waive liability in relation to a representation made by the franchisor.

Question 37

An implied trust arises:

A)when the settlor expressly establishes a trust for the beneficiary.
B)when the settlor has not expressly established a trust but their conduct indicates that their intention was to do so.
C)when the beneficiary makes it know to the trustee that a trust has been established.
D)when the settlor does not intend to set up a trust.

Question 38

A franchise is a contractual arrangement between a franchisor and a franchisee according to which the franchisor permits the franchisee to do a number of things.Which of the following is not one of these things?

A)Be the franchisor's business partner
B)Manufacture or sell the franchisor's property
C)Use the franchisor's business system
D)Use the franchisor's business name or trademark

Question 39

Which of the following is not one of the rights of child beneficiaries under a trust:

A)the right to direct the trustee to terminate the trust and distribute the trust proceeds.
B)the right to insist on up to date accounts and information.
C)the right to replace the trustee or appoint an alternative trustee to the extent prescribed in the trust deed.
D)the right to apply to the Court for guidance where they are unsure about their rights.

Question 40

Which of the following need not be provided by the franchisor to the franchisee before they sign the franchise agreement?

A)A disclosure document in the prescribed form.
B)A copy of the franchise agreement in the form that it is to be signed.
C)A copy of the Franchising Code of Conduct.
D)A written guarantee of profitability.