Deck 7: Methods of Carrying on Business

Question 1

A sole proprietor is responsible not only for his own conduct but also for the wrongful conduct of any employee done in the course of employment.

Answer 1

True

Question 2

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

A)The sole proprietorship is a separate legal entity.
B)A sole proprietorship exists where two or more people carry on business together with a view toward profits.
C)The sole proprietor has limited liability.
D)The sole proprietor has unlimited liability.
E)A sole proprietorship must be incorporated.

Answer 2

D

Question 3

In which of the following is there not a fiduciary duty owed?

A)officer of a company to the company
B)partners to each other
C)manager to employer
D)agent to her principal
E)director to shareholders

Answer 3

E

Question 4

A sole proprietor is free from regulatory control.

Question 5

"As in other forms of business,when decisions are to be taken,the majority of the partners must approve the decision." Discuss the accuracy of this statement.

Question 6

Adams was approached by a Mr.McCarthy of XYZ Co.,who requested that Adams pay $10 000 to extinguish a debt owed by the partnership of Adams and Jefferson.Adams denied the partnership and the liability.In asserting his claim,McCarthy cited the following facts,all of which he could prove.Which of these facts is the strongest evidence of the existence of a partnership?

A)Adams and Jefferson co-owned property.
B)Adams and Jefferson shared gross returns from a business.
C)Adams and Jefferson worked together for a non-profit charity.
D)Adams received a commission from Jefferson based on the sale price of the goods sold by Adams for Jefferson.
E)Adams and Jefferson shared the profits from a business.

Question 7

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

A)The sole proprietor is restricted to service-type businesses.
B)A sole proprietorship involves limited liability.
C)The sole proprietor is a society under the Societies Act.
D)A sole proprietorship involves unlimited liability for the proprietor.
E)A sole proprietorship is a separate legal entity with one shareholder.

Question 8

Discuss the role of the Partnership Act as it relates to people carrying on joint business activities.

Question 9

Which one of the following situations will result in a partnership existing? Assume that no corporation has been created.

A)Joe and Mary own a house together and share the income from it.
B)A lawyer and a real estate agent split a commission.
C)Employees are given bonuses because of increased profits.
D)Joe pays back a debt to Harry by giving Harry a percentage of the profits from his business.
E)Joe and Mary own a shoe store together and share the profits.

Question 10

Which of the following statements best describes a partnership?

A)Partnership involves two or more persons carrying on business with a view toward profits.
B)Partnerships are created when two or more persons specifically agree to be in partnership.
C)Partnerships are like any other form of contract; they can only be created when there is consensus between the parties in the form of offer and acceptance to that effect.
D)Partnerships involve limited liability.
E)Partnerships are only created when they have been properly registered with the government.

Question 11

Which of the following is the proper definition of a partnership as set out in the Partnership Act?

A)Partnership exists where two or more persons carry on business in common with a view to profit.
B)A partnership exists only where two or more people enter into a written agreement to be partners.
C)A partnership is created where a corporation with shareholders is registered with the federal government.
D)A partnership is only created where the partners actually share the profits from a business.
E)A partnership exists where any business is carried on with a view toward profits.

Question 12

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

A)No major decision can be taken without a majority vote agreement of all partners.
B)Only the partners that have contributed the largest capital amount have the right to share in management.
C)All profits are shared equally among the partners.
D)A partner can sell her share of the partnership to another person without the agreement of the other partners.
E)Personal expenses incurred by the partners in the course of business are reimbursed.

Question 13

When the partners fail to register their partnership,they can neither sue nor be sued.

Question 14

Discuss the advantages and disadvantages of partnership as a method of carrying on business compared to incorporation.

Question 15

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

A)The sole proprietor has the same extent of liability as a shareholder.
B)The sole proprietor must consult with the other owners before making any major decisions regarding the business.
C)The sole proprietor is responsible for the torts committed by an employee that take place within the scope of employment.
D)The sole proprietor need not adhere to any licensing and government regulations.
E)The sole proprietor has limited liability.

Question 16

Distinguish between a sole proprietorship and a corporation.

Question 17

The biggest issue for a sole proprietor is unlimited liability.

Question 18

A sole proprietor carries on business alone and cannot employ others in the process.

Question 19

Distinguish between a partnership and a corporation.

Question 20

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

Question 21

Which of the following statements is correct with respect to the Partnership Act?

A)When in conflict,the terms of the federal Partnership Act override the provincial partnership acts.
B)The Partnership Act is enacted by the federal government and creates a uniform and cohesive system of partnership law for all of Canada.
C)The Partnership Act states clearly that a partnership is only created by specific agreement between the partners to that effect.
D)The Partnership Act sets out provisions that will govern the relations between the partners unless those partners have agreed otherwise.
E)The Partnership Act always overrides any provisions contrary to it set out by the partners in the partnership agreement.

Question 22

Discuss the problem of liability with respect to partnership and how this difficulty can be overcome if partnership is chosen as the method of carrying on business.

Question 23

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.

Question 24

An example of estoppel is when a person allows himself or herself to be called a partner.

Question 25

"A partnership can be created by the conduct of the parties." Discuss the accuracy of this statement.

Question 26

In which one of the following situations will a court find that a partnership exists?

A)Joe sells his business to Harry for $10 000 for the assets and a further $20 000 for goodwill,the goodwill portion to be paid at a rate of 20% of the profits from the business until paid.
B)Joe is a partner in a shoe store and sells his share of the business to Harry without the consent of his partner.
C)Joe and Mary promote several dances at school and split the profits.
D)Joe,a partner in a law firm,dies and Joe's widow takes over Joe's share of the profits.
E)Joe and Mary,while attending university,purchase a house and share the profits from the rent after deducting expenses.

Question 27

Which of the following is correct with respect to the law of partnership?

A)A partnership cannot be created inadvertently.
B)Each partner is vicariously liable for the wrongful acts of their partners committed in the course of the partnership business.
C)Partners are only liable for the torts of their partners if they in fact knew that the wrongful conduct was taking place.
D)Joint and several liability means that each partner can be sued several times.
E)Partners have unlimited liability,meaning that they can lose up to the amount they have invested in the business.

Question 28

Which of the following statements is correct with respect to unlimited liability?

A)Only the partner's share of the partnership assets can be used to satisfy the debt incurred by another partner.
B)Each partner can be held responsible for the debts of the partnership no matter how great they are.
C)Unlimited liability means the partner can lose what he has invested but no more.
D)The partner cannot only lose what she has invested but can also be required to pay an additional amount equal to what she has invested.
E)If there are two partners,each partner can be held responsible for an amount equal to but no more than one half of the debts of the partnership.

Question 29

Which of the following will establish the existence of a partnership?

A)The goodwill portion of the sale of a business is repaid by a share of the profits.
B)An employee receives a profit-sharing bonus.
C)The beneficiary of a deceased partner takes that partner's share of the income from the partnership.
D)The parties intend to share the expenses of the business.
E)A debt is repaid by the creditor taking a share of the profits.

Question 30

Which of the following is incorrect with respect to the creation of a partnership?

A)A partnership can only be created with the consent of the parties.
B)The duties and obligations of partners to each other can be modified by agreement.
C)The business activity must be continuing in order for it to indicate the existence of a partnership.
D)The common method of creating a partnership is by agreement.
E)An important indication as to whether a partnership exists is the sharing of the profits of the business activity.

Question 31

When two people enter into a partnership by agreement but neglect to set out the terms of such agreement,or where the parties becomes partners inadvertently,where are the terms and arrangements of that partnership set out?

Question 32

Chuck,Howard,and Ben decide to start a business venture,developing and distributing educational software.For tax reasons,they do not incorporate.Each contributes $10 000,and Howard also contributes a truck and his programming expertise.They agree that all three will be actively involved in the day-to-day management of the business.To determine their rights and obligations,they enter into a one-page agreement that provides only that each of Chuck,Howard,and Ben will receive 33.3% of the profits but also states specifically they are not to be viewed as partners.Based on these facts,which of the following statements is true?

A)Chuck,Howard,and Ben will not be considered partners because of their express intention in their agreement.
B)Chuck,Howard,and Ben will be considered partners in the eyes of the law,because they share profits and are involved in the management of the business.
C)Chuck,Howard,and Ben will be considered partners,but someone claiming against the partnership will only be able to collect 33.3% from any one partner because of the agreement.
D)Chuck,Howard,and Ben are not partners because they do not share profits in proportion to their capital contributions.
E)Chuck,Howard,and Ben are not partners because to be partners they must be professionals,such as dentists,lawyers,or doctors.

Question 33

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

A)A general partner has unlimited liability for any loss suffered because of the negligent act (e.g.,omission)of one of his partners if there are insufficient funds in the partnership to pay the person who suffered the loss.
B)The partnership,and thus the partners,is liable for any loss suffered because of a tort committed by its employee in the course of employment.
C)A general partner who retires from the partnership by giving notice of his leaving to the other partners could still be found liable for debt pursuant to a contract made when he was a partner.
D)A general partner could not be liable for losses suffered by a client because of misapplication of funds unless he knew about or took part in the misapplication.
E)A limited partner is liable only for the amount of his initial investment if he follows the directions set out in the Partnership Act (e.g.,not taking part in management).

Question 34

Chan sold a business to Scott and in the process they valued the "goodwill" at $50 000.In the sale contract,it was agreed that this amount would be paid by Scott,giving Chan 15% of the business profits until it was paid.This creates a partnership between them.

Question 35

Explain why the law of partnership poses a danger to people carrying on joint business activities.

Question 36

Which one of the following statements is correct with respect to the creation of a partnership agreement?

A)A partnership can be created by an intention to share the revenues between the partners.
B)For a partnership to exist,the relationship giving rise to it must be of an ongoing business nature,not a one-time promotion.
C)For a person to be a limited partner,there must be at least two general partners.
D)A partnership can be created only by contract.
E)Where two people agree to enter into a partnership,there is no partnership created unless all elements of a contract are present.

Question 37

"For a partnership to exist,the parties must have consented to its creation." Comment on the accuracy of this statement.

Question 38

Joe and Mary promote several dances at school and split the profits.Will this be enough to establish a partnership?

Question 39

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.

Question 40

A partnership is primarily a contractual relationship and can be created verbally or implied by conduct.

Question 41

Explain the limitations of the liability of partners for the acts of other partners.

Question 42

The unlimited liability of partners means that not only can they lose their entire investment in the business,but their personal assets (such as their homes and cars)are also at risk.

Question 43

"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.

Question 44

Unlimited liability means that an investor can lose everything he or she has invested in a corporation.

Question 45

Which of the following is correct with respect to partnership?

A)A partnership can be made up of only limited partners.
B)Partnership is a separate legal entity.
C)Partners are not agents for each other.
D)General partners have unlimited liability.
E)General partners have limited liability.

Question 46

Recent changes in partnership law allow partnerships to be registered as a "limited liability partnership" or LLP.When carrying on business as a limited liability partnership,non-negligent partners stand to lose:

A)their investment in the firm.
B)all of their personal assets if a successful claim is brought against the partnership on the basis of another partner's mistake.
C)absolutely nothing.
D)all of their personal assets except those protected from seizure under bankruptcy legislation.
E)assets jointly held with a spouse.

Question 47

If three partners set out a term in their partnership agreement that John would only be responsible for 10 percent of any losses,yet he has to pay 100 percent of a claim because the other partners have no funds,John could seek contributions from the other partners according to the partnership agreement.

Question 48

Explain the liability of a partner for another partner's actions.

Question 49

Fred and Carole were trying to create a list of the pros and cons of sole proprietorship,partnership,and corporation to determine the best structure for carrying on business.Which of the following is true with regard to being a general partner?

A)Each partner is an agent for every other partner and for the firm itself,so a partner may be liable for the contracts made by an incompetent partner.
B)Every general partner faces limited liability for the debts of the partnership.
C)A partner is liable for only the amount that he or she invested in the partnership firm.
D)Retiring from a partnership by giving notice to the partners frees a partner from the liabilities he or she faced while being a partner of the firm.
E)A partner is liable to pay from his or her personal assets only when the partner has committed a criminal act.

Question 50

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?

A)The bank can look to the assets of the bookstore to pay off the debt.
B)Although the bank can go after Smith's personal assets,it cannot go after the assets of the bookstore because the bookstore is a separate legal entity from Smith.
C)The bank can only go after the assets of the bookstore if Smith is the actual person who negotiated the loan with the bank.
D)The bookstore's assets will only be available to the bank if the bookstore is operated by Smith in conjunction with the hotel.
E)Because of the concept of limited liability,Smith can lose only what he has invested in the hotel.

Question 51

Alison told her partners in writing that she would be leaving the law partnership at the current partnership year-end,January 31,2014.At year-end,Alison's partners bought her partnership interest and agreed that she would no longer be liable for any of the prior or subsequent partnership obligations.In February 2014,one of the remaining partners absconded with $2 million held for Mr.Smith,a long-time client,taken in trust in September 2013.Mr.Smith sued the partnership,the partners,and Alison.Based on the facts described,which of the following statements is true?

A)Alison has no right to recover any funds she has to pay from her former partners.
B)Mr.Smith can recover on his judgment out of the partnership assets.
C)Even if Alison gave Mr.Smith actual notice of her leaving the partnership,and he agreed that she would no longer be obligated for the partnership,she can be held liable to Mr.Smith.
D)After the partnership assets are exhausted,Mr.Smith can recover on his judgment from any one of the remaining partners but not from Alison.
E)Only the remaining partners,not Alison,have the right to recover anything they have to pay from the absconding partner.

Question 52

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?

A)If the partnership funds are not sufficient to pay the partnership debts,the creditors can look to the individual partners for payment.
B)Although George broke the lamp while delivering a kite,the partners are not liable because it was George's own fault.
C)When Ed buys supplies for the business on credit,he is acting as an agent for the business and he alone is liable for those debts.
D)Only Chris would be responsible for Ed's misapplication of the customers' money.
E)Since Dave,Chris,and Ed did not sign a partnership agreement,they are not considered a general partnership.

Question 53

Joe entered into partnership with two others in the establishment of a real estate sales agency.The other two,Sam and Harry,had considerable experience in the real estate business but no money.Joe,on the other hand,had his own home and several significant assets,and although he didn't have any experience in the real estate business,his monetary contribution made him an equal partner with Sam and Harry.Unfortunately,Harry misused some trust funds that had come into his care as a result of business,investing them in the business of one of his sons rather than in an interest-bearing account.The business of the son went sour and the money was lost.The client sued Harry,Sam,and Joe.Explain the legal position of Joe here.

Question 54

Which one of the following statements about general partnerships is false?

A)A general partner can limit his liability for the firm's obligations by using the term "limited" after his name on stationery.
B)Each partner has unlimited personal liability for the debts of the partnership.
C)The Partnership Act can imply contractual terms into a partnership where the partners did not expressly agree on some detail of the relationship.
D)Partnership is the relationship that exists between persons carrying on business together with a view to making a profit.
E)A partnership can exist even without a written partnership agreement.

Question 55

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.

Question 56

Which one of the following statements is correct with respect to the liability of partners?

A)A general partner is responsible,independent of what she has invested,for any losses caused to outsiders through the partnership business if the assets of the partnership are not enough to cover the claim.
B)If a third party is injured because of an activity carried on by the partnership,that third party can only go after the personal assets of a partner if the assets of the partnership are not enough to provide compensation and the damage was actually caused by the conduct of that partner.
C)When a partner enters into a partnership arrangement,she can only lose what she has invested in that partnership.
D)If there are three equal partners in a partnership,an injured third party can only collect one-third of the claim from any one partner.
E)A partner can protect herself from any liability beyond her investment if one of the other partners specifically agrees in the partnership agreement to be responsible for all such liability.

Question 57

The partners can change the terms of their responsibilities to each other in the partnership agreement,but not in relationship to their obligations to third parties.

Question 58

Partners are vicariously liable for the wrongful acts of employees committed on partnership business.

Question 59

Partners are responsible for the debts and obligations of the partnership.With respect to contracts,each partner is considered to be:

A)the primarily liable party if the partner takes on the role of agent.
B)a principal of any contract entered into by an employee of the partnership.
C)an agent of the other partners so that any contract entered into by one partner with respect to the partnership business is binding on them all.
D)an agent of the partnership only so that any contract entered into by one partner only binds the partnership entity itself and not the other partners.
E)liable only for his or her capital investment should a breach of contract occur.

Question 60

Which one of the following statements is correct with respect to the law of partnership?

A)Partners are responsible for any contracts entered into by the partners related to the partnership business.
B)Partners are only responsible for contracts entered into by the partnership if the third party knew that the person it was dealing with was a partner in the partnership.
C)A partner is responsible for contracts with third parties entered into by the partners only where it has been clearly stated by the partner to the third parties that he is entering the contract on behalf of the partnership.
D)Partners cannot bind their partners in contract without specific written authority.
E)Every partner is responsible for every contract entered into by the partnership.

Question 61

Which of the following is a violation of the fiduciary duty of a partner?

A)A violation occurs where one partner carries on a business unrelated to the partnership with the permission of the partners.
B)A violation occurs where a partner uses the partnership property for partnership business.
C)A violation occurs where one partner learns of an investment opportunity in the field of the partnership and tells the partners.The partners decline on the opportunity,so he takes advantage of it himself.
D)A violation occurs where one partner uses information that he has gained from the partnership for the advantage of the partnership.
E)A violation occurs where one partner starts another business,without the consent of the other partners,that is the same as or in competition with the partnership business.

Question 62

When a partnership dissolves,which of the following is not one of the causes?

A)The partnership is dissolved when one of the partners dies.
B)The partnership is dissolved when one of the partners starts a business in competition with the partnership business.
C)The partnership is dissolved when one of the partners goes bankrupt.
D)The partnership is dissolved when one of the partners serves notice on the other partners to that effect.
E)A partnership can be dissolved by order of the court.

Question 63

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.

Question 64

The Partnership Act provides that no major decisions can be made that affect the nature of the business itself without unanimous agreement of the partners.Provide three examples of major decisions.

Question 65

Explain what a retiring partner should do to ensure that he is no longer liable for the company's obligations.

Question 66

Dennis,Sam,George,and Ray were partners in an accounting business,and Ray decided he wanted to retire.He sold his share of the partnership to Leonardo,but Leonardo is not a partner unless the other partners approve the change.

Question 67

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

Question 68

Joe and Sam were in business school together,and after they graduated they decided to open an ice-cream store in a mall.They had skipped the classes in which they were taught about different methods and forms of carrying on business and so gave no thought to how they would structure their relationship.Which of the following is true with respect to the legal positions of Joe and Sam?

A)If a customer were injured because of poorly kept food and Sam did not have the assets to pay his half,Joe would only have to pay his half of the damages suffered.
B)If Sam were to find a great deal on anchovy ice cream and purchase 2000 litres of it,only Sam would be liable for the debt incurred as a result of the purchase.
C)If Sam opens another ice cream store in another mall in a nearby city without telling Joe,he must share any profits he makes with Joe.
D)Sam and Joe are not in a partnership since they have not specifically agreed to be.
E)If Sam opens another ice cream store in another mall in a nearby city without telling Joe,Joe would be liable for any losses Sam suffered (along with Sam).

Question 69

A partnership enjoys tax advantages not available to a sole proprietor.

Question 70

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

Question 71

Changes to the Criminal Code in response to the Westray mining disaster in Nova Scotia make partnerships and corporations more responsible for the negligence of their employees when the negligence results in injury or death.

Question 72

Three men decided to form a partnership to look for buried treasure.Luke and Mark had expensive equipment,experience,and expertise.The third partner,Cyrus,had an old treasure map.The three men agreed to meet on Monday on an island in the Caribbean.Cyrus had his holiday start a few days earlier so he went ahead "to set up camp." Before the others arrived Cyrus found the treasure.When they stepped off the plane,Cyrus handed them a dissolution of partnership notice and claimed the entire treasure for himself.Do Luke and Mark have any legal claim to the treasure?

A)Yes,they have an equitable claim for specific performance to the treasure.
B)No,Luke and Mark's assets and experience were not used to find the treasure.
C)Yes,the treasure was found before the partnership was dissolved; therefore,Cyrus must account for the profit he made.
D)No,the partnership was dissolved before the full value of the treasure was determined.
E)No,but they can claim all of the out-of-pocket expenses associated with the aborted trip to the Caribbean.

Question 73

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.

Question 74

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

Question 75

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

A)A general partner who retires from the partnership by giving notice of his leaving to the other partners could still be found liable for debt pursuant to a contract made when he was a partner.
B)A limited partner has unlimited liability beyond the amount of his initial investment.
C)A general partner has limited liability for any loss suffered because of the negligent act (e.g.,omission)of one of his partners.
D)A general partner could not be liable for losses suffered by a client because of misapplication of funds unless he knew about or took part in the misapplication.
E)The partnership,and thus the partners,are liable for any loss suffered because of a tort committed by its employee outside the course of his employment.

Question 76

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

Question 77

In which one of the following situations has the duty between partners not been breached?

A)X,Y,and Z have a partnership in a restaurant business in Winnipeg.Unknown to his partners,Z is the major shareholder in a corporation that opens a restaurant in the same city.
B)X,Y,and Z have a partnership in a restaurant business in Winnipeg.Unknown to his partners,Z owns 50% of the shares in the company that supplies the restaurant with its food supplies.
C)X,Y,and Z have a partnership in a restaurant business in Winnipeg.Unknown to his partners,Z runs a catering business in the evenings using the restaurant's facilities.
D)X,Y,and Z have a partnership in a restaurant business in Winnipeg.Unknown to his partners,Z opens a shoe store in Regina as well.
E)X,Y,and Z have a partnership in a restaurant business in Winnipeg.Unknown to his partners,Z opens up a restaurant in the same city as a sole proprietorship.

Question 78

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

A)A partner in a firm learned of a business forced to sell some heavy equipment.Although the partnership could have used the equipment,he bought and sold it at a substantial profit before the partnership was given a chance to buy it.
B)A shareholder of ABC Ltd.,a trucking corporation whose shares are listed on the Vancouver Stock Exchange,is working as an employee for ABC Ltd.'s competitor,Jonstone Trucking.
C)A shareholder of a corporation voted in favour of an acquisition by the corporation at the annual general meeting because he secretly had an interest in the corporation being purchased.
D)The directors of the corporation,contrary to a request made by the shareholders,refused to declare dividends.
E)A promoter of a corporation sold property to the corporation for four times what he had paid for it after he made full disclosure of his interest to an independent board of directors,which voted for the purchase.

Question 79

Joe R.notified his partners in writing that he would be retiring from the business partnership at the end of 2013.It was acknowledged and agreed upon and,at year-end,the remaining partners paid him for his interest in the partnership.In February 2014,one of the remaining partners misapplied some trust funds that a long-time client had placed in the care of the partnership for the purchase of a hotel.The partnership was sued,but the assets of the partnership were not sufficient to satisfy the judgment.The successful plaintiff went against the personal assets of the partners,including those of Joe R.What is the likely outcome?

A)Joe R.is not liable because he had retired from the partnership at year-end and had properly notified his partners.
B)Joe R.is not liable because he had nothing whatsoever to do with the misapplication of the trust money.
C)Joe R.is not liable since he was not a partner when the misapplication happened.
D)Joe R.is only liable for his share of the losses even if the other partners don't have the assets to pay.
E)Joe R.is liable if he failed to give proper notice to outsiders,namely,the long-time client whose funds were misapplied.

Question 80

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.Which of the following statements is correct with respect to his responsibility for the money he earns?

A)Jones has a duty to tell the other partners,but the money is his and he can continue the extra work regardless of the other partners' consent.
B)Jones has no responsibility; the money he makes through this extra work is his.
C)Such conduct will automatically dissolve the partnership,but Jones can keep what he has made.
D)If Jones did not have the consent of his partners,he must pay over all money he makes through his business at home to the partnership.
E)If Jones is a one-third partner in the law firm,he need only pay over a third of what he makes on the side.