Question 1

Peter, Kathy, and Soren are partners in a hardware store business.Peter wants to retire and have his son, Mac, assume his place in the partnership.Which of the following is TRUE?

Accepted Answer

A)  Peter cannot make Mac a partner because unanimous consent is required to admit a new partner.
B)  Peter can make Mac a partner by obtaining the consent of one of the other partners.
C)  Peter can make Mac a partner because every partner is entitled to choose their successor.
D)  Peter cannot make Mac a partner unless he has first worked in the partnership business.
E)  Peter can make Mac a partner because partnership interests can be assigned. A

Question 2

Which of the following concepts, as discussed in Chapter 20, represents a type of partnership that is recognized in Canadian law?

Accepted Answer

A)  dividend partnership
B)  partnership in pais
C)  chartered partnership
D)  partnership in transitu
E)  limited partnerships E

Question 3

Shareholders, acting solely as shareholders, can incur obligations on behalf of the corporation in which they hold shares.

Accepted Answer

A) True 
 B)False  False

Question 4

Common shares are entitled to the "residual value" of the corporation.Which of the following statements best describes residual value?

Accepted Answer

A)  the going concern value of the corporation
B)  the value of the corporation remaining after all the creditors and any claimants prior to the common shareholders have been paid
C)  the value of the tangible and intangible assets of the corporation if they were sold today
D)  the value of the business based on expectations of its future growth
E)  the value of the corporation remaining after the business has been sold

Question 5

"In small businesses with few shareholders, the corporate law rules that require a corporation to have shareholders who elect directors and who, in turn, appoint officers are highly artificial and unnecessary." Do you agree or disagree with this statement? Explain why.

Accepted Answer

The answer of "In small businesses with few shareholders, the...

Question 6

Steve and Laura do business as a partnership.As a result, Steve has a fiduciary obligation to

Accepted Answer

A)  pay over to the partnership any amounts earned from activities unrelated to the partnership.
B)  give up any business interests outside the partnership.
C)  pass up opportunities to compete with the partnership.
D)  look after the personal health and welfare of the other partners.
E)  provide information to the partnership about business opportunities not related to the partnership business.

Question 7

Which of the following statements is TRUE?

Accepted Answer

A)  Both limited partnerships and general partnerships come into existence as soon as two or more people start carrying on business with a view to a profit.
B)  Both limited partners and general partners have unlimited liability for the obligations of the partnership.
C)  All partners in both limited partnerships and general partnerships are entitled to give advice regarding management.
D)  In a limited partnership, the liability of all partners for the obligations of the partnership is limited.
E)  A limited partner can control the general partner without losing their limited liability as a limited partner.

Question 8

Kalla decided to set up a limited partnership.First, she incorporated KalCo Inc, a corporation of which she was the sole shareholder, director, and officer.She intends KalCo Inc to be the general partner.Her spouse, Roger, who will not be involved in the business in any way, will be the initial limited partner.She will try to find other investors willing to become limited partners.Kalla can create a limited partnership with this proposed structure.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is TRUE?

Accepted Answer

A)  An effective partnership requires a high level of trust and confidence between the partners.
B)  Partners do not have to worry about individual partners incurring unauthorized liabilities because each partner has a fiduciary duty to act in the best interests of the partnership.
C)  An indemnification agreement between partners will always be complete protection against unauthorized liabilities.
D)  A prohibition in a partnership agreement on partners incurring a specific obligation will prevent partnership liability arising if one of the partners tries to commit the partnership to such an obligation.
E)  Partners have contractual risk to partnership contracts entered into by other partners in the course of the partnership business, but they do not have a similar tort risk.

Question 10

Artemis is a university professor carrying on an Internet-based auction business that is losing money.He is concerned about liability and wants to transfer the business to a corporation he will incorporate.He will be the sole shareholder, director, and officer.He thinks that his business will continue to lose money for the next couple of years before it turns profitable.He is living on his professor's income and plans to continue to deduct the business losses against that income.Can he do this?

Accepted Answer

The answer of Artemis is a university professor carrying on...

Question 11

Sam and Jemma each owned a 50 percent interest in an office building.Which of the following is a factor that would support a conclusion that their relationship is NOT a partnership?

Accepted Answer

A)  Sam and Jemma are actively involved in the management of the building.
B)  Sam and Jemma are jointly responsible for all expenses associated with the building.
C)  Sam and Jemma have a bank account out of which they pay expenses relating to the building and each has signing authority.
D)  Sam takes responsibility for finding tenants and Jemma collects the rents.
E)  Sam lent the money to Jenna for the office building and he has a 50 percent interest as security for the loan.Sam takes no active part in the business, its profits, or its losses.

Question 12

Only a few corporations have shares that, on the dissolution of the corporation, are entitled to receive the property of the corporation remaining after all the creditors and prior claim holders have been paid.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would be a good reason to choose to make an equity investment in a corporation rather than lending money to a corporation?

Accepted Answer

A)  The return paid on an equity investment is more secure than the return on debt.
B)  The holder of an equity investment always receives a higher return than a debt holder.
C)  The holder of equity has the same legal entitlement to receive dividends as a debt holder has to receive interest.
D)  The return on equity is riskier than debt but is not fixed and may be higher.
E)  It is easier to assess the price of an equity investment.

Question 14

Lee starts a company that does painting and landscaping.He registers the name "Brush Ups" and hires Josh as a painter.Josh has no interest in the functioning of the business and only paints.If a customer is unhappy with Josh's work then

Accepted Answer

A)  both Lee and Josh are jointly and severally liable.
B)  the company's liability is limited to the assets owned by the company.
C)  Josh is the only one liable because he is just an employee, not a partner.
D)  Lee is vicariously liable for the actions of Josh.
E)  because he is the only employee, Josh will be considered a partner.

Question 15

Stan is thinking about starting a toxic waste disposal business.He plans to collect the waste from businesses that produce it and then dispose of it in a sanitary landfill.In order to start this business, Stan will need a substantial amount of money to buy and develop the landfill site and purchase five trucks capable of transporting toxic waste.What concerns would you have about operating this business as a sole proprietorship if you were Stan? What alternative form of business organization would you recommend and why?

Accepted Answer

The answer of Stan is thinking about starting a toxic...

Question 16

If you were considering selling $1 million worth of computer equipment to a partnership on credit, which of the following factors would influence your assessment of the ability of the partnership to pay you back?

Accepted Answer

A)  the value of the personal assets of the individual partners
B)  whether the individual partners had agreed to indemnify each other against any partnership liabilities that they have to pay individually
C)  the value of the assets of the partner's spouses
D)  the value of the personal assets of the employees of the partnership business
E)  the designations of heirs that the partners had made in their respective wills

Question 17

Jessica had operated a business for several years.Because the number of customers increased significantly, she persuaded Zach to work together with her.Two years after Zach came aboard, Jessica committed a tort while acting in the course of the business and caused a customer to suffer a substantial loss.A question has arisen as to whether Zach and Jessica were partners.Which of the following statements is TRUE?

Accepted Answer

A)  A partnership may exist even if Zach and Jessica signed a document that expressly said that their relationship was not a partnership.
B)  Zach will be considered a partner as long as he was paid for his services out of the business's profits.
C)  A partnership cannot exist unless the business holds property apart from both Jessica and Zach.
D)  The parties' business organization cannot be a partnership if the business was losing money with the result that there were no profits to share.
E)  Because Zach and Jessica were working together, he is liable for her tort even if they were not formally partners.

Question 18

Yasir and Rahool are partners in an accounting firm.Each contributed $10 000 in capital and Yasir has loaned the partnership a further $15 000.The partnership also owes its bank $25 000.Yasir and Rahool want to dissolve the partnership.They plan to pay themselves back $10 000 each first, then distribute $25 000 to the bank, and finally pay back Yasir's loan if there is enough money left.This plan for distribution is consistent with the default rules of partnership law.

Accepted Answer

A) True 
 B)False

Question 19

If Ted and Mary were entering into a business relationship and did not want to be found to be partners, it would be sufficient to include a clause in their agreement to that effect.

Accepted Answer

A) True 
 B)False

Question 20

Limited liability means that a shareholder can never be held liable for the obligations of the corporation.

Accepted Answer

A) True 
 B)False

Exam 20: Basic Forms of Business Organizations

Peter, Kathy, and Soren are partners in a hardware store business.Peter wants to retire and have his son, Mac, assume his place in the partnership.Which of the following is TRUE?

Which of the following concepts, as discussed in Chapter 20, represents a type of partnership that is recognized in Canadian law?

Shareholders, acting solely as shareholders, can incur obligations on behalf of the corporation in which they hold shares.

Common shares are entitled to the "residual value" of the corporation.Which of the following statements best describes residual value?

"In small businesses with few shareholders, the corporate law rules that require a corporation to have shareholders who elect directors and who, in turn, appoint officers are highly artificial and unnecessary." Do you agree or disagree with this statement? Explain why.

Steve and Laura do business as a partnership.As a result, Steve has a fiduciary obligation to

Which of the following statements is TRUE?

Which of the following statements is TRUE?

Sam and Jemma each owned a 50 percent interest in an office building.Which of the following is a factor that would support a conclusion that their relationship is NOT a partnership?

Only a few corporations have shares that, on the dissolution of the corporation, are entitled to receive the property of the corporation remaining after all the creditors and prior claim holders have been paid.

Which of the following would be a good reason to choose to make an equity investment in a corporation rather than lending money to a corporation?

Lee starts a company that does painting and landscaping.He registers the name "Brush Ups" and hires Josh as a painter.Josh has no interest in the functioning of the business and only paints.If a customer is unhappy with Josh's work then

If you were considering selling $1 million worth of computer equipment to a partnership on credit, which of the following factors would influence your assessment of the ability of the partnership to pay you back?

If Ted and Mary were entering into a business relationship and did not want to be found to be partners, it would be sufficient to include a clause in their agreement to that effect.

Limited liability means that a shareholder can never be held liable for the obligations of the corporation.