Question 1

When a personal guarantee has been signed by a shareholder,the creditor can demand payment from that shareholder despite the separate legal entity nature of the corporation.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

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 3

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.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

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 5

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?

Accepted Answer

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 6

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

Accepted Answer

A) The franchisee provides the technical expertise to manage the franchise. 
B) The franchisor must comply with rules,standards,and specifications with respect to products and prices. 
C) Examples of franchises in Canada include Tim Hortons,KFC,and Budget Car Rental. 
D) An advantage of a franchise arrangement is the equal bargaining position of the parties. 
E) The franchisee and franchisor are in partnership together.

Question 7

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

Accepted Answer

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 8

In the BCE case,the Supreme Court clarified the fiduciary duty owed by directors.Which of the following correctly reflects the court's view in this case?

Accepted Answer

A) The duty is owed to the corporation; in determining what is in the best interest of the corporation,directors may consider the interests of all stakeholders. 
B) The duty is owed to the corporation and only the corporation; no consideration should be given to shareholders,employees,or creditors. 
C) The duty is owed to all stakeholders; the interests of shareholders,employees,and creditors should be emphasized in all decisions. 
D) The duty is owed to the corporation; in determining what is in the best interest of the corporation,directors must consider the interests of shareholders. 
E) The duty is owed to the corporation; in determining what is in the best interest of the corporation,the directors must consider the interests of employees.

Question 9

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

Accepted Answer

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.

Question 10

Which of the following might be a successful claim (i.e.,defence)if a director is charged personally for violation of environmental regulations,resulting in pollution?

Accepted Answer

A) He did not participate in the decision leading to the offence. 
B) He had delegated decision authority to someone else. 
C) He had exercised due diligence. 
D) He was not aware of the regulations. 
E) He was not present at the meeting when the decision was made.

Question 11

To whom does the director owe the duty to be careful?

Accepted Answer

The answer of To whom does the director owe the...

Question 12

If a corporation were wronged by negligent and fraudulent acts committed by one of its directors and consequently suffered a $45 000 loss,and if the board of directors will not take any action on behalf of the corporation against the wrongdoer,which of the following would be true?

Accepted Answer

A) A representative (derivative)action allows a shareholder to commence an action on behalf of the corporation. 
B) If the company failed to commence an action through its authorized agents (e.g.,its directors),no action could be taken,because a corporation is merely a legal concept and must act through its authorized agents. 
C) The shareholders could proceed under the "dissent" procedure and force the corporation to pay them a fair market value for their shares. 
D) The shareholders could sue the corporation for oppression. 
E) The shareholders could force the directors to start the action on the basis of their "pre-emptive right."

Question 13

Which of the following is correct with respect to partnership?

Accepted Answer

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 14

In 2011,Rambolin incorporated Rambolin Industries Ltd.and became its sole shareholder.He loaned the corporation $10 000 and took a chattel mortgage from the corporation as security for repayment of the loan.He became director,president,and secretary of the corporation.The corporation prospered.Last year,you began supplying the corporation with office supplies.You were paid at the end of each month for supplies delivered during that month.For the last six months,however,you have not been paid.You learn that other suppliers also have not been paid because sales have dropped drastically,apparently due to Rambolin's nasty temper caused by ill health.Which of the following is true?

Accepted Answer

A) If this corporation were placed into bankruptcy,Rambolin would be in a better position than you for receiving proceeds realized from the sale of the assets of the corporation. 
B) Shareholders have a statutory obligation to manage the corporation,so Rambolin,as shareholder,must exercise care in that task. 
C) You could take an action under the pre-emptive right provisions under the relevant legislation. 
D) If you decided to sue for the debt,you could sue Rambolin because he is the sole shareholder and his nasty temper caused all of the trouble. 
E) If Rambolin dies,his corporation would automatically die too,and there wouldn't be any person to sue.

Question 15

Often shareholders in closely held corporations want to formally set out their rights and responsibilities with respect to each other that are not already included in the incorporating documents.To best achieve this they have the following document prepared on their behalf:

Accepted Answer

A) a franchise agreement. 
B) a partnership agreement. 
C) a prospectus. 
D) a receivership agreement. 
E) a shareholders' agreement.

Question 16

A franchisee provides the product,equipment,and a licence to use the name,trademark,and logos.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

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

Question 18

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?

Accepted Answer

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 19

Which of the following statements is correct with respect to regulation of the purchase,sale,and promotion of securities in Canada?

Accepted Answer

A) The federal government has no involvement in this area. 
B) This is a provincial responsibility but all provinces have the same provisions. 
C) Because of the location of the Toronto Stock Exchange,the Ontario Securities Commission oversees these matters for all of Canada. 
D) Canada has a federal securities regulator responsible for this. 
E) This is primarily a provincial responsibility.

Question 20

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?

Accepted Answer

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.

Exam 7: Methods of Carrying on Business

When a personal guarantee has been signed by a shareholder,the creditor can demand payment from that shareholder despite the separate legal entity nature of the corporation.

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

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.

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

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

In the BCE case,the Supreme Court clarified the fiduciary duty owed by directors.Which of the following correctly reflects the court's view in this case?

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

Which of the following might be a successful claim (i.e.,defence) if a director is charged personally for violation of environmental regulations,resulting in pollution?

To whom does the director owe the duty to be careful?

If a corporation were wronged by negligent and fraudulent acts committed by one of its directors and consequently suffered a $45 000 loss,and if the board of directors will not take any action on behalf of the corporation against the wrongdoer,which of the following would be true?

Which of the following is correct with respect to partnership?

Often shareholders in closely held corporations want to formally set out their rights and responsibilities with respect to each other that are not already included in the incorporating documents.To best achieve this they have the following document prepared on their behalf:

A franchisee provides the product,equipment,and a licence to use the name,trademark,and logos.

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

Which of the following statements is correct with respect to regulation of the purchase,sale,and promotion of securities in Canada?