Deck 14: Business Forms and Arrangements

Question 1

Which of the following would a business law professor most likely identify as being an advantage of a partnership over a sole proprietorship?

A) potential to successfully achieve management by consensus
B) potential of each partner to devote significant attention to the business
C) potential to share all profits as partners see fit
D) potential for a stronger management base

Answer 1

D

Question 2

Which of the following describes the most likely sources of regulation a partnership must be aware of as it conducts its business each day?

A) contract, agency, and corporate law
B) partnership, employment ,and application law
C) agency, contract, and partnership law
D) contract, employment, and application law

Answer 2

C

Question 3

Raven is the proprietor of Read4Life,a reading tutor service.Raven has had to comply with such matters as zoning bylaws,tax laws,and fire regulations.In law,how are these various types of regulations classified?

A) laws of general application
B) laws of business application
C) laws of standard application
D) laws of specific application

Answer 3

A

Question 4

Which of the following would your business law professor most likely address during a discussion of the legal consequences of a sole proprietorship?

A) that it is the most often used form of business enterprise
B) that it directly impacts individual rights and liabilities
C) that home-based businesses are the most common form
D) that it is the oldest form of business enterprise

Question 5

A description that includes,among other things,the option to purchase a partner's interest and the valuation of interests is most likely to indicate which of the following?

A) a partnership agreement clause pertaining to dissolution of partnership
B) a partnership agreement clause pertaining to changes in partnership
C) a clause in a partnership agreement that addresses profit distribution
D) a clause in a partnership agreement that avoids litigation and animosity

Question 6

Ellayne manages a busy law practice as a sole practitioner.With regard to business risk management,where should serious consideration be given to have broad benefit for Ellayne?

A) all complications arising from inability to contract for employees
B) all adverse affects of illness or incapacity
C) some complications arising from the hiring and firing of employees
D) some adverse affects of taxation of profits

Question 7

Ivan is the sole proprietor of Voyageur Transport.He operates Voyageur with three small ships that transport supplies by the riverways to northern settlements after spring breakup.With respect to Ivan's use of "Voyageur Transport," which of the following most likely applies?

A) Business name use is subject to more specialized rules for this form of business.
B) To avoid fines and penalties, the business name must be registered.
C) A business name is irrelevant to an owner's ability to sue for business obligations.
D) There are no legal requirements for this form of business organization.

Question 8

Triston and Quinn jointly own property under a documented agreement.In the event a dispute should arise between the parties,which of the following would immediately alert a lawyer to the possibility of a court concluding a partnership exists?

A) the restriction on ability to share joint liability
B) a concurrent incidental relationship
C) a restriction on unilateral ability to sell
D) the co-ownership of other property

Question 9

The form of ownership chosen for a business determines,among other things,the positioning of the financial liability for the business.Which of the following most strongly represents the priority that business owners ought to place on this choice?

A) It is a relevant decision.
B) It is a critical decision.
C) It is a complicated decision.
D) It is a substantial decision.

Question 10

A business with no partners and no board of directors to report to is typically considered to be independent and positioned to act quickly when required.Which of the following would a law professor most likely indicate as also being typical of this form of business?

A) its limited failure expectancy
B) its limited life expectancy
C) the diversity of profit-sharing plans
D) the complexity involved in its formation

Question 11

If your business law professor discusses the laws that specifically govern the relationship between partners and third parties,what might you reasonably expect him to identify as the source of those laws?

A) the Law of Partnership
B) the Law of Agency
C) the Partnership Act
D) the Agency Act

Question 12

A court has been asked to resolve a matter involving the disputed interests of partners regarding partnership property and their respective rights and duties in relation to the partnership.Which of the following would immediately provide the court with a basis for a decision?

A) on the basis of proportional distribution of the losses
B) on the basis of proportional distribution of capital
C) any terms expressed or implied in the partners' agreement
D) any expressed terms set out in the partnership agreement

Question 13

In what way are the danger of disagreement and the danger of divided authority similar?

A) Transfer of one partner's interest to another is often the result.
B) Transfer of the partnership's interest to another entity is often the result.
C) Disruptions of this nature impede payment of each partner's capital contribution.
D) Disruptions of this nature notably impede partners' consensus decision making.

Question 14

With respect to personal liability,which of the following strongly supports the need for each one of the partners to be aware of each and every obligation incurred by the partnership?

A) full and complete exposure
B) predetermined limited liability
C) proportional limited liability
D) full and complete impunity

Question 15

In what manner are a sole proprietorship and a partnership similar?

A) There is no legislated regulation affecting either.
B) Both require special steps to create.
C) Neither is a legal entity with capacity to contract.
D) Both require regulation of their profit motives.

Question 16

Without the capacity to borrow capital in its own right,how do you think the form of Sebastian's business will be legally described in a lending agreement?

A) an unlimited proprietorship
B) a sole proprietorship
C) an unlimited corporation
D) a sole corporation

Question 17

In matters relating to Sheps & Shaps Law Offices,which of the following is a provision of the Partnership Act?

A) The managing partner is the authorized agent of the firm.
B) Each partner is an agent of the firm.
C) Each partnership must designate a managing partner.
D) The partners are the firm's fiduciary agents.

Question 18

Which of the following would most strongly support Martina's agreement to an allotment of a 25 percent interest in her partnership with Lorenzo and Marcella?

A) It accurately reflects the partners' proportionment of her contributions.
B) It accurately reflects the value of their varied contributions.
C) It doesn't affect their ability to distribute shared profits equally.
D) It doesn't affect their ability to freely define their proportionate profit share.

Question 19

A description that includes triggering events,how each event is to be handled,and valuation of assets is most likely to indicate which of the following?

A) a change of partnership clause in a partnership agreement
B) a profit distribution clause in a partnership agreement
C) a capital contribution clause in a partnership agreement.
D) a dissolution clause in a partnership agreement

Question 20

When attempting to achieve the profit motive,consideration by an entrepreneur of the possible advantages flowing from each form of business vehicle is most likely to be derived by contrasting which of the following?

A) marginal personal tax rate versus prime corporate tax rate
B) prime personal tax rate versus marginal corporate tax rate
C) personal tax rate versus marginal corporate tax rate
D) marginal personal tax rate versus corporate tax rate

Question 21

Rozzi,Shawn,and Rafael have entered into a written limited partnership agreement.In these circumstances,which of the following would be the most likely action needed to ensure legal recognition of the limited partnerships' status?

A) registration with federal authority or the limited partnership is non-existent
B) registration with provincial authority or the limited partnership is non-existent
C) public notice of capital contributions of the entity's general partners
D) public notification of the registration of the limited partnership entity

Question 22

Partners are,both individually and to the extent of the partnership assets,accountable to third parties regardless of which of the following?

A) whether liability is joint or joint and several
B) whether liability is collectively several
C) whether liability is several
D) where liability is joint and several

Question 23

Which of the following would pertain to provincial partnership legislation relating to the relationship between business partners and outsiders?

A) regulatory provisions
B) ostensible provisions
C) mandatory provisions
D) optional provisions

Question 24

Which of the following is a common characteristic of provincial Partnership Acts?

A) each provides that every partner is liable jointly with co-partners
B) the subtle differences between joint and several liability
C) each provides that every partner is liable severally from co-partners
D) the pronounced differences between joint and joint and several liability

Question 25

Which of the following would most likely be a requirement of provincial legislation with respect to a limited liability partnership?

A) liability insurance to compensate victims for loss
B) the use of "limited partnership" or LP in the firm name
C) a business license in the partnership name
D) the partners' personal assets can be seized to satisfy claims

Question 26

Which of the following would be affected by the subtle differences between a partner's joint liability and joint and several liability?

A) procedures maintaining the right to sue a partner originally excluded in a legal action
B) the extent to which each partner is held individually and collectively liable
C) procedures for recovering damages from all or some of the partners in a legal action
D) the extent to which partnership assets are held accountable to third parties

Question 27

Which of the following would be considered as a valid application of the Partnership Act provisions?

A) the optional rules shall be used exclusively for the partnership
B) the mandatory simple majority rule to expel any partner
C) variation of mandatory rules by agreement
D) variation of optional rules by agreement

Question 28

A court is deliberating whether WestWood Dental Offices should be bound by obligations that allegedly arose by virtue of apparent authority.The claim relates to a purchase agreement for dental imaging equipment.Which of the following will the court most likely place a strong reliance on when arriving at a decision?

A) what a third party knows or ought to know of a partner's limited authority
B) whether the partner understands that the law protects business customers
C) what a partner knows or ought to know of an outsider's limited authority
D) whether a third party understood the risks of agents going astray

Question 29

How does the principle of limited liability make the corporation well suited to raising large amounts of capital?

A) public disclosure of information regarding the corporation's finances
B) a corporation's investors protected against limited losses
C) a corporation is subject to greater outside scrutiny
D) protects investors against unlimited losses

Question 30

Rose,Lily,and Fawn were shareholders in Style Co.,an incorporated company with limited liability.Each bought one-third of the shares in Style Co.for an aggregate payment of $15 000 each.The corporation borrowed $60 000 from the bank to finance its operations.The bank required personal guarantees from all shareholders for the full amount of the loan.Style Co.became insolvent and the bank ultimately sued each of the shareholders to recover the $60 000.In receiving advice from their lawyer,what amount would he most likely indicate to be the maximum amount that could be recovered from any one of them?

A) $0
B) $20 000
C) $60 000
D) $15 000

Question 31

Len,Jill,and Mark own a partnership called Splats.Len's capital contribution to the partnership was $25 000,Jill's was $12 500 and Mark's was $20 000.Jill is duly registered as a limited partner and has acted solely as a financier.There is no agreement on sharing profits or losses between the partners and none of them has drawn any income from Splats.The partnership borrowed $40 000 from the bank,but Splats eventually became insolvent and was unable to repay the loan.The bank sued Len and recovered the full $30 000 from him.When Len's lawyer gave him advice,what amount would he likely indicate Len is entitled to legally recover from Jill?

A) $10 000
B) $0
C) $12 500
D) $20 000

Question 32

What is the significance of a limited liability partnership for practising professionals in Quebec and Manitoba?

A) complete shielding from negligent or wrongful acts of partners
B) partial shielding from negligent or wrongful acts of partners
C) complete shielding from contractual obligations of the partnership
D) partial shielding from contractual obligations of the partnership

Question 33

Glen,Dale,and Al are partners who own Fizz.Glen made capital contribution of $5000,Dale's was $15 000 and Al's was $10 000.Glen is a general partner and he oversees management of the Fizz business.The partnership borrowed $30 000 from the bank.The partners have no agreement relating to the sharing of profits and losses.Fizz became insolvent and unable to repay the loan.The bank sued Dale personally and recovered the full $30 000 from him.Dale then sued Glen.When Dale's lawyer provided him with advice,what amount did she likely indicate he would be able to legally recover from Glen?

A) $5000
B) $20 000
C) $15 000
D) $10 000

Question 34

From a financial liability perspective,which of the following is the most likely reason for a corporation to be viewed as the most risk-aversive form of business entity?

A) It forms a distinct legal entity, liable for its own obligations.
B) Any entity that deals with a corporation may demand personal guarantees.
C) It shields directors from negligent acts of management.
D) It provides limited liability to the corporation's directors.

Question 35

Under which circumstances will a court hold the shareholders personally responsible for the corporation's actions?

A) employee misrepresentation of a product
B) fraud on customers
C) employee negligence
D) fraud on creditors

Question 36

Gerald and Tanji are general partners in a partnership with Mafasa and Rolf,who are also partners but with narrowly defined rights.Which of the following accurately reflects the disadvantage Mafasa and Rolf share?

A) Their losses as limited partners are restricted to their capital investments.
B) What constitutes partaking in management is difficult to define.
C) Participation in management activities will risk their unlimited liability status.
D) Public notification of their identify and amount of capital contribution is required.

Question 37

Nancie is a shareholder in BlueSky Investments Inc.With respect to BlueSky's obligations,which of the following most likely reflects Nancie's liability?

A) Nancie's liability is dependant on how the obligations were incurred.
B) Nancie is liable for these obligations unless she has given her personal guarantee.
C) Nancie's limited liability shield may be negated by her giving a personal guarantee.
D) As a shareholder, all of Nancie's personal assets will be at risk.

Question 38

In circumstances involving a wrongful act or omission of a partner acting within the course of employment,which of the following would a business law professor identify as the type of liability flowing to the other partners?

A) joint liability
B) unlimited liability
C) joint and several liability
D) several liability

Question 39

Which of the following will be most influenced by restrictions contained in the incorporating documents or by a shareholders agreement?

A) transfer of ownership of shares
B) voluntary surrender of legal status
C) general application laws
D) perpetual existence of the entity

Question 40

With respect to agency relationship and the Partnership Act,the term "partners" is synonymous with which of the following?

A) profits
B) principals
C) limits on authority
D) capital contributions

Question 41

The fact that a corporation is a separate legal entity allows it to be fully shielded from compliance requirements with laws of general application.

Question 42

Which of the following is a distinguishing characteristic of a product licensing arrangement?

A) The contract typically provides for sharing of profits and losses.
B) It licenses proprietary rights within a specified territory.
C) It licenses the use of the principal/agent relationship.
D) The contract typically specifies the absence of an agency relationship.

Question 43

A capital contribution clause in a partnership agreement would describe how profits are to be shared,how and when they are to be distributed,and rights of withdrawal.

Question 44

An arrangement whereby a manufacturer has agreed to provide products and a dealer has agreed to carry those products or perform services for the manufacturer would most likely be described as which of the following?

A) strategic alliance
B) sales agency
C) franchise
D) distributorship

Question 45

The law restricts a partner from making a personal profit from partnership property because that would be putting that partner's interests ahead of the other partners.

Question 46

Which of the following is a characteristic of a franchisor-franchisee relationship?

A) a joint venture
B) a contractual arrangement
C) a limited partnership
D) a limited liability partnership

Question 47

The freedom from the restrictions of personal legal responsibility for the obligations of the business is a tremendous advantage to the sole proprietor.

Question 48

A partnership is a simple form of legal relationship that automatically arises when two or more people do business together with the objective of making a profit.

Question 49

In the context of a business failure,a bankrupt sole proprietor's diminished credit rating will likely be enduring.

Question 50

Emily,Harry,and Ron are partners in a business partnership called Trinkets.Emily contributed $15 000 to the business,Harry $10 000,and Ron $5000.The partners agreed among themselves that they will share partnership profits and losses in proportion to their contributions.In addition,the partnership borrowed $30 000 from the bank.The business didn't work out,and Trinkets is unable to repay the loan.The bank sued Emily personally.She repaid the full $30 000 and then sued Harry and Ron.Which of the following are the amounts Emily may legally be entitled to recover from her partners?

A) $10 000 from Harry and $5000 from Ron
B) $7500 from Harry and $7500 from Ron
C) $15 000 from either Harry or Ron
D) $30 000 from either Harry or Ron

Question 51

Choosing how to own a business is of little consequence to the ultimate determination of who is financially liable for the business.

Question 52

An unincorporated business organization with a sole owner is legally known as a sole proprietorship.

Question 53

Roy's partners,Safael and Matrim,equally share his unlimited liability for partnership debts and other obligations.

Question 54

Voyageur Enterprises Inc.will continue in existence perpetually unless it is dissolved through voluntary surrender of its legal status or by court order for failing to comply with statutory regulations.

Question 55

A creation of partnership clause in a partnership agreement would set out a description of the contributions of each of the partners,how shortfalls are to be handled,and how the accounts are managed.

Question 56

Sole proprietorships are limited to having to comply with provincial regulations with respect to registration or licensing requirements.

Question 57

The vehicle most commonly used as an investment device is a limited liability partnership,in which at least one partner has unlimited liability and the rest have limited liability.

Question 58

What is a strategic alliance between commercial parties?

A) a partnership in which the liability of one partner is limited to the amount of capital contribution
B) an arrangement that may involve joint research, technology sharing, or joint use of production
C) a partnership with manufacturing rights associated with the other's trademarks or other proprietary rights
D) a contract arrangement allowing an agent to goods or services supplied by the distributor

Question 59

All of Canada's common law provinces have a Partnership Act modelled on the British act of the same name.

Question 60

The president of EcoAgents must affix the company's corporate seal to the bank's lending agreement he signed because this form of business entity lacks legal capacity to borrow capital.

Question 61

Briefly discuss the requirements for the creation of a limited liability business entity,including an explanation of the important effects meeting the requirements will have.

Question 62

Identify and briefly explain what feature of a corporation allows for easy transfer of ownership,how ownership is transferred,and the source of restrictions,if any,on the transfer of ownership.

Question 63

Identify the basic issues that should be expressly addressed in a partnership agreement,including the description of each respective clause.Lastly,indicate when a partnership agreement would have to be revisited.

Question 64

Briefly discuss how the law restricts the actions of a partner in relation to the partnership and its business activities.

Question 65

Identify the situations in which a court applying the Partnership Act would find a relationship to be something other than a partnership.

Question 66

The duration of existence of a proprietorship is limited by life of the owner,whereas a partnership is terminated by agreement and a corporation is perpetual unless dissolved.

Question 67

Briefly discuss the liability of the partners for a breach of contract,including,among other things,the key point from this perspective.

Question 68

Briefly discuss the significance of "going it alone" with respect to raising capital for a business.

Question 69

List at least six of the ten optional rules prescribed by the Partnership Act in each province with respect to the relations between partners.

Question 70

A sole proprietorship,a partnership,and a corporation may all be subject to double taxation,depending on the circumstances.

Question 71

On dissolution and after all a partnership's debts are satisfied,describe how and in what order legislation requires any excess to be applied.

Question 72

Income tax on corporate revenue is assessed to the corporation,while dividends and salaries are taxable in the hands of the directors.

Question 73

The potential for a board management base that exists in the corporation creates many levels of authority that can be an impediment to decision making.

Question 74

Discuss the distribution of profits of a corporation.

Question 75

Investors in a corporation are paid a return on their capital investment if there is profit and if the directors declare a dividend.