Deck 14: Business Forms and Arrangements

Question 1

Aaron owns a food truck that he takes to various festivals each summer.He has not filed any documents at the registry and is the only owner of the business.In law,how is Aaron's business characterized?

A) limited partnership
B) sole proprietorship
C) general partnership
D) joint venture

Answer 1

B

Question 2

Which form of a business can issues shares to raise capital for operations?

A) an unlimited proprietorship
B) a sole proprietorship
C) a limited liability partnership
D) a corporation

Answer 2

D

Question 3

Triston and Quinn jointly own property under a documented agreement.If a dispute arises 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

Answer 3

C

Question 4

Ellayne manages a busy law practice as a sole practitioner.What is a major risk of Ellayne's choice of business form?

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

Question 5

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 6

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) the proportional distribution of the losses
B) the 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 7

Lita and Linda are partners in a general partnership and have borrowed $10,000 from the bank to finance their start-up.How is their liability for the bank loan best characterized?

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

Question 8

Which statement best describes how a partnership comes into existence?

A) The partners must sign a written partnership agreement.
B) The partners must register the partnership.
C) Two or more people carry on business together with a view to profit.
D) Two or more people purchase property together.

Question 9

Why are limited liability partnerships advantageous to professional partnerships?

A) Partners are immune from liability arising from the professional negligence of their partners.
B) A partner's liability is limited to his or her capital contribution.
C) They are easier to form than general partnerships.
D) They ensure equal sharing of profits among the partners.

Question 10

Ray and Mohammed are forming a general partnership but have not yet discussed how profits will be shared between them.Which statement best describes their legal situation?

A) General partners are always required to share profits equally.
B) They are automatically entitled to a share proportional their relative contributions to the capital of the partnership.
C) They cannot have a partnership until they determined how profits will be shared.
D) If they fail to agree,partnership legislation requires them to share profits equally.

Question 11

Which statement best describes the legal requirements for conducting a sole proprietorship?

A) They are subject to the same general legislation as any other business form.
B) Unlike other business forms,they are unregulated.
C) They are governed by sole proprietorship legislation existing in each province.
D) They must be licensed under provincial legislation as sole proprietorships.

Question 12

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 13

Which of the following is most likely to be indicated by a description that includes,among other things,the option to purchase a partner's interest and the valuation of interests?

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 14

Which form of business organization provides the most control but also the greatest liability risk for the owner?

A) partnership
B) sole proprietorship
C) joint venture
D) corporation

Question 15

What are 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

Question 16

Which of the following is a provision of the Partnership Act in matters relating to Sheps & Shaps Law Offices?

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 17

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 is also 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 18

Why is an owner's choice of the form of business organization a critical decision?

A) It determines financial liability for the business.
B) It determines whether the business may have employees.
C) It determines where the organization may conduct its operations.
D) It determines whether funds can be borrowed to finance operations.

Question 19

Which of the following will result in the termination of a partnership?

A) a change of partnership clause in a partnership agreement
B) the death of a partner
C) a capital contribution clause in a partnership agreement
D) a declaration

Question 20

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.Which of the following most likely applies with respect to Ivan's use of the name "Voyageur Transport"?

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 21

Which of the following is an example of the implied rules contained in the Partnership Act ?

A) Each partner may sue the other for breach of fiduciary duty.
B) Each partner is a fiduciary to the other partners.
C) Each partner is entitled to have their name in the partnership business.
D) Each partner may take part in the management of the business.

Question 22

Which term is "partners" synonymous with regarding the agency relationship and the Partnership Act?

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

Question 23

What is the most likely reason,from a financial liability perspective,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 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) there are subtle differences between joint and several liability
C) each provides that every partner is liable severally from co-partners
D) there are pronounced differences between joint and joint and several liability

Question 25

What is the legal outcome when one partner exceeds his or her authority and borrows money on behalf of a partnership without the consent of the fellow partners?

A) The other partners will be liable to the third party because partners are mutual agents.
B) Non-consenting partners can avoid liability by proving the partner breached the partnership agreement.
C) The third party can collect the debt,but only from the partner who authorized the debt.
D) The third party can take collection assets against the partnership assets but not the personal assets of the non-consenting partners.

Question 26

What is a positive feature of carrying on business as a limited partnership?

A) All partners are completely shielded from negligent or wrongful acts of partners.
B) They can be used as an investment device.
C) They can be created informally.
D) All partners have the same rights.

Question 27

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 licence in the partnership name
D) access to partners' personal assets to satisfy claims

Question 28

Which statement best describes the profit-sharing feature of corporations?

A) Shareholders are paid a pre-determined rate of return.
B) Shareholders are automatically entitled to a dividend if the business is profitable.
C) The decision of whether to declare dividends is controlled by the shareholders.
D) Shareholders are only entitled to dividends if they are declared by the directors.

Question 29

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 dependent 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 30

Which of the following may result in a loss of limited liability in a corporation?

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

Question 31

What type of liability would flow to the other partners in circumstances involving a wrongful act or omission by one partner acting within the course of employment?

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

Question 32

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

A) registration of the partnership with federal authorities
B) registration of the partnership with provincial authorities
C) public notification of capital contributions of the entity's general partners
D) public notification of the registration of the limited partnership entity

Question 33

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.What will the court most likely strongly rely 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 34

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

Question 35

The Partnership Act provides for the following rule: "all partners are to share equally in the capital and profits of the business and must contribute equally to the losses." Which statement best exemplifies this rule?

A) The losses are restricted to the capital investments made by each partner.
B) This rule is optional and may be varied by written agreement.
C) This rule is mandatory and cannot be modified by agreement.
D) The rule applies only to limited liability partnerships.

Question 36

Which of the following is a distinguishing feature of a limited partnership?

A) The liability of each partner is limited to their capital contributions.
B) The liability of some partners is limited to their capital contributions.
C) Limited partners may participate in the day-to-day management of the firm.
D) Limited partnerships are only available to professionals.

Question 37

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) $15 000
C) $20 000
D) $60 000

Question 38

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 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

Glen,Dale,and Al are partners who own Fizz.Glen made a capital contribution of $5000,Dale's was $15 000,and Al's was $10 000.Glen is a general partner and he oversees the 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) $10 000
C) $15 000
D) $20 000

Question 41

What is a distinguishing characteristic of a joint venture arrangement?

A) They have perpetual existence.
B) They must be registered.
C) They can be comprised of individuals,partnerships or corporations.
D) They are usually franchises.

Question 42

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 43

The profits and losses in a sole proprietorship are simply reported on the owner's personal income tax return.

Question 44

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

A) fiduciary obligations
B) duty of good faith
C) a limited partnership
D) a limited liability partnership

Question 45

The form of business that provides the most limited sources of capital is a sole proprietorship.

Question 46

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 47

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 48

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 49

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 exclusive access to goods or services supplied by the distributor

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.What amounts may Emily be legally entitled to recover from her partners?

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

Question 51

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 52

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

Question 53

A partnership is much like a sole proprietorship in that neither has a legal personality-or legal existence-separate from the people who comprise them.

Question 54

As with sole proprietorships,there are no legal requirements for the establishment and conduct of a partnership.

Question 55

Partners in a partnership are legally obliged to share profits and losses equally.

Question 56

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

Question 57

One of the advantages of being a sole proprietor is the ease by which the business can be sold or transferred to others.

Question 58

A key feature of a partnership is that each partner is fully responsible for all of the debts and obligations of the business.

Question 59

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 the legal capacity to borrow capital.

Question 60

What is the term for 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?

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

Question 61

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 62

It is almost always more expensive to organize a corporation than a sole proprietorship or partnership.

Question 63

Briefly discuss the advantages and disadvantages of the sole proprietorship as a form of business organization.

Question 64

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

Question 65

Shareholders may hire officers to assist in running the corporation.

Question 66

Discuss the distribution of the profits of a corporation.

Question 67

Identify the factors a court would rely upon to determine whether or not a relationship is a partnership.

Question 68

What is a joint venture and what distinguishes it from the forms of business?

Question 69

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 70

Briefly discuss the concept of joint liability and explain how joint liability impacts the liability exposure of partners in a partnership.

Question 71

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

Question 72

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