Deck 14: Business Forms and Arrangements

Question 1

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

Answer 1

C

Question 2

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.

Answer 2

B

Question 3

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

Answer 3

B

Question 4

Ellayne manages a busy law practice as a sole practitioner. Which of the following 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

Which of the following is most likely to be indicated by a description that includes triggering events, how each event is to be handled, and a valuation of assets?

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 6

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

Question 7

What priority must business owners place on the choice of the form of ownership for their business?

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

Question 8

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

Question 9

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 10

What is the source of the laws that specifically govern the relationship between partners and third parties?

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

Question 11

How will the form of a business be legally described in a lending agreement if the business does not have the capacity to borrow capital in its own right?

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

Question 12

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 13

Which of the following is an advantage of a partnership over a sole proprietorship?

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

Question 14

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 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

Which of the following strongly supports the need for each one of the partners to be aware of each and every obligation incurred by their partnership with respect to personal liability?

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

Question 17

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 18

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 19

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 20

What possible advantages of each form of business vehicle should an entrepreneur contrast when attempting to achieve the profit motive?

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

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 22

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 23

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 24

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 25

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 26

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 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

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 29

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 30

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 31

Gerald and Tanji are general partners in a partnership with Mafasa and Rolf, who are also partners but with narrowly defined rights. What disadvantage do 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 identity and the amount of capital contribution is required.

Question 32

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 33

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

A) information is publically disclosed regarding a corporation's finances
B) a corporation's investors are protected against limited losses
C) a corporation is subject to greater outside scrutiny
D) investors are protected against unlimited losses

Question 34

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 35

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

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

Question 36

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 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

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 39

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

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

Question 40

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 41

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

Question 42

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 43

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 44

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

Question 45

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

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

Question 48

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 49

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 50

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 51

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 52

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

Question 53

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

Question 54

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

Question 55

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 56

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 57

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) $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 58

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 59

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 60

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

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 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 63

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 64

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

Question 65

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

Question 66

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

Question 67

Discuss the distribution of the profits of a corporation.

Question 68

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

Question 69

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 70

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

Question 71

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

Question 72

List at least 6 of the 10 optional rules prescribed by the Partnership Act in each province with respect to the relations between partners.

Question 73

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 74

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

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.