Deck 10: Agency and Business Organizations

Question 1

In the case of a limited partnership, the general partners are essentially passive investors in the partnership who do not make management decisions.

Answer 1

False
Explanation: In the case of a limited partnership, both the right to manage and the right to bind the limited partnership are reserved to the general partners. Limited partners are essentially passive investors in the partnership who do not make management decisions.

Question 2

Ratification is the affirmation by a person of a prior act which did not bind him but which was done on his account.

Answer 2

True
Explanation: Ratification is the affirmation by a person of a prior act which did not bind him but which was done on his account.

Question 3

In the case of an agency relationship, the one for whom the work is performed is known as the ___.

A) principal
B) fiduciary
C) independent contractor
D) dealer

Answer 3

A
Explanation: In the case of an agency relationship, the one for whom the work is performed is known as the principal.

Question 4

Where the principal is fully disclosed, the agent is not a party to the contract.

Question 5

The relationship between a trustee and a beneficiary is an agency relationship.

Question 6

All fiduciary relationships are agency relationships.

Question 7

An agent is a person who by agreement with the principal acts on behalf of and subject to the control of the principal.

Question 8

Which of the following statements is true regarding a principal?

A) A minor or an incompetent person can be a principal.
B) A principal is a person who by agreement with the agent acts on behalf of and subject to the control of the agent.
C) A principal's obligation is to act only in the interest of the agent.
D) A principal must have capacity to contract.

Question 9

A limited liability company exists as a legal entity separate from its owners.

Question 10

When an agent is interacting with a third party on behalf of a principal, the principal is said to be disclosed if:

A) the agent is a general agent who has authority to transact all of the business of the principal.
B) an agent and a third party interacts and the third party has no notice that the agent is acting for a principal.
C) the third party with whom the agent interacts knows the agent is acting on behalf of a principal, and he or she knows who the principal is.
D) an agent and a third party interacts and the third party has notice that the agent is acting for a principal but it does not know the principal's identity.

Question 11

An agent must have capacity to contract.

Question 12

The certificate of limited partnership filed with the state details and determines the rights, responsibilities, and relationships of the partners.

Question 13

In the case of an agency relationship, an agent's authority is terminated upon the loss of capacity of the agent by insanity.

Question 14

A(n) _____ is one who acts primarily for the benefit of another.

A) principal
B) fiduciary
C) independent contractor
D) dealer

Question 15

If the principal is fully disclosed in a third party contract, the agent alone is party to the contract.

Question 16

Which of the following statements is true regarding an agent?

A) An agent must have capacity to contract.
B) An agency relationship is always created by the words or actions (or lack of action) of the agent.
C) An agent may not act contrary to or without the principal's consent.
D) The fact that a person acts on behalf of another makes him an agent even without the appointment by the principal.

Question 17

Sharing of losses is a condition of partnership.

Question 18

In the case of a sole proprietorship, the owner is legally separate from the business.

Question 19

In the case of partnership, partners owe each other a fiduciary duty of loyalty.

Question 20

A general agent is an agent who is authorized to conduct only a single transaction, or only a series of transactions not involving continuity of service.

Question 21

When an agent is interacting with a third party on behalf of a principal, the principal is said to be undisclosed if:

A) the agent is a general agent who has authority to transact all of the business of the principal.
B) an agent and a third party interacts and the third party has no notice that the agent is acting for a principal.
C) the third party with whom the agent interacts knows the agent is acting on behalf of a principal, and he or she knows who the principal is.
D) an agent and a third party interact and the third party has notice that the agent is acting for a principal but it does not know the principal's identity.

Question 22

Which of the following statements is NOT true regarding a general partnership?

A) It is an association of two or more persons to carry on a business for profit.
B) Loss sharing is a necessary condition of general partnership.
C) An oral agreement to share profits may be enough to create a general partnership even though the financial contributions are unequal.
D) Some partnerships are governed by a partnership agreement and it can be either a written agreement or an oral agreement.

Question 23

Which of the following is referred to as ratification?

A) Giving permission to an agent to carry out certain tasks without disclosing the identify of the principle
B) The liability of a principal for the tort of an agent
C) Affirmation by a person of a prior act which did not bind him but which was done on his account
D) The liability of an agent for the tort of a principal

Question 24

In the case of an agency relationship, the termination of authority occurs in all of the following cases EXCEPT:

A) an outbreak of war between the principal's country and the agent's country which makes it impossible or illegal for the agent to act.
B) the death of the agent.
C) the death of the principal.
D) the loss of capacity of the agent by insanity.

Question 25

Which of the following is referred to as respondeat superior?

A) Giving permission to an agent to carry out certain tasks
B) The liability of a principal for the tort of an agent
C) Affirmation by a person of a prior act which did not bind him but which was done on his account
D) The liability of an agent for the tort of a principal

Question 26

With reference to the agency relationship, which of the following is a duty of an agent to a principal?

A) Duty to indemnify
B) Duty to compensate
C) Duty of good conduct
D) Duty to reimburse

Question 27

In the case of a third party contract, if the principal is _____ the agent is not a party to the contract.

A) fully disclosed
B) partially disclosed
C) unidentified
D) undisclosed

Question 28

In the case of limited partnership, which of the following statements is true regarding the general partners?

A) They are essentially passive investors in the partnership.
B) They owe fiduciary duties of loyalty and care to the partnership.
C) They do not have any say in the ordinary operations of the partnership.
D) They are not personally liable for the partnership's debts.

Question 29

Which of the following statements is true regarding a limited partnership?

A) The limited partnership agreement is a public document.
B) The certificate of limited partnership filed with the state details and determines the rights, responsibilities, and relationships of the partners.
C) In order to form a limited partnership, the owners must file a certificate of limited partnership with the state.
D) Limited partnerships are rarely governed by a partnership agreement.

Question 30

With reference to the agency relationship, which of the following is a duty of a principal to an agent?

A) Duty to obey
B) Duty to account
C) Duty of good conduct
D) Duty to indemnify

Question 31

If an agent has always done a certain act that was not expressly authorized by the principal, but the principal has acquiesced in the conduct, the principal assents to the conduct. The authority granted to the agent in such a way is known as an _____ authority.

A) apparent
B) implied
C) express
D) inherited

Question 32

With reference to a third party contract, under which of the following circumstances the agent alone is party to the contract?

A) The principal is fully disclosed
B) The principal is identified
C) The principal is partially disclosed
D) The principal is undisclosed

Question 33

Which of the following terms best represents the authority that is communicated to an agent in writing or orally?

A) Apparent authority
B) Implied authority
C) Express authority
D) Inherited authority

Question 34

The most important duty of the principal toward his agent is to:

A) indemnify the agent for expenses incurred within the scope of the agency.
B) compensate the agent according to the terms of the contract.
C) maintain a relationship of trust and confidence.
D) act with reasonable skill and care.

Question 35

Which of the following terms best represents an unincorporated business owned by a single individual?

A) A general partnership
B) A limited partnership
C) A sole proprietorship
D) A limited liability company

Question 36

With reference to the two characteristics of an agency relationship, the principal's right to control the agent and the fiduciary nature of the relationship, the relationship between a trustee and a beneficiary:

A) is fiduciary in nature but lacks control.
B) is subject to control but lacks the fiduciary nature.
C) is subject to control and is fiduciary in nature.
D) lacks both, the fiduciary nature as well as control.

Question 37

A principal is _____ if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal but it does not know the principal's identity.

A) disclosed
B) partially disclosed
C) undisclosed
D) visible

Question 38

Which of the following statements is true regarding limited partners in a limited partnership?

A) Both the right to manage and the right to bind the limited partnership are reserved to the limited partners.
B) The limited partners of a limited partnership are personally liable for the partnership's debts.
C) The limited partners have the power to bind the partnership.
D) The limited partners do not have any say in the ordinary operations of the partnership.

Question 39

Which of the following statements is true regarding a sole proprietorship?

A) The sole proprietor is personally liable on all business obligations.
B) There is legal separation between the owner and the business.
C) A limited partnership is also known as a sole proprietorship.
D) A sole proprietorship is an incorporated business.

Question 40

If the principal has given the agent a document such as the power of attorney and which the agent has shown to the third party, it is most likely to result in _____ authority.

A) apparent
B) implied
C) express
D) unidentified

Question 41

The Federal Deposit Insurance Corporation is a ___.

A) closely held corporation
B) government corporation
C) professional association
D) public corporation

Question 42

Under the Uniform Partnership Act, whenever a partner withdraws from the general partnership, the partnership

A) gets converted into a member-managed limited liability company.
B) gets converted into a limited partnership.
C) gets converted into a manager-managed limited liability company.
D) must dissolve.

Question 43

Which of the following statements is NOT true regarding a limited liability company?

A) There is no loss of power to board of directors.
B) The members of the company face the double taxation issue.
C) The company exists as a legal entity separate from its owners.
D) It can be set up with one person which can be an entity.

Question 44

Before the business is incorporated, someone is working behind the scenes to ensure that the corporation, once formed, has the capital and means to begin operations. This person is called the ___.

A) creditor
B) facilitator
C) creator
D) promoter

Question 45

Which of the following statements is true regarding a corporation?

A) The board of directors is the center of management authority for the corporation.
B) The ownership of the corporation and the management of the corporation are in the same hands.
C) Corporations can exist without a statute permitting them.
D) The amount of funds that can be gathered by a corporation is limited to the amount of money it can gather from friends and family.

Question 46

The shares of a _____ are traded on a stock exchange.

A) closely held corporation
B) government corporation
C) professional association
D) public corporation

Question 47

A(n) _____ is any shareholder with sufficient voting shares to determine the outcome of a shareholder vote.

A) promoter
B) director
C) controlling shareholder
D) executive

Question 48

If a limited liability company elects to be manager-managed:

A) the owners themselves will manage the day-to-day operations of the company.
B) the governance in the company is like a general partnership.
C) the owners will elect officers to run the company.
D) the power to bind the LLC attaches to its members. If the owners of the LLC decide to function more like a partnership, then they elect to be member-managed, which means that the owners themselves will manage the day-to-day operation of the LLC. Governance in a member-managed LLC is like a general partnership.

Question 49

Which of the following is an incorporated form of business?

A) A sole proprietorship
B) A limited liability company
C) A corporation
D) A limited partnership

Question 50

Limited liability companies are governed by a(n) ___. It is a nonpublic internal document that represents the agreement the owners have as to how they will operate the LLC and their relationship.

A) certificate of limited liability
B) limited partnership agreement
C) operating agreement
D) deed

Question 51

This act was enacted after the Enron scandal. It deals with accounting, corporate governance issues, increased disclosure, and conflicts of interest in the securities business. This act established the Public Company Accounting Oversight Board (PCAOB) to set auditing, quality control, and ethics standards for public accounting firms. Identify this act.

A) Genetic Information Nondiscrimination Act
B) Sarbanes-Oxley Act
C) Foreign Corrupt Practices Act
D) Gramm-Leach-Bliley Act

Question 52

Which of the following statements is true regarding a board of directors?

A) The directors have fiduciary duties to the corporation.
B) They are the true owners of the corporation.
C) The board is an agent for the shareholders.
D) The board of directors manages the day-to-day operation of the corporation.

Question 53

Which of the following best represents the center of management authority for the corporation?

A) Employees
B) Shareholders
C) Board of directors
D) Officers

Question 54

If a limited liability company elects to be member-managed:

A) the governance in the company is like a general partnership.
B) the power to bind the LLC attaches to the managers.
C) the governance in the company is more like a corporation.
D) the owners will elect officers to run the company. If the owners of the LLC decide to function more like a partnership, then they elect to be member-managed, which means that the owners themselves will manage the day-to-day operation of the LLC. If the owners decide to function more like a corporation, then they elect to be manager-managed, which means that the owners will elect officers to run the LLC.

Question 55

Which of the following statements is true regarding shareholders?

A) The shareholders have fiduciary duties to the board of directors.
B) The board is an agent for the shareholders.
C) The shareholders elect the board of directors.
D) The shareholders are delegated the day-to-day management of the corporation.

Question 56

A partnership is dissolved by court order if:

A) the partnership agreement expires in accordance with the time provided in the agreement.
B) a partner is guilty of conduct prejudicial to the business.
C) a partner dies.
D) the partnership goes bankrupt.

Question 57

The _____ is a hybrid form of business that combines the liability shield of a corporation with the federal tax classification of a partnership.

A) sole proprietorship
B) general partnership
C) limited partnership
D) limited liability company

Question 58

The _____ are delegated the day-to-day management of the corporation and are answerable to the board.

A) stockholders
B) shareholders
C) board of directors
D) officers

Question 59

The _____ of a corporation are the true owners of the corporation.

A) employees
B) shareholders
C) board of directors
D) officers

Question 60

In a ___, the outstanding shares of stock are held by a small number of persons, frequently family relatives or friends.

A) closely held corporation
B) government corporation
C) professional association
D) public corporation

Question 61

Define an agent.

Question 62

Explain the terms general agent and special agent.

Question 63

What are the two distinguishing characteristics of an agency relationship?

Question 64

What are the various functions performed by the promoter of a corporation?

Question 65

Discuss termination of a limited partnership.

Question 66

What is ratification?

Question 67

Discuss corporate dissolution.

Question 68

Discuss with an example a third party contract where the principal is undisclosed.

Question 69

Discuss various characteristics of a closely held corporation.

Question 70

Discuss sole proprietorship.

Question 71

In the case of an agency relationship, what are the various reasons due to which termination of authority can occur by operation of law?

Question 72

Discuss the Foreign Corrupt Practices Act.

Question 73

Discuss the following statement, 'An agency results in a fiduciary relationship between an agent and a principal.'

Question 74

Discuss limited partnership.

Question 75

Discuss the concept of the corporate veil.