Question 1

Wayne and two partners own a venture that imports electrical products that must receive CSA approval before they can be sold in Canada.Wayne has a personal business mentor who strongly advises him to be wary of his two partners due to agency power.What is Wayne's mentor concerned about?

Accepted Answer

The mentor is likely concerned about the concept of agency power, which refers to the legal principle that allows one person to legally bind another person or entity to a contract or agreement. In this case, if one partner were to illegally sell unapproved products, they could potentially bind the entire partnership to legal consequences. This could be detrimental to the business and all three partners involved.

Question 2

Rosemary arranges a commercial bank loan to purchase equipment for her landscaping venture.Rosemary knows that if she does not successfully make payments on the loan the bank can legally take possession of her personal assets.Which term best describes Rosemary?

Accepted Answer

The fact that Rosemary is personally liable for the bank loan means that she is a sole proprietor, as opposed to a shareholder or limited partner who have limited liability. A director does not necessarily have personal liability for a company's debts.

Question 3

Patrick signed a contract with an installer to replace the windows in his home.Three days later,and after some investigation into the suspicious activities of the installer,Patrick was legally able to cancel the contract.What gave Patrick this right?

Accepted Answer

The Ontario Business Practices Act provides consumers with the right to cancel a contract within 10 days if there is evidence of wrongful behavior or misrepresentation by the supplier. In this case, Patrick's investigation into the installer's suspicious activities likely uncovered evidence that justified his cancellation of the contract.

Question 4

Sally is the sole proprietor of a senior care business.Sally likes to mountain bike and sky dive.She wishes to ensure her business will continue if she sustained a prolonged injury.What should Sally arrange?

Accepted Answer

A legal power of attorney allows Sally to designate someone to make decisions on behalf of her business if she is unable to do so, ensuring continuity in her absence.

Question 5

Mike invents a unique spill proof disposable coffee cup lid.How should Mike protect his invention?

Accepted Answer

Mike should protect his invention with a patent. A patent will provide him with exclusive rights to his invention, preventing others from making, using, or selling his unique spill proof disposable coffee cup lid without his permission. Trademarks are used to protect names, logos, and slogans, copyrights are used to protect creative works such as music and art, and industrial design rights protect the visual appearance of an object. None of these forms of protection would be suitable for protecting Mike's invention.

Question 6

What is the most rudimentary business organization form among small businesses?

Accepted Answer

Sole proprietorship is the most rudimentary business organization form among small businesses because it is the simplest and easiest to set up. A sole proprietorship is an unincorporated business that is owned by one person who is personally responsible for all the business's debts and liabilities.

Question 7

Beatrice and two friends want to start a cupcake bakery.They feel they will need to hire two people to help bake the cupcakes and one administration clerk.What will be a major consideration in how they legally organize their business?

Accepted Answer

The needs of the entity and/or owners will be a major consideration in choosing the legal structure of the business. The owners will need to decide on factors such as liability protection, tax implications, and ownership structure, and select the legal structure that best meets their needs. Factors such as profitability, benefits for employees, and termination procedures will also be important, but ultimately the legal structure should be chosen based on the needs and goals of the owners.

Question 8

Bjorn forms a corporation importing snowshoes from Norway to sell across Canada.How will the profits from Bjorn's business be taxed?

Accepted Answer

As a corporation, Bjorn's business will be taxed as a separate legal entity, separate from Bjorn's personal income. This means that the profits earned by the corporation will be taxed at the corporate tax rate, and may also be subject to additional taxes when distributed as dividends to shareholders.

Question 9

Due to his business knowledge and experience,Yao is a board member for a company importing and distributing auto parts.Which statement describes Yao and the other board members?

Accepted Answer

The board of directors is the governing body for corporate activity, responsible for making major decisions and setting policies for the company. Board members are usually elected by company shareholders, not by officers. While board members may receive dividends if they are shareholders themselves, that is not their main role. Board members do not actively run day-to-day operations; that is the responsibility of the company's officers and management team.

Question 10

Which statement describes a typical common shareholder of a corporation?

Accepted Answer

A typical common shareholder of a corporation has the right to receive declared dividends. This means that if the corporation makes profits, the shareholders may receive a portion of those profits in the form of dividends, which are usually paid out quarterly or annually. However, shareholders do not have the right to act for the firm, and they cannot always buy new shares in proportion to shares already owned. They also cannot fire employees of the corporation.

Question 11

Malcolm starts a cross-fit business.The financing came from a wealthy investor who shares equally in the profits but does not have any operational responsibilities.How is this business legally organized?

Accepted Answer

In a limited partnership, there are one or more general partners who manage the business and have unlimited personal liability, and one or more limited partners who contribute capital but have no control over the business and limited liability. In this scenario, the wealthy investor is a limited partner who shares in the profits but has no operational responsibility, while Malcolm is likely the general partner who runs the day-to-day operations of the cross-fit business.

Question 12

Conrad owns shares in a private corporation that prints and sells newspapers.Conrad has the right to buy shares in proportion to the shares he already owns any time there is a new share offering by the company.What is the term for this right Conrad has?

Accepted Answer

The right Conrad has is called a pre-emptive right, which allows existing shareholders the first opportunity to buy new shares in proportion to their current holdings before they are offered to the general public. This helps to protect the proportionate ownership and control of the company among existing shareholders.

Question 13

Steve is the president of a hunting lodge.He and the other lodge members incorporate a business to rent the lodge to other hunters and borrow money to make the lodge larger.If the members cannot repay the bank which of the following is liable to the bank?

Accepted Answer

When a business is incorporated, it becomes a separate legal entity from its owners, which means the corporation itself is responsible for its debts and liabilities, not the individual owners or members (unless they have personally guaranteed the debt). Therefore, the bank would only be able to hold the corporation liable, not Steve or the other members personally.

Question 14

What is a basic legal principle involving shareholders?

Accepted Answer

This principle is known as the separation of ownership and control, where the owners (shareholders) entrust the management of the company to the board of directors and executive team, who are responsible for making decisions on behalf of the company. Shareholders generally have the right to vote on major issues, such as the election of directors and approval of certain transactions, but they do not have the right to manage the day-to-day operations of the company.

Question 15

Clarissa wants to keep her family's personal assets protected from any liabilities her new business may face.How should Clarissa legally organize her business?

Accepted Answer

The best option for Clarissa would be to organize her business as a corporation, as this legal structure separates the assets and liabilities of the business from those of the owners/shareholders. This ensures that Clarissa's personal assets are protected in the event that the business runs into any legal or financial troubles.

Question 16

Terry and his partner declared business bankruptcy.Only Terry's personal assets were claimed by the creditors to pay for the outstanding debt.What kind of partner was Terry?

Accepted Answer

Terry was a general partner as his personal assets were claimed by the creditors for payment of the business's outstanding debt. In a partnership, general partners are personally liable for the business's debts and obligations.

Question 17

Where does permission to incorporate a business come from?

Accepted Answer

Permission to incorporate a business comes from the government, typically at the state level. The process of incorporation involves filing articles of incorporation with the state, which outlines the structure and ownership of the business. Once approved by the government, the business becomes a legal entity. The board of directors, shareholders, and corporate officers are internal positions within the company, and do not have the authority to grant permission to incorporate.

Question 18

Melvin hires a paralegal to incorporate his business venture.What document will the paralegal create to show the corporation exists and states the firm's legal powers?

Accepted Answer

The paralegal will create articles of association to show the corporation exists and state the firm's legal powers. This document outlines the purpose and structure of the corporation and includes information such as the company's name, purpose, registered address, share structure, and the powers and responsibilities of directors and shareholders.

Question 19

People have come to recognize the pyramid in the logo of Ron's executive training firm to mean achievement of higher levels of success.How should Ron protect his logo from other organizations from using it?

Accepted Answer

Trademark registration would be the best option for Ron to protect his logo from being used by other organizations. Trademarks provide exclusive rights to use a specific logo, name or symbol in relation to a particular product or service, making it illegal for others to replicate or use the logo without permission.

Question 20

What should articles of association include?

Accepted Answer

Restrictions on share transfer are typically included in the articles of association to control how shares can be transferred within the company, ensuring that the company can maintain a certain level of control over its ownership.

Quiz 10: Form of Organization and Legal Issues