Question 1

Mike owns a small but successful coffee house.He has decided to incorporate.Should Mike form a C corporation or a subChapter S corporation? Discuss taxation under both forms and explain requirements for formation of an S corporation.

Accepted Answer

The answer of Mike owns a small but successful coffee...

Question 2

Fact pattern 20-2
Maxine and Vince verbally agree to form a dog grooming partnership called "Groomers R Us." They file nothing with the state.Maxine puts up 80% of the capital needed for the partnership,and Vince supplies 20%.Maxine assumed that Vince would do extra work to account for the small amount of capital contributed by him,but that did not occur.Maxine found herself grooming more than 60% of the animals on her own.Maxine told Vince that he was only entitled to 40% of the profits because he was only doing 40% of the work.Vince disagreed,and a heated argument occurred.Not surprisingly,Maxine and Vince decided to end the partnership.While winding up affairs,Maxine discovers that Vince paid an excessive amount for some dog shampoo.She thought he bought it from a certain supplier,just so he could flirt with the receptionist there.She told him that paying for the shampoo was entirely his responsibility because she had not agreed to the purchase.Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,and that the owner lost money because the dog could not be entered into shows.Maxine told Vince that the litigation was entirely his responsibility and that she disavowed any liability to the plaintiff.
-Refer to fact pattern 20-2.Is Maxine,Groomers R Us,or Vince responsible for payment of the shampoo purchased by Vince?

Accepted Answer

In a partnership, both partners are generally liable for debts incurred in the course of business. Since the shampoo was purchased for the business, the partnership is liable, and if the partnership assets are insufficient, both partners may be personally liable.

Question 3

If incorporators cannot show substantial compliance with statutes regarding incorporation but can show that they were unaware of any defect and acted in good faith,a court may treat the entity as a(n)________.

Accepted Answer

A de facto corporation is a corporation that has already started to operate and has met the requirements of holding itself out to the public as a corporation, even though there may have been a defect in the incorporation process. This means that the entity may be treated as a corporation in certain circumstances, such as when incorporators acted in good faith and were unaware of any defect. A de jure corporation, on the other hand, is one that has fully met all the statutory requirements for incorporation. A real corporation and equitable corporation are not legal terms related to this scenario.

Question 4

A general partnership is characterized by

Accepted Answer

A general partnership is a type of business structure where two or more partners come together to run a business as co-owners. In a general partnership, the partners have direct management and control over the business, and they share the profits and losses. There is no centralized board of directors or governing board of shareholders, and there are no executive or audit committees.

Question 5

The ________ set forth the steps that must be taken to establish a corporation in that state.

Accepted Answer

Each state has its own set of corporate statutes that outlines the process for forming a corporation within that state. These statutes provide the legal framework for how a corporation can be established, including the requirements for organizing and registering the corporation, obtaining necessary licenses and permits, and filing necessary documents with the state government.

Question 6

Which of the following is false regarding decision making in a partnership?

Accepted Answer

This statement is false. A partnership is allowed to place managerial control of the business in one partner, as long as such authority is agreed upon by all the partners.

Question 7

________ is the process by which a corporation is formed.

Accepted Answer

Incorporation is the legal process of forming a corporation, which is a separate legal entity from its owners. It involves filing articles of incorporation with the appropriate state government agency and fulfilling other legal requirements such as appointing a board of directors and issuing stock. Registration and statutory filing are part of the incorporation process but do not fully capture the legal significance of forming a corporation. Delineation is not a term typically used in the context of corporate formation.

Question 8

Which of the following is true regarding incorporation?

Accepted Answer

Delaware's laws are considered the most favorable for corporations due to its well-developed corporate law, specialized court system, and business-friendly climate. Option A is incorrect as a corporation can be incorporated in any state in which it chooses to do business. Option B is incorrect as incorporation laws and requirements vary from state to state. Option D is partially correct as incorporation can be done through common law, but the majority of incorporations are now done through statutes.

Question 9

Fact pattern 20-1
Joan decides to enter into a franchise agreement with Great Burgers to sell their burgers in her town.The franchise agreement she entered into with Great Burgers did not prohibit Great Burgers from granting other franchises in the area,but that did not concern Joan because she thought Great Burgers would treat her fairly.She did not bother to read the franchise papers,contracts,and disclosures she was provided.Joan's business went very well for the six months.Then,however,another Great Burgers franchise opened just down the street from Joan's restaurant.She was very upset and called Great Burgers to complain.They brushed off her concerns and told her that there was enough business for everyone.Joan,however,is interested in suing Great Burgers.
-Refer to fact pattern 20-1.Which of the following is the term used when a franchisor sells a franchisee an outlet in a certain location,and then a few months later,sells another outlet a few blocks away to someone else?

Accepted Answer

Encroachment is the term used when a franchisor sells a franchisee an outlet in a certain location, and then a few months later, sells another outlet a few blocks away to someone else, causing direct competition between the two franchisees.

Question 10

Compare and contrast a general partnership with a corporation.Explain the advantages and disadvantages of both forms of business ownership.Discuss fully.

Accepted Answer

The answer of Compare and contrast a general partnership with...

Question 11

Fact pattern 20-2
Maxine and Vince verbally agree to form a dog grooming partnership called "Groomers R Us." They file nothing with the state.Maxine puts up 80% of the capital needed for the partnership,and Vince supplies 20%.Maxine assumed that Vince would do extra work to account for the small amount of capital contributed by him,but that did not occur.Maxine found herself grooming more than 60% of the animals on her own.Maxine told Vince that he was only entitled to 40% of the profits because he was only doing 40% of the work.Vince disagreed,and a heated argument occurred.Not surprisingly,Maxine and Vince decided to end the partnership.While winding up affairs,Maxine discovers that Vince paid an excessive amount for some dog shampoo.She thought he bought it from a certain supplier,just so he could flirt with the receptionist there.She told him that paying for the shampoo was entirely his responsibility because she had not agreed to the purchase.Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,and that the owner lost money because the dog could not be entered into shows.Maxine told Vince that the litigation was entirely his responsibility and that she disavowed any liability to the plaintiff.
-Refer to fact pattern 20-2.Which of the following is true regarding liability on the lawsuit brought by the Corgi owner?

Accepted Answer

The answer of Fact pattern 20-2
Maxine and Vince verbally agree...

Question 12

Fact pattern 20-2
Maxine and Vince verbally agree to form a dog grooming partnership called "Groomers R Us." They file nothing with the state.Maxine puts up 80% of the capital needed for the partnership,and Vince supplies 20%.Maxine assumed that Vince would do extra work to account for the small amount of capital contributed by him,but that did not occur.Maxine found herself grooming more than 60% of the animals on her own.Maxine told Vince that he was only entitled to 40% of the profits because he was only doing 40% of the work.Vince disagreed,and a heated argument occurred.Not surprisingly,Maxine and Vince decided to end the partnership.While winding up affairs,Maxine discovers that Vince paid an excessive amount for some dog shampoo.She thought he bought it from a certain supplier,just so he could flirt with the receptionist there.She told him that paying for the shampoo was entirely his responsibility because she had not agreed to the purchase.Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,and that the owner lost money because the dog could not be entered into shows.Maxine told Vince that the litigation was entirely his responsibility and that she disavowed any liability to the plaintiff.
-Refer to fact pattern 20-2.Which of the following is true regarding Vince's entitlement,if any,to share in profits of the business?

Accepted Answer

In a partnership, unless otherwise agreed, profits are typically shared equally among partners regardless of capital contribution or work performed. Since there was no agreement specifying otherwise, Vince is entitled to 50% of the profits.

Question 13

________ of a general partnership occurs when all the affairs are wound up and the partners' authority to act for the partnership is completely extinguished.

Accepted Answer

Termination occurs when all the affairs of the partnership are wound up and the partners' authority to act for the partnership is completely extinguished.

Question 14

Which of the following does a partnership agreement usually include?

Accepted Answer

A partnership agreement usually includes all the options listed: the division of profits and losses between the partners, partnership salaries or withdrawals, and the duties of the partners. Therefore, option D is the correct answer.

Question 15

Fact pattern 20-1
Joan decides to enter into a franchise agreement with Great Burgers to sell their burgers in her town.The franchise agreement she entered into with Great Burgers did not prohibit Great Burgers from granting other franchises in the area,but that did not concern Joan because she thought Great Burgers would treat her fairly.She did not bother to read the franchise papers,contracts,and disclosures she was provided.Joan's business went very well for the six months.Then,however,another Great Burgers franchise opened just down the street from Joan's restaurant.She was very upset and called Great Burgers to complain.They brushed off her concerns and told her that there was enough business for everyone.Joan,however,is interested in suing Great Burgers.
-Refer to fact pattern 20-1.What is the position of the Federal Trade Commission regarding a franchisor selling a franchise very near to an existing franchise?

Accepted Answer

The answer of Fact pattern 20-1
Joan decides to enter into...

Question 16

A corporation can conduct business as a ________ in states other than its state of incorporation.

Accepted Answer

A foreign corporation is a corporation that conducts business in states other than its state of incorporation. A domestic corporation refers to a corporation that conducts business in its state of incorporation. A pass-through entity is a type of business entity that passes its income through to its owners for tax purposes, such as a partnership or S corporation. Therefore, options A and C are incorrect. Therefore, option B is the best choice as it correctly describes a corporation that conducts business in states other than its state of incorporation.

Question 17

Describe in detail the steps necessary to form a corporation.

Accepted Answer

The answer of Describe in detail the steps necessary to...

Question 18

Which of the following statements is not true regarding the characteristics of a corporation?

Accepted Answer

The statement "The board of directors implements the decisions of the officers" is not true. The board of directors is responsible for overseeing the officers and making strategic decisions for the corporation, while the officers are responsible for day-to-day operations and implementing the board's decisions.

Question 19

Define class voting.Why would a group of investors be interested in a guarantee of class voting?

Accepted Answer

The answer of Define class voting.Why would a group of...

Question 20

Sarah Smith works as a laser technician for a local dermatology center consisting of physicians operating under a partnership agreement.Sarah purchased supplies through the mail from a medical supply facility totaling $5,000.She signed the contract agreeing to pay for the supplies in her name,Sarah Smith.A few weeks later the dermatologists became embroiled in a bitter dispute regarding profits and terminated the partnership.Unfortunately,the partners were not aware of the debt owed to the medical supply facility; and the bill remained unpaid.Sarah received a bill form the supply company for $5,000.Is she liable to the medical supply company,and why or why not?

Accepted Answer

Sarah Smith is liable to the medical supply company because she signed the contract agreeing to pay for the supplies in her own name. The fact that she was only employed as a technician is irrelevant. The medical supply facility had the right to rely on her signature as a binding agreement to pay for the supplies. The termination of the partnership does not affect her personal liability for the debt.

Quiz 20: Forms of business organizations