Question 1

Dan is considering forms of business organization for his financial advisory firm. Like most states, Dan's state requires that to form a limited liability company, he must file with a central state agency

Accepted Answer

Limited liability companies (LLCs) must file articles of organization with the state agency in order to form.

Question 2

Fritz is interested in buying a franchise from Good n' Plentiful Inc. This transaction, like other franchise deals, is regulated to protect

Accepted Answer

Franchise regulations are put in place to protect prospective franchisees from dishonest franchisors. These regulations include disclosure laws that require franchisors to provide potential franchisees with information about the company, its financial history, and the terms of the franchise agreement. The regulations also typically require franchisors to provide ongoing support and training to franchisees.

Question 3

Bluto is considering forms of business organization for Consult Me!, his Web site consulting firm. Most states require that a limited liability company have at least

Accepted Answer

Most states require that a limited liability company have at least one member.

Question 4

Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

Accepted Answer

Preemptive rights allow existing shareholders to purchase a prorated share of a new issue of stock before other buyers. Therefore, Lovey can exercise this right to purchase new shares before they are available to other buyers.

Question 5

Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be

Accepted Answer

Shareholder agreements to vote shares together in a certain manner are generally recognized as valid and enforceable, as long as they do not violate any laws or the corporation's bylaws.

Question 6

Flip is a member of TriState Trucking LLC. Flip's relationship to TriState ends, but the firm continues to do business. Flip's ending his relationship with the firm is termed

Accepted Answer

Flip's ending his relationship with the firm is called dissociation, which means that he is no longer a member or partner of TriState Trucking LLC. After dissociation, the firm continues to do business with the remaining members or partners.

Question 7

Eddie contracts to buy a franchise from Fast n' Fresh Grocery Company. The contract is silent on the issue of territorial rights. Fast n' Fresh allows a competing franchise to be established near Eddie's store, which suffers a significant loss in profits. This is most likely a violation of

Accepted Answer

The implied covenant of good faith and fair dealing requires that parties to a contract not act in a way that unfairly interferes with the other party's rights under the contract. In this case, Fast n' Fresh allowing a competing franchise to be established near Eddie's store may be viewed as a breach of this implied covenant, as it significantly impacted Eddie's profits. The contract's silence on the issue of territorial rights does not necessarily mean that Fast n' Fresh had the right to allow a competitor to establish a franchise near Eddie's store.

Question 8

Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can

Accepted Answer

As a shareholder, Brad can exercise his voting rights to amend the articles of incorporation or bylaws of the corporation. This is one of the most important powers of shareholders, as it allows them to have a say in the management and direction of the company. However, shareholders typically do not have the power to authorize major corporate policy decisions or select and remove corporate officers, which are usually the responsibilities of the board of directors. While shareholders may indirectly influence these decisions through their voting power, they do not have direct control over them. The power to issue stock and bonds and declare dividends is also usually the responsibility of the board of directors, although shareholders may again influence these decisions through their voting power.

Question 9

Mit-E Mart LLC was formed in New Jersey. Mit-E Mart's members are Odel, who is a citizen of New Jersey, and Pola, who is a citizen of New York. For federal jurisdictional purposes, Mit-E is a citizen of

Accepted Answer

The answer of Mit-E Mart LLC was formed in New...

Question 10

B2B, LLC, is a limited liability company. Among its members, a dispute arises that the operating agreement does not cover. The dispute is governed by

Accepted Answer

When an operating agreement does not cover a dispute among LLC members, the governing law defaults to the state LLC statute. Each state has its own statute governing LLCs, so the applicable statute will depend on the state in which the company is formed.

Question 11

Bret buys a franchise from Comida Mexicano Ltd. If their agreement is like most franchise agreements, it will specify that Comida can terminate the franchise

Accepted Answer

Most franchise agreements specify that the franchisor can terminate the franchise only for cause, such as the franchisee's failure to comply with the terms of the agreement or to operate the franchise in accordance with the franchisor's standards. This is to protect both parties' interests and prevent arbitrary or unfair termination.

Question 12

Nico is interested in buying a franchise from Oz Inc. For Nico to make an informed decision concerning this purchase, Oz must disclose in writing or online

Accepted Answer

Oz Inc. is obligated to disclose material facts, including the basis of projected earnings figures, to potential franchisees to enable them to make an informed decision. This is in line with the Federal Trade Commission's Franchise Rule.

Question 13

Opie buys a franchise from Paradise Clothing Corporation. Because this franchise relationship is, like all other franchise relationships, primarily of a certain type, it is governed by

Accepted Answer

Franchise relationships are primarily governed by contract law, as they involve a contractual agreement between the franchisor and the franchisee. While there may be additional laws and regulations that apply, such as the FTC's Franchise Rule or state-specific franchise laws, these generally supplement rather than replace contract law as the governing legal framework.

Question 14

Farley and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form

Accepted Answer

To avoid income taxes at the corporate level, Farley and Gregor should form an S corporation. This type of corporation allows for pass-through taxation, where profits and losses are passed through to the shareholders to be reported on their individual tax returns, instead of being taxed at the corporate level. A C corporation would be subject to income tax at the corporate level, and a close corporation and private corporation are not recognized legal entities for tax purposes.

Question 15

Thor Power Products Corporation permits its directors to be elected by cumulative voting. This

Accepted Answer

Cumulative voting allows minority shareholders to have a greater chance of being represented on the board by allowing them to concentrate their votes on one candidate, rather than simply "losing out" to the majority's preferred candidates.

Question 16

Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is a legal entity created and recognized by

Accepted Answer

Corporations are created and recognized under state law, typically by filing articles of incorporation with the state's secretary of state office.

Question 17

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is

Accepted Answer

The answer of Hailey and Ike hold the first organizational...

Question 18

Skyla and Terry want to form and do business as Unique Boutique Corporation. The state statute governing the formation and operation of their corporation is most likely guided by

Accepted Answer

The Revised Model Business Corporation Act (RMBCA) is a set of guidelines established by legal experts to present flexible rules for the formation and operation of business corporations in the United States. Many states have adopted at least some provisions of the RMBCA in their state corporation laws, so it is likely that the formation and operation of Unique Boutique Corporation will be guided by the RMBCA.

Question 19

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan disposes of the mine's waste illegally. Liability for this crime most likely rests with

Accepted Answer

The answer of Raw Resources Corporation authorizes Stefan, its employee,...

Question 20

Clu, Dolf, and Elton do business as Fertile Valley Farm, a partnership. Clu's relationship to the firm ends, but it continues to do business. Clu's ceasing to be involved with the farm is termed

Accepted Answer

Clu's ceasing to be involved with the farm is termed dissociation. Dissociation is a situation where a partner ceases to be associated with the partnership, either voluntarily or involuntarily, but the partnership continues to exist.

Quiz 10: Business Organizations