Question 1

Which of the following involves settling accounts and liquidating assets of a partnership for the purpose of making distributions and ending the partnership?

Accepted Answer

Liquidating assets, making distributions, and ending the partnership are all part of the process of winding-up a partnership. Debt resolution involves resolving outstanding debts, bypassing formalities involves avoiding legal requirements, and termination may refer to the end of a contract or agreement but does not necessarily involve settling accounts and liquidating assets.

Question 2

A _______ is a for-profit corporation that uses the power of business to solve social and environmental problems.

Accepted Answer

B corporations are for-profit corporations that also prioritize solving social and environmental problems. These corporations are independently certified to meet rigorous standards of social and environmental performance, accountability, and transparency. C corporations and S corporations are different types of taxation structures for corporations. A "Benevolent Recognized Group" is not a commonly used term in business.

Question 3

________ 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 of a general partnership refers to the final step in ending the partnership, where all affairs are concluded and the partners no longer have authority to act on behalf of the partnership. Dissolution and winding up are steps leading to termination, but termination is the final act that extinguishes the partnership's existence and the partners' authority.

Question 4

Fact Pattern 19-1
Joan decides to enter into a franchise agreement with XYZ Burgers to sell their burgers in her town. The franchise agreement did not prohibit XYZ Burgers from granting other franchises in the area, but that did not concern Joan because she thought XYZ 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 XYZ Burgers franchise opened just down the street from Joan's restaurant. She was very upset and called XYZ Burgers to complain. The CEO brushed off her concerns and told her that there was enough business for everyone. Joan, however, is interested in suing XYZ Burgers.
-Refer to fact pattern 19-1. 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. This can be detrimental to the first franchisee's business because it can lead to competition and a reduction in sales.

Question 5

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. In fact, it is typically the opposite. The board of directors is responsible for making major corporate decisions and hiring top-level officers, who then implement those decisions.

Question 6

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 from the supply company for $5,000. Is she liable to the medical supply company,and why or why not?

Accepted Answer

Sarah signed the contract agreeing to pay for the supplies in her own name, therefore she is liable to the medical supply company for the unpaid bill. Being employed as a technician or the medical supply facility not asking for proper identification does not relieve her of this liability. The termination of the partnership is not relevant to her obligation to pay for the supplies she purchased.

Question 7

Fact Pattern 19-2
Maxine and Vince verbally agree to form a dog grooming partnership called "XYZ Grooming." 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 90% of the animals on her own. Maxine told Vince that he was only entitled to 10% of the profits because he was only doing 10% 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 discovered 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 19-2. 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.

Question 8

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

Accepted Answer

A partnership is not prohibited from placing managerial control of the business in one partner. In fact, it is common for one partner to take on a more dominant role in the management of the partnership.

Question 9

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...

Question 10

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

Accepted Answer

Each state has its own corporate statutes that lay out the requirements for establishing a corporation in that state, such as the filing of articles of incorporation and obtaining a business license.

Question 11

Which of the following refers to a merger in which some shareholders are required to surrender their shares in the disappearing corporation for cash?

Accepted Answer

A freeze-out merger is a type of merger in which certain shareholders are forced to sell their shares at a price lower than its actual worth, resulting in their removal from the corporation. This is often done by the controlling shareholders of a corporation who wish to gain total control over the corporation by eliminating dissenters.

Question 12

Define a joint venture and list the elements necessary for a finding of a joint venture.

Accepted Answer

The answer of Define a joint venture and list the...

Question 13

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 not complied with all statutory requirements for incorporation, but is treated as a corporation because it has been accepted as such by the public and those dealing with it. As long as the incorporators acted in good faith and were unaware of any defects in their incorporation process, a court may treat the entity as a de facto corporation.

Question 14

Fact Pattern 19-1
Joan decides to enter into a franchise agreement with XYZ Burgers to sell their burgers in her town. The franchise agreement did not prohibit XYZ Burgers from granting other franchises in the area, but that did not concern Joan because she thought XYZ 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 XYZ Burgers franchise opened just down the street from Joan's restaurant. She was very upset and called XYZ Burgers to complain. The CEO brushed off her concerns and told her that there was enough business for everyone. Joan, however, is interested in suing XYZ Burgers.
-Refer to fact pattern 19-1. What is the position of the Federal Trade Commission regarding a franchisor selling a franchise very near to an existing franchise?

Accepted Answer

The Federal Trade Commission requires franchisors to disclose certain information to potential franchisees, including whether they have the right to open additional franchises in the same area. If the franchisor reserves the right to do so, they must disclose that fact to the first franchisee. Therefore, while the practice of selling a franchise near an existing franchise is legal, certain disclosures must be made to the first franchisee.

Question 15

Fact Pattern 19-2
Maxine and Vince verbally agree to form a dog grooming partnership called "XYZ Grooming." 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 90% of the animals on her own. Maxine told Vince that he was only entitled to 10% of the profits because he was only doing 10% 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 discovered 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 19-2. Which of the following is true regarding liability on the lawsuit brought by the Corgi owner?

Accepted Answer

Since Maxine and Vince agreed to form a partnership, they are both responsible for any liabilities incurred by the partnership. If the partnership funds are insufficient to pay the judgment, both Maxine and Vince would be personally liable for the remaining amount. Therefore, both Maxine and Vince are liable if there are insufficient partnership funds to pay any judgment.

Question 16

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

Accepted Answer

A corporation that conducts business in states other than its state of incorporation is considered a foreign corporation in those states. A domestic corporation is a corporation incorporated in the state in which it conducts business, and a pass-through entity is a type of business structure for tax purposes. An alien refers to an individual who is not a citizen of the country in which they reside.

Question 17

Explain requirements for formation of an S corporation.

Accepted Answer

The answer of Explain requirements for formation of an S...

Question 18

Mike owns a small but successful coffee house.He decides to incorporate. Considering only tax benefits,should Mike form a C corporation or a subchapter S corporation and why? Discuss taxation under both forms.

Accepted Answer

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

Question 19

Fact Pattern 19-2
Maxine and Vince verbally agree to form a dog grooming partnership called "XYZ Grooming." 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 90% of the animals on her own. Maxine told Vince that he was only entitled to 10% of the profits because he was only doing 10% 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 discovered 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 19-2. Is Maxine,XYZ Grooming,or Vince responsible for payment of the shampoo purchased by Vince?

Accepted Answer

In a partnership, both partners are jointly liable for debts incurred in the course of business, even if one partner made the purchase without the other's explicit consent.

Question 20

Which of the following is true regarding incorporation?

Accepted Answer

Since the mid-1930s, Delaware has been considered the preeminent state for incorporation due to its favorable business climate, modern corporate law, and specialized business court system. Option A is incorrect because a corporation can be incorporated in any state, regardless of where its principal place of business is located. Option B is incorrect because incorporation laws and the rights and duties of corporations vary by state. Option D is incorrect because incorporation can only be done pursuant to statute, not common law.

Quiz 19: Forms of business organizations