Question 1

Gerald and Tanji are general partners in a partnership with Mafasa and Rolf,who are also partners but with narrowly defined rights.What disadvantage do Mafasa and Rolf share?
A) Their losses as limited partners are restricted to their capital investments.
B) What constitutes partaking in management is difficult to define.
C) Participation in management activities will risk their unlimited liability status.
D) Public notification of their identity and the amount of capital contribution is required.

Accepted Answer

Participation in management activities will risk their unlimited liability status.

Question 2

How does the principle of limited liability make a corporation well suited to raising large amounts of capital?
A) information is publically disclosed regarding a corporation's finances
B) a corporation's investors are protected against limited losses
C) a corporation is subject to greater outside scrutiny
D) investors are protected against unlimited losses

Accepted Answer

The principle of limited liability means that investors in a corporation can only lose the amount they have invested, protecting them from unlimited losses. This protection encourages more people to invest, making it easier for corporations to raise large amounts of capital.

Question 3

Len,Jill,and Mark own a partnership called Splats.Len's capital contribution to the partnership was $25 000,Jill's was $12 500,and Mark's was $20 000.Jill is duly registered as a limited partner and has acted solely as a financier.There is no agreement on sharing profits or losses among the partners,and none of them has drawn any income from Splats.The partnership borrowed $40 000 from the bank,but Splats eventually became insolvent and was unable to repay the loan.The bank sued Len and recovered the full $30 000 from him.When Len's lawyer gave him advice,what amount would he likely indicate Len is entitled to legally recover from Jill?
A) $0
B) $10 000
C) $12 500
D) $20 000

Accepted Answer

Since Jill is a limited partner, she is not personally liable for the partnership's debts. Therefore, Len can legally recover $10,000 from Jill, which is half of her capital contribution. Mark, on the other hand, can be held liable for the remaining $10,000 of the loan since he is a general partner.

Question 4

Which of the following would be considered as a valid application of the Partnership Act provisions?
A) the optional rules shall be used exclusively for the partnership
B) the mandatory simple majority rule to expel any partner
C) variation of mandatory rules by agreement
D) variation of optional rules by agreement

Accepted Answer

Optional rules in the Partnership Act can be varied by agreement among the partners, allowing them to tailor the partnership agreement to their specific needs.

Question 5

What is the most likely reason,from a financial liability perspective,for a corporation to be viewed as the most risk-aversive form of business entity?
A) It forms a distinct legal entity,liable for its own obligations.
B) Any entity that deals with a corporation may demand personal guarantees.
C) It shields directors from negligent acts of management.
D) It provides limited liability to the corporation's directors.

Accepted Answer

The answer of What is the most likely reason,from a...

Question 6

A court is deliberating whether WestWood Dental Offices should be bound by obligations that allegedly arose by virtue of apparent authority.The claim relates to a purchase agreement for dental imaging equipment.What will the court most likely strongly rely on when arriving at a decision?
A) what a third party knows or ought to know of a partner's limited authority
B) whether the partner understands that the law protects business customers
C) what a partner knows or ought to know of an outsider's limited authority
D) whether a third party understood the risks of agents going astray

Accepted Answer

The court is likely to rely on what a third party knows or ought to know of a partner's limited authority, as this is the basis for determining whether there was apparent authority.

Question 7

What type of liability would flow to the other partners in circumstances involving a wrongful act or omission by one partner acting within the course of employment?
A) joint liability
B) unlimited liability
C) joint and several liability
D) several liability

Accepted Answer

The answer of What type of liability would flow to...

Question 8

Which of the following will be most influenced by restrictions contained in the incorporating documents or by a shareholders' agreement?
A) transfer of ownership of shares
B) voluntary surrender of legal status
C) general application laws
D) perpetual existence of the entity

Accepted Answer

Restrictions on transfer of ownership of shares are commonly included in incorporating documents or shareholders' agreements. These restrictions may limit who shares can be sold or transferred to, or place conditions on the sale or transfer of shares.

Question 9

Nancie is a shareholder in BlueSky Investments Inc.With respect to BlueSky's obligations,which of the following most likely reflects Nancie's liability?
A) Nancie's liability is dependent on how the obligations were incurred.
B) Nancie is liable for these obligations unless she has given her personal guarantee.
C) Nancie's limited liability shield may be negated by her giving a personal guarantee.
D) As a shareholder,all of Nancie's personal assets will be at risk.

Accepted Answer

Nancie's liability as a shareholder in BlueSky Investments Inc is limited unless she has given a personal guarantee, in which case her limited liability shield may be negated. Therefore, choice C is the most likely to reflect Nancie's liability in this situation. Choice A and D are incorrect as they are too broad and do not take into consideration the concept of limited liability. Choice B is also incorrect as it suggests that Nancie is always liable unless she provides a personal guarantee, which is not the case.

Question 10

What is the legal outcome when one partner exceeds his or her authority and borrows money on behalf of a partnership without the consent of the fellow partners?
A) The other partners will be liable to the third party because partners are mutual agents.
B) Non-consenting partners can avoid liability by proving the partner breached the partnership agreement.
C) The third party can collect the debt,but only from the partner who authorized the debt.
D) The third party can take collection assets against the partnership assets but not the personal assets of the non-consenting partners.

Accepted Answer

Partners in a partnership act as mutual agents, meaning each partner has the authority to bind the partnership in contracts with third parties. Therefore, if one partner borrows money on behalf of the partnership, even without the consent of the other partners, the partnership as a whole is liable for the debt.

Question 11

Glen,Dale,and Al are partners who own Fizz.Glen made a capital contribution of $5000,Dale's was $15 000,and Al's was $10 000.Glen is a general partner and he oversees the management of the Fizz business.The partnership borrowed $30 000 from the bank.The partners have no agreement relating to the sharing of profits and losses.Fizz became insolvent and unable to repay the loan.The bank sued Dale personally and recovered the full $30 000 from him.Dale then sued Glen.When Dale's lawyer provided him with advice,what amount did she likely indicate he would be able to legally recover from Glen?
A) $5000
B) $10 000
C) $15 000
D) $20 000

Accepted Answer

As per the given information, Glen, Dale, and Al are partners in Fizz. Glen is a general partner and oversees the management of the business. The partnership borrowed $30,000 from the bank, and there is no agreement relating to the sharing of profits and losses.

In a general partnership, each partner is jointly and severally liable for the debts and obligations of the partnership. This means that the partners can be held personally liable for the debts of the partnership.

In this case, Dale was sued personally by the bank and had to pay the full $30,000. Therefore, he has the right to sue Glen to recover his share of the liability.

Since the total capital contribution by all partners is $30,000, and Glen's capital contribution is $5000, Dale can legally recover $15,000 from Glen ($30,000 - $5,000 Glen's contribution = $25,000 / 2 partners = $12,500 x 2 shares = $25,000 - $10,000 Dale's contribution = $15,000). Therefore, the best choice would be C) $15,000.

Question 12

Which of the following would most likely be a requirement of provincial legislation with respect to a limited liability partnership?
A) liability insurance to compensate victims for loss
B) the use of "limited partnership" or "LP" in the firm name
C) a business licence in the partnership name
D) access to partners' personal assets to satisfy claims

Accepted Answer

Limited liability partnership (LLP) is a type of partnership agreement where the partners are not personally liable for the debts and liabilities of the partnership. However, provincial legislation may require liability insurance to compensate victims for loss, which would be the most likely requirement for an LLP. The use of "limited partnership" or "LP" in the firm name may be a requirement for a limited partnership, and a business license is a general requirement for any type of business, not specifically for an LLP. Access to partners' personal assets to satisfy claims would go against the concept of limited liability, which is the main advantage of an LLP, and is therefore not a requirement.

Question 13

Which of the following would pertain to provincial partnership legislation relating to the relationship between business partners and outsiders?
A) regulatory provisions
B) ostensible provisions
C) mandatory provisions
D) optional provisions

Accepted Answer

The answer of Which of the following would pertain to...

Question 14

Which of the following is a common characteristic of provincial Partnership Acts?
A) each provides that every partner is liable jointly with co-partners
B) there are subtle differences between joint and several liability
C) each provides that every partner is liable severally from co-partners
D) there are pronounced differences between joint and joint and several liability

Accepted Answer

Most provincial Partnership Acts provide for partners to have joint liability, meaning that each partner is liable for the partnership's debts and obligations equally with their co-partners. This means that if the partnership is sued, each partner is responsible for paying the full amount of the debt or judgment, not just a portion of it.

Question 15

Rozzi,Shawn,and Rafael have entered into a written limited partnership agreement.Which of the following would be the most likely action needed to ensure the legal recognition of the limited partnerships' status?
A) registration of the partnership with federal authorities
B) registration of the partnership with provincial authorities
C) public notification of capital contributions of the entity's general partners
D) public notification of the registration of the limited partnership entity

Accepted Answer

To ensure legal recognition of a limited partnership's status, the partnership must be registered with provincial authorities. This involves filing a registration statement and paying a fee. The limited partnership agreement outlines the terms and conditions of the partnership, but registration is necessary to establish its legal existence. Registration with federal authorities (option A) is generally not required for limited partnerships. Option C is not necessary for recognition of the partnership's status, but may be required for other purposes such as fundraising. Option D is not a required step for legal recognition, but may be helpful for public record keeping purposes.

Question 16

Rose,Lily,and Fawn were shareholders in Style Co.,an incorporated company with limited liability.Each bought one-third of the shares in Style Co.for an aggregate payment of $15 000 each.The corporation borrowed $60 000 from the bank to finance its operations.The bank required personal guarantees from all shareholders for the full amount of the loan.Style Co.became insolvent,and the bank ultimately sued each of the shareholders to recover the $60 000.In receiving advice from their lawyer,what amount would he most likely indicate to be the maximum amount that could be recovered from any one of them?
A) $0
B) $15 000
C) $20 000
D) $60 000

Accepted Answer

Given that the bank required personal guarantees from all shareholders for the full amount of the loan, each shareholder could be held personally liable for the entire amount of the debt ($60,000) if Style Co. defaults. This is because personal guarantees allow the lender to pursue the guarantors (in this case, the shareholders) for the full amount owed if the borrower cannot pay.

Question 17

Which of the following is a distinguishing feature of a limited partnership?
A) The liability of each partner is limited to their capital contributions.
B) The liability of some partners is limited to their capital contributions.
C) Limited partners may participate in the day-to-day management of the firm.
D) Limited partnerships are only available to professionals.

Accepted Answer

The distinguishing feature of a limited partnership is that the liability of some partners is limited to their capital contributions. In a limited partnership, there are two types of partners: general partners who have unlimited personal liability for the debts and obligations of the partnership, and limited partners who have limited liability and are only liable for the partnership's debts up to the amount of their capital contributions. Limited partners are not involved in the day-to-day management of the firm, and limited partnerships are not only available to professionals.

Question 18

Which of the following may result in a loss of limited liability in a corporation?
A) employee misrepresentation of a product
B) fraud on customers
C) employee negligence
D) fraud on creditors

Accepted Answer

Fraud on creditors may result in a loss of limited liability in a corporation, as it violates the principle of fairness in dealing with creditors who may have relied on the corporation's limited liability protection. The other options may result in liability for the corporation or individual employees, but they do not directly impact the corporation's limited liability status.

Question 19

Which of the following is a positive feature of carrying on business as a corporation?
A) complete shielding from negligent or wrongful acts of partners
B) the availability of differing degrees of ownership and sharing of profits
C) the ease and low cost of creating a corporation compared to other business forms
D) partial shielding from contractual obligations

Accepted Answer

Corporations allow for differing degrees of ownership through shares, and profits can be distributed as dividends, making it a flexible structure for ownership and profit-sharing.

Question 20

Which of the following is the term "partners" synonymous with regarding the agency relationship and the Partnership Act?
A) profits
B) principals
C) limits on authority
D) capital contributions

Accepted Answer

In the context of the agency relationship and the Partnership Act, "partners" are synonymous with "principals" because each partner acts as both an agent and a principal for the partnership.

Quiz 14: Business Forms and Arrangements

Gerald and Tanji are general partners in a partnership with Mafasa and Rolf,who are also partners but with narrowly defined rights.What disadvantage do Mafasa and Rolf share?

How does the principle of limited liability make a corporation well suited to raising large amounts of capital?

Which of the following would be considered as a valid application of the Partnership Act provisions?

What is the most likely reason,from a financial liability perspective,for a corporation to be viewed as the most risk-aversive form of business entity?

A court is deliberating whether WestWood Dental Offices should be bound by obligations that allegedly arose by virtue of apparent authority.The claim relates to a purchase agreement for dental imaging equipment.What will the court most likely strongly rely on when arriving at a decision?

What type of liability would flow to the other partners in circumstances involving a wrongful act or omission by one partner acting within the course of employment?

Which of the following will be most influenced by restrictions contained in the incorporating documents or by a shareholders' agreement?

Nancie is a shareholder in BlueSky Investments Inc.With respect to BlueSky's obligations,which of the following most likely reflects Nancie's liability?

What is the legal outcome when one partner exceeds his or her authority and borrows money on behalf of a partnership without the consent of the fellow partners?

Which of the following would most likely be a requirement of provincial legislation with respect to a limited liability partnership?

Which of the following would pertain to provincial partnership legislation relating to the relationship between business partners and outsiders?

Which of the following is a common characteristic of provincial Partnership Acts?

Rozzi,Shawn,and Rafael have entered into a written limited partnership agreement.Which of the following would be the most likely action needed to ensure the legal recognition of the limited partnerships' status?

Which of the following is a distinguishing feature of a limited partnership?

Which of the following may result in a loss of limited liability in a corporation?

Which of the following is a positive feature of carrying on business as a corporation?

Which of the following is the term "partners" synonymous with regarding the agency relationship and the Partnership Act?