Deck 10: Form of Organization and Legal Issues

Question 1

A corporation's lifespan is equal to that of its owners.

Answer 1

False

Question 2

Limited partners have limited personal liability.

Answer 2

True

Question 3

In a partnership,each partner has agency power,which means that a partner can bind all members of the firm.

Answer 3

True

Question 4

Some rights of partners are implied unless specified otherwise in the articles of partnership.

Question 5

A corporation's articles of association should be brief,in accord with law,and broad in the statement of the firm's powers.

Question 6

Capital gains are income earned in the ordinary course of business.

Question 7

A limited partnership must have at least two general partners and one or more limited partners.

Question 8

The desire for continuity of a business might be one reason to organize as a corporation rather than a partnership.

Question 9

Limited liability means that the personal wealth of the business owner or shareholders is not subject to the business' liabilities.

Question 10

There are no limits on the owner's personal liability in a sole proprietorship.

Question 11

An ownership interest automatically confers a right to act for or to share in the management of a corporation.

Question 12

The board of directors is not liable for illegal company actions as long as they meet regularly.

Question 13

If dividends are paid to the owners of corporation,the dividends are taxed twice.

Question 14

The sole proprietorship is a business owned by two or more people but operated by only one person.

Question 15

Partners must contribute capital or assets to form a partnership.

Question 16

Agency power is the ability of any partner to legally bind in good faith other partners in a contract or agreement.

Question 17

The death of an owner terminates the legal existence of a business that is organized as a sole proprietorship.

Question 18

One of the advantages of a sole proprietorship is its continuity.

Question 19

To transfer ownership in a corporation,it is only necessary to transfer shares.

Question 20

Ownership in a corporation is evidenced by share certificates.

Question 21

What is a partnership?

A) a business owned and operated by one person
B) two or more persons that carry on as co-owners of a business for profit
C) the governing body for corporate activity
D) an organization in which each owner has limited personal liability

Question 22

Jack starts a business as a gasoline retailer also selling convenience groceries,newspapers,and lottery tickets.Which disadvantage will Jack face if he organizes the pharmacy as a sole proprietorship?

A) the complexity of the organization selling drugs,groceries,newspapers,and lottery tickets
B) the cost of starting the business with the different lines of product
C) the lack of limits on personal liability for any debts or lawsuits against the pharmacy
D) the difficulty of distribution of such a diverse line of products

Question 23

A patent is the registered,exclusive right of an inventor to make,use,or sell an invention forever.

Question 24

Provinces have securities acts to protect investors.

Question 25

A trademark is a word,name,symbol,device,slogan,or any combination thereof used to distinguish a product sold by one manufacturer.

Question 26

Dylan composes a beautiful song that a record label wishes to produce and promote.How should Dylan protect his song from being plagiarized?

A) trademark
B) patent
C) copyright
D) industrial design

Question 27

Tory wishes to have the simplest form of taxation and to pay taxes on income earned as an employee and from his small business altogether.How should Tory legally organize her business?

A) as a sole proprietorship
B) as a partnership
C) as a limited partnership
D) as a corporation

Question 28

Partners always share profits and losses equally.

Question 29

Which statement best describes ownership in a corporation?

A) It is difficult to transfer.
B) It is more readily transferable than ownership in other forms of organization.
C) It is transferred in much the same way as shares in a partnership.
D) It noticeably affects the operations of the business.

Question 30

Will runs a successful trading card business that he legally organized as a sole proprietorship.For tax purposes he will create two separate returns,one for himself and the other for the business.

Question 31

Sole proprietors often benefit from fringe benefits such as tax-free insurance plans.

Question 32

Troy creates a unique pattern of electrodes which results a brighter light that uses less energy.How should Troy protect his unique pattern?

A) trademark
B) copyright
C) patent
D) industrial design

Question 33

A board of directors is the governing body of a corporation,elected by the shareholders.

Question 34

Kyle legally organizes his weekend window cleaning business as a sole proprietorship.Which statement best describes Kyle and his business?

A) Kyle reports income from the business on his individual federal income tax return.
B) Kyle pays one tax rate on all taxable income.
C) Kyle declares dividends in order to receive cash from the business.
D) Kyle reports only income but not losses since he is the only owner in the company.

Question 35

The death of the sole proprietor terminates the business entity.

Question 36

A partnership reports the income it earns to the Canada Revenue Agency but the partnership does not pay any taxes.

Question 37

What is a key characteristic of a partnership?

A) Each partner must contribute capital to the business.
B) Each partner shares in company assets upon the dissolution of the partnership.
C) Each partner is capable of legally contracting.
D) Each partner must manage the business.

Question 38

An agency relationship is an arrangement whereby an agent represents the principal in contracting with a third party.

Question 39

An example of ordinary income is salary.

Question 40

The sole proprietorship is the most rudimentary form of business organization among small businesses.

Question 41

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?

A) Upon the death of one partner,the remaining partners can operate the electrical business.
B) A partner who illegally sells unapproved product can legally bind all members of the firm.
C) An executor can act as a partner and change how the venture imports and sells its products.
D) A partner can import his or her own electrical products and compete against Wayne's partnership.

Question 42

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?

A) shareholder
B) director
C) sole proprietor
D) limited partner

Question 43

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?

A) the securities acts
B) the Ontario Business Practices Act
C) the occupational health and safety acts
D) the employments standards codes

Question 44

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?

A) legal power of attorney
B) limited partner to join the business
C) general liability insurance
D) completion of articles of association

Question 45

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

A) trademark
B) patent
C) copyright
D) industrial design

Question 46

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

A) corporation
B) general partnership
C) sole proprietorship
D) limited partnership

Question 47

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?

A) the profitability of the cupcakes
B) the needs of the entity and/or owners
C) the benefits available for the bakers and administrative clerk
D) the procedures for termination or liquidation for the bakers and administrative clerk

Question 48

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

A) only when distributed as dividends
B) identically to income from sole proprietorships and partnerships
C) as a separate legal entity
D) each time a sale is made

Question 49

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?

A) They are the governing body for corporate activity.
B) They are elected by the firm's officers.
C) They receive all declared dividends.
D) They actively run the operations of the company.

Question 50

Which statement describes a typical common shareholder of a corporation?

A) He has the right to act for the firm.
B) He has the right to receive declared dividends.
C) He can always buy new shares in proportion to shares already owned.
D) He can fire employees of the corporation.

Question 51

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?

A) corporation
B) limited partnership
C) partnership
D) sole proprietorship

Question 52

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?

A) share right
B) stock option
C) arbitrary right
D) pre-emptive right

Question 53

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?

A) Steve and the members
B) the venture's informal board of directors
C) the corporation itself
D) Steve,since he is president

Question 54

What is a basic legal principle involving shareholders?

A) An ownership interest in a corporation does not confer a legal right to manage the firm.
B) The board of directors cannot elect the principal owner as president.
C) All dividends are nontaxable.
D) Shareholders cannot buy new shares until they are offered for public sale.

Question 55

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?

A) as a sole proprietorship
B) as a partnership
C) as a limited proprietorship
D) as a corporation

Question 56

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?

A) limited partner
B) special partner
C) silent partner
D) general partner

Question 57

Where does permission to incorporate a business come from?

A) board of directors
B) shareholders
C) government
D) corporate officers

Question 58

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?

A) articles of association
B) articles of share allocation
C) articles of rights
D) articles of stock certificates

Question 59

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?

A) trademark
B) copyright
C) patent
D) industrial design

Question 60

What should articles of association include?

A) names and addresses of all shareholders
B) restrictions on share transfer
C) dates when directors must be re-elected
D) fees directors will be paid

Question 61

What are the qualifications of partners?

Question 62

What is the difference between a board of directors and a board of advisers?

Question 63

Describe how an "agency relationship" works and provide an example.

Question 64

Compare and contrast the two different types of partnerships.

Question 65

Which statement best describes a corporation?

A) It is a business organization that exists as a legal entity.
B) It is chartered under federal laws.
C) It remains in existence only as long as its owners are alive.
D) Its owners have unlimited liability.

Question 66

Describe points to consider in choosing how to legally form a business organization.

Question 67

Identify the three different forms of legal organization discussed in the textbook.

Question 68

What is the difference between capital gains,losses,and ordinary income?

Question 69

Sara wishes to start a sole proprietorship venture as a figure skating coach and consultant.She will book ice and charge fees for students she teaches how to skate and also for guidance on proper nutrition and off-ice exercises.Which of the following applies to Sara's venture?

A) Sara personally assumes all gains or losses of the business.
B) Sara personally assumes no profits since the business files its own tax return.
C) Sara receives tax-free fringe benefits.
D) Sara assumes no profits since the business is a separate legal entity.

Question 70

Describe three laws discussed in the textbook that provide protection to consumers under federal or provincial legislation.

Question 71

Identify some of the advantages and disadvantages of a sole proprietorship.