Question 1

Which of the following statements is TRUE?

Accepted Answer

Corporations, sole proprietorships, and partnerships may all be subject to similar licensing requirements depending on the nature of the business they conduct. This is because licensing is often related to the type of business activity rather than the business structure.

Question 2

Athalone incorporated a corporation under the Canada Business Corporations Act.As the sole shareholder, he has limited liability.Which of the following statements is TRUE?

Accepted Answer

As the sole shareholder with limited liability, Athalone will generally not be personally liable for the obligations and liabilities of the corporation. However, there are some situations where the corporate veil can be pierced and shareholders can be held personally liable (such as in cases of fraud or improper conduct). But in most situations, Athalone's personal liability is limited to the amount he has invested in the corporation. Therefore, option C is the best choice as it is the most accurate statement.

Question 3

Terrence has invested $10 000 to become a limited partner in Bede Limited Partnership.Bede Management Co is the general partner in Bede Limited Partnership.Ogruk is the sole shareholder of Bede Management.Which of the following is TRUE?

Accepted Answer

Terrence might not lose his limited liability if he worked for Bede Limited Partnership as Bede Management Co's office manager, but he must be cautious about the control he exercises over the limited partner's business.

Question 4

Which of the following statements is TRUE?

Accepted Answer

Trust and confidence between partners are essential for building a successful and effective partnership. Without trust, partnerships may face challenges in decision-making, communication, and collaborative efforts.

Answer: D
 A prohibition in a partnership agreement on partners incurring a specific obligation can prevent partnership liability if one of the partners tries to commit the partnership to such an obligation. However, if the partners go ahead and incur such an obligation, the prohibition may not protect the partnership from liability.

Answer: E
 Partners have contractual risk to partnership contracts entered into by other partners in the course of the partnership business, but they also have a similar tort risk. If one partner tortiously injures another party during the course of the partnership business, all partners may be held liable.

Question 5

Rachi is a wealthy business person with substantial personal assets.One of the businesses she carries on is a health club.She has carried on this business as a sole proprietorship, but she has decided to incorporate a corporation under the Canada Business Corporations Act to carry it on.She will be the sole shareholder and director.If you were a client of the health club, which of the following would be a legitimate concern based on the change in the legal status of the health club business?

Accepted Answer

The change in legal status from a sole proprietorship to a corporation means that the health club is now a separate legal entity, which may increase the risk that any claims against the business may not be paid. As a sole proprietorship, Rachi would have been personally liable for any claims against the business, but as a corporation, the liability is limited to the assets of the corporation. Therefore, there is a legitimate concern that any claims made against the health club may not be paid.

Question 6

Which of the following is an important issue raised by the separation of ownership and control in a corporation?

Accepted Answer

The separation of ownership and control in a corporation means that the shareholders own the company, but the management (directors and officers) control it. This can result in a conflict of interest where management may act in their own best interest rather than in the best interest of the shareholders. Shareholders must ensure that management acts in the best interests of the shareholders who own the corporation. A, B, D, and E are not important issues specifically related to the separation of ownership and control.

Question 7

Wilder and Joanne are carrying on a law firm business as a partnership under the name Wilder and Joanne Law Firm.Joanne has decided to leave.Which of the following strategies will best ensure that she does not become liable for any obligation of the firm arising after she moves on?

Accepted Answer

The best strategy for Joanne to ensure that she is not liable for any obligation of the firm arising after she leaves is to ask a court to dissolve the partnership and provide notice to anyone who may have a claim against the partnership, its assets, or its income. This will legally terminate the partnership and allow for the division of assets and liabilities among the partners. While the other options may be helpful, they do not provide the same level of legal protection as a court dissolution.

Question 8

In which of the following situations is a partnership NOT dissolved?

Accepted Answer

In this situation, the partnership is not dissolved because the same partners are continuing the partnership in a different type of business.

Question 9

Which of the following would you expect to find in the general by-law of a corporation?

Accepted Answer

The general by-law of a corporation typically includes the rules for calling shareholder meetings, as it outlines the procedural aspects of how the corporation is to be governed, including the conduct of meetings.

Question 10

If you were considering selling $1 million worth of computer equipment to a partnership on credit, which of the following factors would influence your assessment of the ability of the partnership to pay you back?

Accepted Answer

The value of the personal assets of the individual partners is a key factor in assessing the ability of the partnership to pay back the credit. It indicates the partners' overall financial strength and ability to provide a personal guarantee for the loan. The value of the assets of the spouses, employee assets, and will designations do not have a direct impact on the partnership's ability to pay back the loan. The indemnification agreement between partners may impact their relationship with each other and their individual liability, but it does not influence the partnership's ability to pay back the loan.

Question 11

Babak and Cal are partners in a restaurant business.Their partnership agreement says that Babak does not have authority to sign contracts for supplies for the partnership business.Babak contracted with Doris for the supply of 10 kilograms of haddock for the partnership.Which of the following is TRUE?

Accepted Answer

Babak's lack of authority to sign contracts for supplies does not necessarily mean that any contracts he signs are automatically invalid. If the other party (in this case Doris) reasonably believed that Babak had authority to sign the contract, the partnership will be bound by the contract. Therefore, the contract is binding on the partnership unless Doris knew or should have known that Babak did not have authority to contract.

Question 12

Which statement best describes the circumstances in which a court will disregard the separate existence of a corporation and impose liability on a shareholder for obligations owed by the corporation to a creditor? A court will impose liability on a shareholder

Accepted Answer

Courts will pierce the corporate veil and hold shareholders liable for corporate debts when the corporation has been incorporated for illegal or improper purposes, such as fraud. This is because the law will not protect an individual who uses the corporate form to commit illegal or fraudulent acts.

Question 13

Articles of incorporation

Accepted Answer

Articles of incorporation set out the fundamental characteristics of the corporation, such as its name, purpose, and structure. They establish the corporation as a legal entity and define its relationship with shareholders, directors, and officers. They are filed with the state where the corporation is incorporated and are a key document in the formation of the corporation.

Question 14

Steve and Laura do business as a partnership.As a result, Steve has a fiduciary obligation to

Accepted Answer

A fiduciary obligation requires Steve to act in the best interests of the partnership and not compete with it. Therefore, he must pass up opportunities to compete with the partnership. The other options are either incorrect or not related to fiduciary obligations.

Question 15

Cassandra is the sole shareholder of a corporation, incorporated under the Canada Business Corporations Act, which carries on a grocery store business.Which of the following statements is FALSE?

Accepted Answer

Cassandra, as the sole shareholder, is not personally liable for the debts of the corporation. The corporation has separate legal status and liability from its shareholders. Therefore, statement E is false. The other statements are true. Cassandra can work as an employee of the corporation, the corporation would continue to exist after her death, she does not own the specific assets of the corporation, and she will only pay tax on amounts received from the corporation as income or dividends.

Question 16

Eileen is considering incorporating a corporation under the Canada Business Corporations Act to carry on her toxic waste disposal business.She has heard that incorporation is a foolproof strategy to avoid personal liability for obligations of the business.Which of the following is FALSE?

Accepted Answer

This statement is false. Shareholders of a corporation can benefit from limited liability, as they are not personally liable for the debts and obligations of the corporation. This protection is not available in a proprietorship, where the owner is personally responsible for all business debts and liabilities.

Question 17

Peter, Kathy, and Soren are partners in a hardware store business.Peter wants to retire and have his son, Mac, assume his place in the partnership.Which of the following is TRUE?

Accepted Answer

Admitting a new partner into an existing partnership typically requires the unanimous consent of all current partners. This is because the addition of a new partner can significantly affect the partnership's operations, financial arrangements, and legal liabilities.

Question 18

If two sisters, Simone and Claire, were setting up a partnership to provide French lessons, which of the following arrangements would require a change to the default rules under partnership law?

Accepted Answer

The default rule under partnership law is that all partners have an equal say in management decisions. Option D requires a change to this rule. Simone and Claire would need to agree to grant equal decision-making authority to each partner.

Question 19

Which of the following statements is TRUE?

Accepted Answer

The answer of Which of the following statements is TRUE?
...

Question 20

Ella is a partner in a law firm operating as a general partnership.One of the firm's clients deposited $1 million in the firm account to be used by Ella to complete a real estate purchase.Ella negligently bungled the transaction with the result that the client lost the $1 million.Which of the following is TRUE?

Accepted Answer

In a general partnership, each partner is jointly and severally liable for the actions of the partnership and the actions of the other partners. Therefore, the partnership as a whole and each individual partner would be liable for Ella's negligence in this case.

Quiz 20: Basic Forms of Business Organizations

Which of the following statements is TRUE?

Athalone incorporated a corporation under the Canada Business Corporations Act.As the sole shareholder, he has limited liability.Which of the following statements is TRUE?

Terrence has invested $10 000 to become a limited partner in Bede Limited Partnership.Bede Management Co is the general partner in Bede Limited Partnership.Ogruk is the sole shareholder of Bede Management.Which of the following is TRUE?

Which of the following statements is TRUE?

Which of the following is an important issue raised by the separation of ownership and control in a corporation?

Wilder and Joanne are carrying on a law firm business as a partnership under the name Wilder and Joanne Law Firm.Joanne has decided to leave.Which of the following strategies will best ensure that she does not become liable for any obligation of the firm arising after she moves on?

In which of the following situations is a partnership NOT dissolved?

Which of the following would you expect to find in the general by-law of a corporation?

If you were considering selling $1 million worth of computer equipment to a partnership on credit, which of the following factors would influence your assessment of the ability of the partnership to pay you back?

Which statement best describes the circumstances in which a court will disregard the separate existence of a corporation and impose liability on a shareholder for obligations owed by the corporation to a creditor? A court will impose liability on a shareholder

Articles of incorporation

Steve and Laura do business as a partnership.As a result, Steve has a fiduciary obligation to

Cassandra is the sole shareholder of a corporation, incorporated under the Canada Business Corporations Act, which carries on a grocery store business.Which of the following statements is FALSE?

Eileen is considering incorporating a corporation under the Canada Business Corporations Act to carry on her toxic waste disposal business.She has heard that incorporation is a foolproof strategy to avoid personal liability for obligations of the business.Which of the following is FALSE?

Peter, Kathy, and Soren are partners in a hardware store business.Peter wants to retire and have his son, Mac, assume his place in the partnership.Which of the following is TRUE?

If two sisters, Simone and Claire, were setting up a partnership to provide French lessons, which of the following arrangements would require a change to the default rules under partnership law?

Which of the following statements is TRUE?