Question 1

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

As a general partnership, each partner is jointly and severally liable for the partnership's obligations, including any negligence committed by one of the partners. Therefore, the partnership is liable for Ella's negligence, and each partner may be held responsible for the full amount of damages if the client sues the partnership.

Question 2

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 3

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 and local regulations.

Question 4

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 answer of Wilder and Joanne are carrying on a...

Question 5

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

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 is when the business has been incorporated to do something or facilitate the doing of something that is illegal or improper, such as fraud. The business is being used as a cloak for a fraudulent or illegal purpose.

Question 6

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 would be the most relevant factor in assessing the ability of the partnership to pay back the loan. This is because the individuals' personal assets can be used as collateral or as a source of repayment in the event that the partnership is unable to pay back the loan. The other options are either not relevant or less important in assessing creditworthiness.

Question 7

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 raises the important issue of ensuring that management acts in the best interests of the shareholders who own the corporation, rather than pursuing their own interests. This can be addressed through mechanisms such as shareholder activism, board oversight and regulation. The other options are not as relevant to the issue raised by the separation of ownership and control.

Question 8

Which of the following statements is TRUE?

Accepted Answer

Partnerships rely heavily on trust and confidence between partners in order to operate effectively. Without this trust, there could be issues with decision-making, communication, and overall partnership success.

Note: Options B, C, D, and E are all false statements.

Question 9

The fiduciary duty owed by one partner to another requires which of the following of a partner?

Accepted Answer

The fiduciary duty requires a partner to pass up opportunities to compete with the partnership. This duty includes avoiding conflicts of interest and acting in the best interest of the partnership. The other options are not necessarily required by the fiduciary duty.

Question 10

Directors of a corporation should issue shares as soon as possible after incorporation because

Accepted Answer

Until shares are issued, the directors are the only ones who can act for the corporation. If something happens to them, the corporation would be unable to act.

Question 11

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

Accepted Answer

Cassandra, as a shareholder, is not personally liable for the debts of the corporation. The corporation is a separate legal entity, and shareholders typically have limited liability.

Question 12

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 could work for Bede Limited Partnership as the office manager of Bede Management Co and he might not lose his limited liability, but he must be cautious concerning the control he exercises over the limited partner's business.

Question 13

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

By default, partnership law requires partners to make management decisions jointly, meaning both sisters would need to participate in making decisions for the partnership. However, option D states that one sister can make management decisions without involving the other sister, which requires a change to the default rule. Therefore, this arrangement would require a change to the default rules under partnership law.

All the other options do not require a change to the default rules under partnership law. Option A is a typical profit-sharing arrangement, Option B is a provision for cost-sharing, Option C is an equal contribution by both partners, and Option E is a capital infusion by the partners into the partnership business.

Question 14

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

Incorporating the health club as a separate legal entity means that the business will have limited liability, which means that it will only be liable for its own debts and obligations. As the sole shareholder and director, Rachi will not be personally responsible for any claims against the business. This may increase the risk that any claims made by clients will not be paid. Therefore, clients may be legitimate concerns about the possibility of not receiving compensation for any complaints or issues they may have with the health club. The other options are not likely to be affected by the change in legal status, as Rachi is the sole shareholder and director and can control management personnel, cleanliness and service quality standards, and pricing. Clients can also still complain to Rachi about any problems they have with the operation of the health club.

Question 15

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 of the corporation, Athalone has limited liability. This means that in most situations, he will not be personally liable for the obligations of the corporation. However, there may be some circumstances where he could be held personally liable, such as if he has personally guaranteed a debt of the corporation or if he has engaged in fraudulent or illegal activities. So, statement C is the most accurate.

Question 16

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

Unanimous consent is required to admit a new partner in a partnership. While every partner is entitled to choose their successor, the consent of all partners is necessary for any changes in partnership structure. Partner interests also cannot be assigned without the consent of all partners. Therefore, Peter cannot make Mac a partner without obtaining the unanimous consent of all existing partners.

Question 17

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 outlines the rules and procedures for calling shareholder meetings. This is important information for shareholders to know in order to exercise their rights as owners of the corporation. The other options listed may be included in the by-laws or other corporate documents but are less likely to be found in the general by-law.

Question 18

Which of the following statements is TRUE?

Accepted Answer

The answer of Which of the following statements is TRUE?
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Question 19

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

Incorporation does provide certain advantages over a proprietorship, including limited liability, perpetual existence, and easier access to capital. Therefore, choice E is false, as conducting business through a corporation does provide a business advantage to a shareholder.

Question 20

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

Accepted Answer

If the same partners decide to continue the partnership in a different type of business, the partnership is not dissolved but rather restructured or redefined.

Quiz 21: Basic Forms of Business Organizations

Which of the following statements is TRUE?

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?

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

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

Which of the following statements is TRUE?

The fiduciary duty owed by one partner to another requires which of the following of a partner?

Directors of a corporation should issue shares as soon as possible after incorporation because

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

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?

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?

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?

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?

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

Which of the following statements is TRUE?

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?

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