Business Law Practice Questions

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Leigh wants to go into the business of construction contracting. Among the reasons that would probably convince Leigh to set up his business as a sole proprietorship would be

a. its greater organizational flexibility.

Kelly, the owner of Llama Farms, a sole proprietorship, wants to obtain additional busi¬ness capital but to maintain control. This can best be accomplished by

a. borrowing funds.

Hometown Realtors, Inc., sells a franchise to Group Sales Company. Group Sales is

a. a franchisee.

Mello Coffee Shops, Inc., sells a franchise to Noah’s Arch, a café. Mello is

b. a franchisor.

Sylvester buys a franchise from Resistance Athletic Shoes Inc. This relationship, like all other franchise relationships, is governed by

a. contract law.

Nicole is interested in buying a franchise from Oz Oysters Inc. For Nicole to make an informed decision concerning this purchase, Oz must disclose in writing or online

b. material facts such as the basis of projected earnings figures.

Vim+Vigor Fitness Corporation uses a Web site to provide downloadable information to prospective franchises. This online information is the equivalent of an offer that must comply with

c. the Federal Trade Commission’s Franchise Rule.

Dingo Bangles Company wants to present information in "disclosure documents" via the Internet to prospective franchisees. Among other legal requirements with which Dingo must comply, prospective franchisees must

b. be able to download or save all electronic documents.

Cluckee Chick’ Corporation provides its prospective franchisees with projected earnings figures based on actual data. Cluckee Chick’ must also disclose

a. the number and percentage of franchisees that achieved the figures.

A franchise agreement between Software2 Company and Games3, Inc., is silent on a time for termination of the franchise. Software2 may

c. terminate on reasonable notice.

Gage buys from Fishing Guide Corporation the exclusive right to sell Fishing Guide rods and reels in a certain area. Their franchise agreement requires Gage to pay certain administrative expenses. Their agreement may also require Gage to pay a percentage of the franchisor’s

a. advertising costs.

Tawny buys a Super Grill franchise. Super Grill requires that its fran¬chi¬sees buy its products for every phase of their op¬erations. Be¬cause Tawny wishes to buy less expensive products, she challenges the re¬quirement. Her best argument is probably that the re¬quirement violates

c. the federal antitrust laws.

Pronto Tacos LLC grants a franchise to Omar to open and operate a Pronto Tacos restaurant. Pronto will likely charge Omar

a. an initial fee or lump sum price for the franchise license.

Ben, who runs a livestock breeding business, owes the Circle C Ranch $40,000. Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid. Because of this agreement, the Circle C is

b. Ben’s creditor only.

Hollister and Gladys do business as partners in Frothy Confections. For federal income tax purposes, Frothy Confections would be treated as

a. a pass-through entity.

Parker and Oscar sign a partnership agreement to do business as "Parker’s Plumbing" without specifying a duration. This partnership is terminable

a. at any time by either partner.

Ryder and Sergei are partners in Timberline Gear, which sells mountain- and rock-climbing equipment. Ryder manages the business. Unless the partnership agreement states otherwise, Ryder is

d. not entitled to compensation.

Trina and Uri do business as Value Gems. In acting on the firm’s behalf in a deal with World Diamond Exchange, Trina recklessly exceeds what Value Gems can afford to pay, causing damage to the firm. Trina is

a. liable for breach of the duty of care.

Cody is a partner in Derivative Investment Service (DIS). Cody can inspect

a. all of DIS’s books and records.

Mead, Nero, and Olen do business as Pipe & Plumbing Services, a partnership. After Mead’s relationship to the firm ends, Nero and Olen agree to discontinue the business. This is

b. dissolution.

Ewa, the owner of First-Rate Bild-It, is a sole proprietor. What are the chief characteristics, advantages, and disadvantages of this form of business organization? Ewa wants to obtain additional capital to expand First-Rate, but she does not want to lose control of the firm. As a sole proprietor, what is her best option to attain these goals?

A sole proprietorship is the simplest form of business organization. In a sole proprietorship, the owner and the business are the same. Anyone who creates a business without designating a specific form for its organization is doing business as a sole proprietorship. An advantage of the sole proprietorship is its greater organizational flexibility over other forms of business organization. The owner makes all of the decisions and can operate the enterprise without any formalities. A significant disadvantage of this form of organization, however, is that unlike most other forms of business organization, there are no limits on the li¬ability of the owner for the debts and obligations of the firm. Another dis¬advantage of the sole proprietorship form of doing business is indicated by Ewa’s dilemma in this question. The ability of a sole proprietor to raise capital while maintaining control, and retaining the same form, is limited chiefly to borrowing funds. Bringing in partners would convert the business to a partnership. Issuing stock would require incorporating or establishing another form of business. Selling the business would sacrifice all control. The only way to obtain additional business capital without accumulating it through business profit is by borrowing funds. PAGES: 380-381

Irwin was the manager of Highlights Grill, a sports bar and restaurant. Irwin opened a bank account in Highlights’s name, signing the account signature card as "owner." Jody, who was often at Highlights and had free access to its office, told others that she was "an owner" and "a partner." She also opened a bank account in Highlights’s name, and signed the account signature card as "owner." Irwin told Kelton, the owner of Natural Cheeses, Inc., that Jody was a member of a partnership that owned Highlights. On this basis, Natural Cheeses delivered its goods to Highlights on credit. In fact, Highlights was owned by a corporation. When the unpaid account totaled more than $10,000, Natural Cheeses filed a suit against Jody to collect. On what basis might Jody be liable for the debt?

The theory under which Jody would most likely be liable for Highlights’s debt to Natural Cheeses is partnership by estoppel. The first requirement of this theory is a representa¬tion, by a nonpartner or by another with the nonpartner’s consent, that the nonpartner is a partner. The second requirement is reliance on that representation. In this case, Natural Cheeses could prove both elements. Both Irwin and Jody made representations with respect to Jody’s status in relation to Highlights—they both signed bank cards as "owner," Jody was often at Highlights and had free access to its office, Jody told others that she was a "partner" in the business, which is what Irwin also told Kelton. As for the reliance element, Natural Cheeses extended credit to Highlights only because Natural Cheeses believed that Highlights was owned by a partnership. TYPE

Jessica’s Jumpin’ Jelly Beans, LLC, is a limited liability company. Unless indi¬cated otherwise on Jessica’s federal tax form, the firm will be taxed as

d. a partnership.

China Bank is a foreign entity—a firm owned and operated by investors in a foreign country. With respect to an LLC in the United States, China Bank can

b. become a member.

Fay is a member of Garden Groves LLC. Like other members of limited liability companies, Fay’s liability for Garden Groves’s obligations resembles the liability of

d. a shareholder of a corporation.

High Pointe LLC’s members include Irvin. For purposes of holding title to property, High Pointe is

c. a legal entity apart from the owners.

Lars is considering forms of business organization for his auto repair firm. Like most states, Lars’s state requires that to form a limited liabil¬ity company, he must file with a central state agency

c. articles of organization.

Mit-E Mart LLC was formed in New Jersey. Mit-E Mart’s members are Odel, who is a citizen of New Jersey, and Pola, who is a citizen of New York. For federal diversity jurisdictional purposes, Mit-E is a citizen of

b. New Jersey and New York.

Farm2Fork, LLC, is a limited liability company. Rather than dis¬tribute its profits to its members, Energy wants to reinvest the profits in its business. For this reason, Energy may prefer to be taxed as

a. a corporation.

Homer’s Remodeling, LLC, is a limited liability company. Among the mem¬bers, a dispute arises that their operating agreement does not cover. No statute applies. The dispute is governed by the principles of

b. partnership law.

Kris is a member of Laboratory Services, LLC, a limited liability company. Kris can participate in the firm’s management

c. to any extent.

Chocolate Sundry LLC’s members and managers are Devlin, Effie, and Flavia. After Devlin’s relationship to the firm ends, Effie and Flavia agree to discontinue the business. This is

b. optional.

Rick and Sandy are limited partners in Terrific Profit Enterprises, a limited part¬ner¬ship. To avoid personal liability for partnership obligations, they must not

d. participate in the firm’s management.

Genetic Innovations, LP, is a limited partnership. The partners sign an agreement purporting to state how the firm’s profits and losses are to be di¬vided. The profits and losses of the firm will be divided

a. according to the agreement.

Dunn and Etta are limited partners in Fancee Fashion Stores, a limited partner¬ship. In terms of the firm’s books, Dunn and Etta are entitled to

d. total access.

Gizelle, Haya, and Ivy do business as Janitorial Services, Limited Partnership. After Gizelle’s relationship to the firm ends, Haya and Ivy agree not to continue the business. This is

b. dissolution.

Refer to Fact Pattern 18-1B. Carlos’s assignment of his interest in Eastside to Good Credit Corporation results in


a. nothing with respect to Eastside’s existence.

Refer to Fact Pattern 18-1B. Brad’s dissociation from the firm results in

d. the termination of Eastside’s legal existence.

Refer to Fact Pattern 18-1B. Eastside is dissolved and its assets are collected, liquidated, and distributed. This results in

d. the termination of Eastside’s legal existence.

Connie, Drew, and Ellen are the general partners of Foreign Auto Repair, a lim¬ited partner¬ship. Connie dies. The partnership can

c. continue only if Drew and Ellen consent.

Hugh is a limited partner and Ida is a general partner in HI Volume, a limited partnership. Joy is one of HI Volume’s creditors. On HI Volume’s dissolution, the party whose rights have the first priority to the firm’s assets is

d. Joy only.

Bret is a general partner in Capitol Realty, LLLP, a limited liability limited partnership, which cannot pay its debts. Bret is personally liable for the debts

c. to the extent of his capital contribution.

Jack and Keri want to form Local Motion, LLC, a limited liability company, to offer metro delivery and transport services. With respect to the management of Local Motion, what are the members’ options?

The members of a limited liability company (LLC) can appoint a group that does not include any of the LLC’s members to run the firm. In that case, it would be a manager-managed LLC. A group may be appointed to include only members, in which case the firm would be a member-managed LLC. In fact, unless the members agree otherwise, all members are considered to participate in the management of the firm. Another choice is to designate members and nonmembers.

Ron is a limited partner, and Steve is a general partner of Total Financial Management, a limited partnership. Steve manages the firm. Ron has some expertise in the area and believes that he could do a better job than Steve at managing, but he abstains from becoming actively involved. Why might he choose to keep away from management activities?

There is no law that expressly bars the participation of limited partners in the management of a limited partnership. Limited partners are, however, normally exempt from personal liability for partnership debts, torts, breaches of contract, and breaches of trust. This exemption rests primarily on the limited partner’s not participating in the management of the partnership. Thus, it is the threat of personal liability that deters their participation.

Felicity and Gideon want to form and do business as Home Healthcare Corporation. A corporation is

c. an artificial person.

Gelato Ice, Inc., is incorporated in the state of New Jersey and is doing busi¬ness in the state of New York. In New York, Gelato is properly re¬ferred to as

b. a foreign corporation.

The shares of Capital Corporation are publicly traded in securities mar¬kets. Capital Corporation is

d. a publicly held corporation.

Bertram, Claudia, and Dynah form Eat Local, Inc., a closely held corpo¬ration, and agree to restrict the transfer of its stock to anyone else. A reasonable purpose for a stock transfer re¬striction in a closely held cor¬poration, like the agreement between Bertram, Claudia, and Dynah, is

a. a desire to limit the participation of outsiders in the firm.

Frida and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form

c. an S corporation. AICPA Risk Analysis

The abbreviation "P.A." in the name "Painless Dental, P.A." means that this organization is

b. a professional association.

Caffeine Café, Inc., files its articles of incorporation with the appropriate government agency. Least likely to appear in the articles is the name of

b. each of the corporation’s shareholders.

Like the bylaws of other corporations, the bylaws of Farmland Equipment, Inc.,

c. were adopted at its first organizational meeting.

Rapid Pest Control itself out to others as being a corporation but makes no attempt to incorporate. Ponce signs a contract with Rapid Pest Control that is not performed. Ponce files a suit against the firm. The court will likely hold that Rapid Pest Control is

a. a corporation by estoppel.

Niki owns O.K. Oil Corporation. Niki uses O.K.’s funds to pay her per¬sonal expenses, creates Pure Fuel Corporation to engage in the same business as O.K., transfers O.K.’s assets to Pure Fuel, and petitions O.K. into bankruptcy. This most likely warrants

c. a pierce of O.K.’s corporate veil.

Sophie and Tiny incorporate their beverage-container business as U-Twist Products, Inc. The first board of directors may be appointed by the firm’s

b. incorporators.

Whit is a director of Vids Corporation. With respect to policy making decisions necessary to the management of corporate affairs, Whit and the other Vids directors have responsibility for

a. all of the decisions.

Raul is chairman of the board of Swif-Vac Corporation. Pinky, a con¬sumer, is injured while using a Swif-Vac product. Pinky sues Swif-Vac, and Raul individu¬ally. Swif-Vac may pay Raul’s legal fees under

c. the director’s right to indemnification.

Viola is a director of Water Pure Corporation. With respect to Water Pure, Viola’s most important right is the right of

c. participation.

Sylvia is an officer of Triad Hotel Company. As an officer, with respect to the corporation, Sylvia is

a. a fiduciary.

Rocco is a director of Spa Lids & Tubs, Inc. Under the standard of due care owed by di¬rectors of a corporation, Rocco’s decisions must be

c. informed and reasonable.

Genna is a director of Fab Stuff Corporation. Without informing Fab, Genna starts up Evertrendy, Inc., to compete with Fab. Genna is li¬able for breach of

c. the duty of loyalty.

Naomi and Ogden are shareholders of MediCare Residences, Inc. As shareholders, they must approve

a. conducting a merger.

Zero Sum Games Corporation has forty-three shareholders. The mini¬mum number that must be present at a meeting for a shareholders’ vote is

b. a quorum.

Orin is a shareholder of Pinkwater Corporation. In some states, Orin might in¬cur personal liability for Pinkwater obligations if he

b. buys stock for less than its fair-market value.

Starr Cardio, Inc., is a small business. Ted, Uma, and eleven other members of the Starr family own all of its stock. Currently, Starr’s income is taxed at the corporate level and, after being distributed to the family members, at the shareholder level. Can Starr retain its corporate status but oth¬er¬wise avoid this double taxation? If so, how?

Starr can re-form as an S corporation to avoid this double income-taxation. S corporations were created specifically to permit small businesses to avoid this sort of taxation. Any small business that meets certain requirements can qualify. The requirements are (1) the firm must be a domestic corporation, (2) the firm must not be a member of an affiliated group of corporations, (3) the firm must have less than a certain number of share¬holders, (4) the shareholders must be individuals, estates, or qualified trusts (or corporations in some cases), (5) there can be only one class of stock, and (6) no shareholder can be a nonresident alien. Based on the facts presented in this question, it would appear that Starr would qualify.

Mitch is a director and officer of Numero Uno, Inc. Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduciary duty to the corporation. What is Mitch’s best defense against this accusation? Later, a resolution comes before the Numero Uno board to compete with One-of-a-Kind Corporation. Mitch is a director and shareholder of One-of-a-Kind. What is Mitch’s responsibility in this situation?

The best defense in this context is the business judgment rule. As long as a director or officer does what is necessary to be informed, and acts in good faith, in what he or she considers to be the best interests of the corporation, and with the care that an ordinarily prudent person would use in similar circumstances, he or she is not liable simply because a decision has a negative result. As for the resolution involving a different corporation, a director cannot support a business that competes directly with a corporation on the board of which the director sits. The director’s fiduciary duty requires him to fully disclose the conflict of interest. Most likely, the director in these circumstances will have to resign from one of the boards.

Hermione starts up, and assumes the financial risk of, Graphic Ads, a new enterprise. Hermione is

d. a sole proprietor.

Carl sells Direct Marketing Enterprises, a sole proprietorship, to Eve. This is a transfer of

d. the ownership of the business.

Jody owns KuppaJava Kiosks, a sole proprietorship. Jody’s liability is

d. unlimited.

Real Events Promotion Corporation licenses trademarks to Stadium Souvenirs, Inc., to use in selling caps, sweatshirts, and similar goods. This is

a. a franchise.

Leo buys an exclusive territory in which he is authorized to set up a plant to make Midwest Dairy, Inc., products. After receiving the formula, Leo begins making Nice Ice-brand ice cream and other Midwest products. This is

c. a manufacturing franchise.

In-Home Maid Service Company uses a Web site to provide downloadable in¬formation to prospective franchises. This online information is the equivalent of an offer that must comply with

c. the Federal Trade Commission’s Franchise Rule.

Echo enters into an agreement with Deep Pan Pies, Inc., to operate a franchise in Centre City. Later, Deep grants franchises to others within the city. Echo files a suit to close them. If the court rules in Echo’s favor it will most likely be on the ground that

b. Deep violated the implied covenant of good faith and fair dealing.

Dominique buys a franchise from Cheyenne Artisans, Inc. This provides Cheyenne with an outlet for the firm’s goods, some of which Dominique is required to buy at an established price. In their agree¬ment, Cheyenne may also specify

b. the franchise’s business organizational form.

Flip Gymnastics & Karate, Inc., grants a franchise to Gibby to operate a Flip gym. Flip may require Gibby to pay the franchisor a percentage of his

a. annual sales or volume of business.

Sweet Styles, Inc., a franchisor of clothing stores, wishes to standardize the pricing practices of its franchisees that have engaged in price-cutting to increase their respective shares of the market. The most prudent action might be for Sweet to

b. suggest the prices at which its franchisees sell their products.

Inger is a franchisee of Honey Bear Restaurants, LLC Their contract gives Honey Bear the right to control virtually all aspects of Inger’s op¬eration, including the hiring of employees. One of the employees, Joris commits a tort against Kiley, one of Inger’s customers. Kiley files a suit against Honey Bear. Honey Bear is most likely

a. liable because Honey Bear exercises control over Inger’s operation.

Noah and Orin do business as Personnel Partners. In most states, for purposes of suing and being sued, Personnel Partners would be treated as

c. an entity.

Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred. The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites’ profits, each month. The term is two years. Desi hires Gwen to work at eSites’ tech support desk at an hourly wage of $12.50, plus a commission of 10 percent of the profits. The term is also two years. Refer to Fact Pattern 17-1A. Desi and Fred are

a. not partners, because Fred does not have an ownership interest or management rights in eSites.

Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred. The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites’ profits, each month. The term is two years. Desi hires Gwen to work at eSites’ tech support desk at an hourly wage of $12.50, plus a commis¬sion of 10 percent of the prof¬its. The term is also two years.
Refer to Fact Pattern 17-1A. Desi and Gwen are

a. not partners, because Gwen does not have an ownership interest or manage¬ment rights in eSites.

Savannah and Rex agree while talking on the phone to form a partner¬ship to deal in sales of natural gas. Their partnership agreement is le¬gally binding

b. only if the agreement is reduced to writing.

Corbin, a partner in Doctors Medical Clinic, applies for a loan with Evermore Bank allegedly on Doctors’ behalf but without the authoriza¬tion of the other partners. Evermore knows that Corbin is not authorized to take out the loan. Corbin defaults on the loan. Liability for its unpaid amount is imposed on

b. Corbin only.

Luann and Mace are partners in Networx, a computer peripherals firm. Refer to Fact Pattern 17-2A. Luann signs a contract with Oleo Chips, a retail component supplier, apparently on Networx’s behalf. The contract is binding on

a. Luann, Mace, and Networx.

Luann and Mace are partners in Networx, a computer peripherals firm. Refer to Fact Pattern 17-2A. Mace dissociates from Networx. Luann signs a con¬tract with Physik Drives, a wholesale component supplier, apparently on Networx’s behalf. Physik does not know of Mace’s dissociation. The contract is binding on

a. Luann, Mace, and Networx.

Hud and Iggy form Jerry-Bilt Construction to enter into a contract to build one bridge. Under their partnership agreement, Jerry-Bilt is to dissolve when the bridge is built. Iggy signs a contract for the firm to build a second bridge. Jerry-Bilt

a. dissolves as soon as the first bridge is built.

Jim and Kyle are partners in J&K Sales, which exports technical equip¬ment under a three-year partnership agreement. The U.S. gov¬ernment declares that the equipment can no longer be ex¬ported. J&K

c. dissolves immediately unless the partners change its business.

Sustainable Café LLC is a limited liability company. Like any other LLC, unless Sustainable Café chooses otherwise, the firm will be taxed as

c. a partnership.

Esteban and Florian want to form a limited liability company (LLC) to manage their business, Gordian Nuts. LLC statutes have been adopted in

a. all states.

Bee Hive Honey, LLC’s members include Chad. For purposes of suing and being sued, Bee Hive Honey is

c. a legal entity apart from the owners.

Greta is a member of Hovercraft LLC. As a member, Greta is

c. an owner.

Coco is considering forms of business organization for her concessions business—Coco’s Cupcakes. Most states require that a limited liability company have at least

b. at least one member.

Location! Realty LLC is a limited liability company. Like other LLCs, for federal jurisdictional purposes, Location! Realty is most likely a citizen of

b. every state in which its members are citizens.

Vijay is a member of Watchit, LLC, a limited liability company. Vijay is li¬able for Watchit’s debts

b. to the extent of his capital contribution.

Lui is considering forms of business organization for a chain of Magic Trix novelty stores. One advantage of the limited liability company form, with respect to tax options, is its

a. flexibility.

CPA Accounting, LLC, is a limited liability company. If the law in CPA’s state is like the law in most states, unless the members have agreed other¬wise, participants in the firm’s management will be considered to include

a. all members.

Among its members, a dispute arises that the operating agreement does not cover. The dispute is governed by

a. the applicable state LLC statute.

Cecilia’s Day Spa, LLC, is a member-managed limited liability company. If the law in Cecilia’s state is like the law in most states, unless the members have agreed otherwise, voting rights are apportioned according to

a. capital contributions.

Flip is a member of Great States Trucking LLC. Flip’s relationship to Great States ends, but the firm continues to do business. This is

a. dissociation.

Vasili is considering forms of business organization for Vasili’s Designs, an ar¬chitectural firm. An advantage of a limited liability partnership is that partners may be able to avoid personal liability for

a. any partnership obligation.

Jack and Kyra are partners in Law Firm, LLP, a limited liability partnership. Jack supervises Kyra, who negligently fails to appear in court on behalf of Milo, a client. Liability to Milo rests with

a. Jack and Kyra.

Fern and Gray want to form a limited partnership to manage two restaurants: Café Latte and Deli Delite. In most states, a limited partnership will be created when

a. a certificate of limited partnership is filed.

Maury, Neil, and Ogden want to form a limited partnership to manage their Picture This photo studio. Their firm must have

a. at least one general partner and one limited partner.

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lucy is personally liable for the debts

c. to the extent of her capital contribution.

Venture Capital, LP, is a limited partnership. Its limited partners include more than 150 sophisticated investors and investment professionals. A Venture limited partner loses his or her limited liability if he or she

a. acts as the firm’s manager.

Stu is a limited partner and Tia is a general partner in S&T, a limited part¬nership. Between Stu and Tia, on S&T’s dissolution its assets will first be distributed to pay

a. either partner’s unpaid distribution of partnership assets.

Energy Unlimited, LP, is a limited partnership to which its partners, in¬cluding Fink, have contributed capital. Energy’s creditors include Graves Engineering, Inc. On Energy’s dissolution, its assets will be distributed to pay

c. Graves first.

Ivy and Justin want to form and do business as Kayak Adventures Corporation. A corporation can be owned by

c. artificial or natural persons.

Skyla and Terry want to form and do business as Unbound Games Corporation. Most statutes governing the formation and use of corporations are guided by

d. the Revised Model Business Corporation Act.

Mountaintop Clearview Corporation authorizes Niles, its employee, to oversee its timber operation. In the course of his employment, Niles disposes of the operation’s waste illegally. Orson is a Mountaintop shareholder. Liability for this crime most likely rests with Orson to

c. the amount of Orson’s investment in the firm.

Boutique Corporation would like to change its corporate status to avoid in¬come taxes at the corporate level. To qualify, the shareholders must not be

d. partnerships.

Convenience Mart, Inc., is a closely held corporation. Convenience Mart is

c. generally allowed to restrict the transfer of its stock.

Sullivan and Taylor want to form a corporation to provide catering services. The first step in the incorporation procedure is to

d. select a state in which to incorporate.

Hailey and Ike hold the first organizational meeting of Java Drive-In Corporation. Probably the most important function of this meeting is

a. adopting Java’s bylaws.

Start-Up Corporation substantially complies with all conditions prece¬dent to incorpo¬ration. Start-Up has

c. de jure existence.

Wild & Scenic River Tours, Inc., is a corporation. Wild & Scenic has the implied power to

d. perform all acts reasonably appropriate and necessary to accom¬plish its corporate purposes.

Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for pol¬icy decisions necessary to the management of corporate affairs rests with Delite’s

a. board of directors.

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which

a. governs Spex.

Reba is a director of Quantum Mechanix Corporation. Reba’s rights, as a di¬rector, do not include a right to

d. self-dealing.

VeriVisual Company makes HD 3D film and video equipment. VeriVisual is like most cor¬porations in that its officers are hired by the firm’s

a. board of directors.

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

a. a fiduciary.

Gladys is a shareholder of Frozen Yogurt, Inc. As a shareholder, Gladys must approve

a. amending the bylaws.

Heidi and Ian are directors and shareholders of Globe Software, Inc. Heidi’s written authorization to Ian to vote Heidi’s shares at a Globe shareholders’ meeting is

c. a proxy.

Mark was refused employment at a Christian Bookstore because he was not a "born-again Christian." If Mark brings a Title VII action against the bookstore, the bookstore’s best defense would be:

C. being a "born-again Christian" is a bona fide occupational qualification.

Which of the following is the most likely to be a legitimate, nondiscriminatory criterion for selection of an employee under Title VII?

D. Educational level.

Which of the following would probably not be required of employers to reasonably accommodate for religious beliefs?

B. Closing the business on Sundays.

Which of the following statements is correct?

B. Generally speaking, in most states, it is easier for a private employer than the government to test an employee for drugs or alcohol.

Megan was employed by a large company. Her supervisor told her to falsify government reports. She refused and was fired. She sued for wrongful discharge. Her employer claimed that, since Megan was an at-will employee, she had no legal right to claim the company was liable for damages. Is the employer right?

D. No. Though at-will employees do not have extensive rights relative to job security, they may not be legally fired for refusing to perform an illegal act.

Wrongful discharge claims are generally based upon all EXCEPT:

B. criminal law.

Sharon had a heart attack while she was under stress at work. Can she collect workers’ compensation for the time she had to be away from work as she recovered?

A. Yes, since the heart attack occurred while she was at work.

Laura intends to file a Title VII lawsuit against her employer. Which of the following is true?

A. Laura is required to first submit her claim to the Equal Employment Opportunity Commission.

An agency relationship can be created:

A. by the conduct of the parties.

Can a person work as an agent for two different people with conflicting interests?

B. Yes, provided the agent discloses to both principals that she is representing both persons and the principals agree to the dual relationship.

Nathan agrees to act as an agent for Cheyenne. Which of the following is true?

C. Cheyenne may compete with Nathan in matters within the scope of the agency business.

Ron is the business agent for Kansas Sunshine, a rock band. He is also the agent for another popular Midwestern rock group, City Sand. Ron negotiates a deal with a Kansas City promoter to have City Sand play after a professional football game. The promoter was willing to pay $250,000 for both groups to play after the game; however, Ron talked her into booking just City Sand for $175,000. Given his contract with City Sand, Ron made more money under this arrangement. Has Ron violated his fiduciary duty to Kansas Sunshine?

A. Yes. It appears that Ron put his own interests ahead of his principal’s interests.

Nikki was an tax accountant with HBR Accounting. Nikki decided to do some tax consulting in the evenings and on weekends. HBR is unaware of Nikki’s consulting work. Which statement is correct?

D. Nikki has breached a fiduciary duty to HBR since she is competing with HBR.

Cameron, editor of the local newspaper, assigned to Jim the writing of a story about pollution of a nearby stream. Although Jim used reasonable care in gathering and checking his information, unknown to Jim, the story contained a defamatory statement about Maureen. Maureen reads the story and sues Jim for libel. Cameron, who read and published the story:

A. must indemnify Jim for Maureen’s claim.

An agent may not engage in inappropriate behavior that reflects badly on the principal. This rule applies to conduct:

C. during both working hours and off-duty time.

Pamela hired Lena to sell her business. Lena:

C. can buy the business only with Pamela’s permission.

The death of the agent:

A. automatically terminates the agency relationship.

If the agent is disloyal to the principal:
A. the agency agreement automatically terminates and the principal may rescind the transaction.
B. the principal has the right to collect any actual damages sustained as a result of the agent’s disloyalty.
C. the principal has a right to recover any profits earned as a result of his agent’s disloyal conduct.
D. All the above are correct.

D. All the above are correct.

John hired Tim to sell his house. Which statement is correct?

A. John is Tim’s principal.

HBR Accounting hired Denise, a CPA, to prepare tax returns. Which statement is correct?

C. Denise, as a CPA, is an agent with special skills. She is held to a higher duty than ordinary negligence.

Jenny is a salesperson in a hardware store. As such, she:
A. is an agent of the store.
B. has express authority to conduct sales transactions.
C. has implied authority to conduct sales transactions.
D. All the above are correct.

D. All the above are correct.

The doctrine of estoppel would most often apply in situations of:

B. apparent authority.

Express authority can be created by:
A. words spoken directly to the agent.
B. conduct.
C. written words given to one person to give to another person, the agent.
D. All the above.

D. All the above.

Paula appointed Al to be her agent via a contract in writing that spelled out the scope of Al’s authority. The contract provided that Al was not to disclose that he was acting on behalf of Paula. In entering into a contract for Paula, Al did not disclose to the third party that he was acting as an agent. In this case, the principal was:

C. undisclosed.

When a principal is partially disclosed:

A. the agent and principal will be jointly and severally liable on the contract.

Mike worked for Frank’s Pizza as a driver. His duties consisted of making deliveries along a designated route. One day Mike decided to see his girlfriend, Jackie, who lived 50 miles out of his pizza route. While driving to his girlfriend’s, Mike injured a pedestrian, Chuck. The accident was caused because of Mike’s negligent operation of the delivery truck. Chuck is now suing both Mike and Frank’s for personal injuries. Under the circumstances:

D. Frank’s is probably not liable because Mike’s excursion was not within the scope of his employment.

Fact Pattern 29-2
Judy was the manager of an apartment complex. She hired Rick to mow the lawns. One afternoon while Rick is mowing the lawn, his negligence caused damage to Terri’s car. If Judy had been negligent in hiring Rick, who is liable to Terri?

A. The landlord, Judy, and Rick.

Jackie is an employee for Hardware Store, Inc. When attempting to open a can of bright orange paint, she accidentally spills paint on Maggie, a customer in the store. Maggie claims that her $800 business suit is ruined. The legal liability here can best be described as:

C. Both the store and Jackie are liable to Maggie.

The National Relations Labor Act of 1935 is also known as the:

A. Wagner Act.

Maxine lost her job as an electrical engineer with a large company which had provided health insurance benefits for Maxine and her family. She now:

B. is protected under COBRA, which allows her continued health insurance coverage for 18 months as long as she pays the cost.

All the business forms listed below have limited liability except the:

B. general partnership.

Rachel and Cyndi started a retail business called Zebra Toy Company. The business is operated as a partnership. Under partnership law:
A. Rachel is personally liable for any business contracts entered into by Cyndi.
B. Rachel is personally liable for any business debts, regardless of whether she or Cyndi created the obligation.
C. Rachel is personally liable for any negligent act committed by Cyndi in the scope of the business activity.
D. All the above.

D. All the above.

The business form that is taxed as a partnership and gives all owners limited liability, is:

C. a limited liability company.

Murray was a partner in a large firm. He died unexpectedly. His son, Frank, wanted to take over for his father in the partnership and was well qualified to do the work his father had done. Which statement best describes Frank’s rights in the partnership if he inherits the interest?

B. Frank is entitled to the value in the partnership, but not to become a full partner. `

The advantage of a corporation over a partnership is:
A. shares are easily transferable to another person.
B. perpetual existence.
C. it is easier to raise funds.
D. All the above.

D. All the above.

LLCs have become popular for all except which of the following reasons:

C. uniformity of law.

The term "S Corporation" comes from:

A. the Internal Revenue Code.

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