Business Law Final

Mr. Sanchez makes a $100,000 down payment to Marvin who is a contractor. Marvin is building a new home for Mr. Sanchez in the Oakwood subdivision for a contracted price of $250,000. Marvin carries a fire insurance policy on the home. After 3 months of work, the home, still under construction, catches fire and burns to the ground. How much, if any, will the insurance company pay Marvin?

$150,000 which is the amount owed to him under the contract

An incontestability clause ordinarily bars contest of the validity of a life insurance policy by the insurer after the lapse of:

2 years

limited liability partnership

A limited liability partnership (LLP) operates similarly to a general partnership; however, it must be formed incompliance with state law. However, an LLP allows professionals, such as attorneys and accountants, to avoid personal liability for the malpractice of other partners.

Jill and Glenn want to form a limited partnership to minimize their personal liability for both of them. Which of the following would be the best structure for formation purposes?

A limited partnership, with a third party as the general partner and Jill and Glenn as the limited partners.

Sole Proprietorship

A sole-proprietorship is a business owned by a sole owner. The business generally is not formed as an entity (e.g., the entity does not need to be established with the secretary of state).

If Anna originally invested $5,000 and Caleb invested $1,000 in the business, and the business made a profit of $60,000, how would the profit be split?

A. f the partnership agreement tells how the profits will be split, then they will be split using the terms of the agreement. B. If the partnership agreement does not tell how the profits will be split, then the will be split evenly ($30,000 to both). BOTH A & B

Caden and Hannah were in partnership for 10 years doing business as CHT Custom Furnishing, a business that makes custom furniture and cabinets. Due to the economy their business had become unsuccessful and closing. They have $25,000 in assets (cash, equipment and inventory) but the company owes $30,000 to a creditor, Ace Wood Supply. In addition, Hannah owes $5,000 individually to First Bank for a personal loan that she took out to try to help the company. How will the assets be divided?

Ace Wood Supply is entitled to the assets first

Rightway Transports is a private carrier that contracts with local businesses to transport products within a 300 mile radius. Rightway purchased a commercial general liability (CGL) policy from an insurance company. While transporting a truck-load of olive oil, one of the Rightway truck drivers fell asleep at the wheel, ran off the road and into a storefront. The accident injured the Rightway driver as well as several shoppers inside the store who were injured by flying glass and debris. What damage, if any, is Rightway's insurance company required to cover?

All damage, including the driver, the truck, the store and the shoppers would be covered by the CGL policy.

Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The articles of organization specify that it is a member-managed firm. Which of the following statements is true when it comes to management of the firm, such as the decision of whether to fire the quarterback?

All of the members would have a vote on management decisions.

Alyssa made a claim to her insurance company stating that the water pipes burst and flooded the home. Her insurance company denied the claim stating that they felt the damage was done intentionally to get new flooring. Which of the following is true?

Alyssa has the burden of proof because she is bringing the lawsuit

When no limited partnership certificate is filed, what is the result?

Both general and limited partners are fully liable.

James, a promoter of Unobtainium Corporation, has a fiduciary duty to:

Both the other promoters and the initial shareholders of Unobtainium Corporation.

Assume that Wizard Internet is operating as a general partnership, what is Caleb's personal tort liability for Anna's actions within the scope of the business?

Caleb is personally jointly and severally liable along with Anna.

Connor is a limited partner in Worldwide Toys, Limited Partnership. The general partners ask Connor to attend a meeting to discuss new toys and to help decide which toys might be sold next year because they know that Connor has several young children. Which of the following is true?

Connor is not allowed to participate because he is a limited partner

Sole proprietorship liability

Correct. In a sole proprietorship structure, Lenny's personal assets would be at risk. The sole proprietorship does not provide liability protection to the sole owner. Accordingly, Lenny's liability would not be limited to what he invested in the company. It would not be easy for Lenny to raise capital for the company as he is the sole owner and there are not shares or interests to sell in a sole proprietorship. Finally, if Lenny were to die, the sole proprietorship would be dissolved and not continued.

Assume the football team is set up as a limited partnership. Lenny is the only general partner and Sarah and Sam are the only limited partners. Which of the following is incorrect?

Distribution of the profit among the partners is set by statute even if set forth in an agreement among the parties.

Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC and it is a member-managed firm. Which of the following is incorrect?

Distribution of the profit among the partners would be determined by the statue even if spelled out in the agreement.

Suppose the agreement that was written does not say anything about how the partnership was to be run, how would the courts determine how the business is controlled?

Each partner would have equal votes as to the operation of the partnership.

Daniel, Kathryn and Alex are co-members in an LLC. Daniel, in payment for a loan, assigned his interest in the LLC over to First Bank. Kathryn and Alex do not want First Bank to participate in the management of the company. Which of the following is true?

First Bank is not a member of the LLC and cannot participate in the management if Kathryn and Alex do not agree.

If GTS and Susan's company enter into a merger, which of the following is true?

GTS's articles of incorporation are deemed amended to include any changes that are stated in the articles of merger.

Gregory purchased life insurance on his life and named his life-long best friend, Samuel, as his beneficiary. On his death, Gregory's wife Marcia sued the insurance company for the benefits. What does the law say regarding Gregory's choice of a beneficiary?

Gregory may name whomever he wishes as a beneficiary.

Which of the following would be an advantage of Lenny running the team as a sole-proprietorship?

He would have more flexibility to run the team than with other types of business organizations. He would assume all of the profits of the team. Any taxes on profits made from the team would be reported on Lenny's personal tax return. ALL OF THE ABOVE

Jack is a member in an LLC along with Hunter and Bethany. Jack dies unexpectedly but Hunter and Bethany, as the sole remaining members, agree to continue the business. Which of the following is true?

Hunter and Bethany can continue the business as an LLC

Assume that Wizard Internet is allowed by state law to form a Limited Liability Partnership. If Anna and Caleb were to do so which of the following is incorrect?

If Anna were to commit an act of malpractice, Caleb would be liable as well.

Under what circumstances would Appleton Inc. not be NOT subject to the contract obligations of Barton, Ltd., a former business?

If Appleton, Inc. purchases only the assets of Barton and not the business itself.

Split the profits

If there is terms in the partnership agreement about how to split the profits, then the terms of the agreement will prevail. If not the Uniform Partnership Act assumes that all the profits will be split evenly among the partners, and losses will be split in the same way as the profits are split.

If Lenny were to own the team as a sole proprietorship, which of the following is correct?

If there was a tort lawsuit arising from an activity of the team, Lenny could be sued personally.

liability

In a general partnership all partners are personally jointly and severally liable for the acts of any of the partners that occur within the scope of the business.

Sole Proprietorship owner

In a sole proprietorship, the owner is the sole owner. There are not any shareholders, partners, members or other owners. Accordingly, the sole owner (in this case Lenny) would have sole decision-making authority.

Telequatics Corporation consolidates with Smith Industries Corporation to form Telequatics-Smith Corporation. Before the consolidation, Telequatics owed $500,000 in debt. What happens to the debt after the consolidation?

It is assumed by Telequatics-Smith Corporation.

Jacob, Lily and Sophia are partners in Momma Mia's Italian Restaurant. Jacob and Lilly run the restaurant itself while Sophia performs all the business and accounting functions from her home and is rarely at the restaurant. They receive notice from an attorney that a customer has gotten food poisoning from eating there and is suing. Jacob, Lily, Sophia and the restaurant are all named in the lawsuit. If the customer wins the lawsuit, who will be liable?

Jacob, Lily and Sofia will all be liable

Assume the football team is set up as a limited partnership Lenny is the only general partner and Sarah and Sam are the only limited partners. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car. Which of the following is true?

Lenny has unlimited liability and Sarah and Sam have liability limited to their investment in the firm.

Dr. Addison and Dr. Martin are dentists who have been in partnership for 10 years in a practice called Greenville Family Dentistry. In January, they added a new partner, Dr. Voyt. Three months later, a former patient named Ethan files a lawsuit against Greenville Family Dentistry for $300,000 claiming that Dr. Addison damaged his teeth during a procedure 8 months ago and he has now had to have major reconstructive work done at another dentist office. Who is liable for this claim?

Only Dr. Addison & Dr. Martin would be liable, Dr. Voyt would not.

Assume that the football team is set up as limited partnership. Lenny is the only general partner and Sarah and Sam are the only limited partners. Who would make the decision about whether or not to fire the quarterback?

Only Lenny.

If Susan's company tries to take over GTS instead of letting GTS take over her company, her company is using which takeover defense?

Pac-Man Defense

Mr. Montgomery has been asked to become a limited partner in a company with his 2 friends, Mr. Reed and Mrs. Everly. Which of the following would be a legal name for the company?

Reed & Everly, Limited Partnership

The incorporators would typically do which of the following?

Sign and file the appropriate forms with a designated government official.

what type of insurance is written for a specified number of years and terminates at the end of that period?

Term Insurance

Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. Which of the following statements is true?

The LLC can choose to be taxed like a corporation or like a partnership.

Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The team is sued for negligence because an individual who turned to see the quarterback running naked crashed her car. Which of the following is true?

The LLC may have liability, but not the individual owners.

Addison, Wyatt and Avery purchased property to open a limited liability company under the name Common Ground, LLC. Addison contributed 60% of the money while Wyatt and Avery contributed 20% each. Who owns this property?

The LLC owns the property

Assume the football team is set up as a limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. The articles of organization specify that it is a manager-managed firm. Which of the following statements is true in regards to management of the firm, such as the decision of whether to fire the quarterback?

The members would designate a group of members, non-members, or a combination of both, to manage the firm

Midwest Produce is a for-profit company that sells corn, wheat and other products to distributors in the US. Weatherford, Inc is a non-profit corporation that provides free food to low income or no-income families with children. The two companies see that they can benefit from a relationship so they decide to merge even though Weatherford has over $50,000 in debt. What happens to that debt when they merge?

The merger would not be allowed because Midwest is a for-profit and Weatherford is a non-profit.

Olivia, Liam and Emma enter a partnership to open a restaurant. After five years in a successful business together, Emma wants to leave the partnership, as allowed by the agreement, in order to spend time at home with her children. Under the Revised Uniform Partnership Act (RUPA) what happens to the restaurant if Emma leaves?

The partnership and restaurant can continue undisrupted

Jack, Tyler and Ryan own a business together. When Jack and Tyler discover that Ryan has been stealing money from the company, they discharge him as a partner, as allowed by the articles of partnership agreement. What happens to the partnership now?

The partnership is dissolved because Ryan was discharged

Sue, Barb, and Carlotta agree to put in $1,000 each to set up a shelter for lost animals. They each work two days a week. Donations fund the day-to-day operations. Do they have a partnership?

They are not partners because there is no business for profit.

Marilyn, George, and Christine pool their money to buy land to operate a vegetable farm from which they plan to sell the produce and share the profits or losses. George also has another full-time job as an accountant. Are they partners?

They are partners in a for-profit business

limited partnership

To be set up as a corporation or a limited partnership, Caleb and Anna would have had to register their business with the secretary of state of their state. Since it appears that they did not do that, but they are acting as one entity, the courts would probably hold them to be a partnership.

What is not a correct statement concerning promoters?

Two (2) or more promoters are required to form a corporation.

partnership control

Under the Uniform Partnership Act, when the partnership agreement is silent as to how the partnership is controlled, it is assumed that each partner will have equal say in the operation of the business.

Would it be easy to cut the quarterback from the team, if Lenny owned the team as a sole-proprietorship?

Yes, it would be entirely his decision.

Avalyn is an incorporated chain of restaurants in New York. Each time someone buys a meal, The restaurant supplies $5 worth of fresh fruit and healthy snacks to the homeless shelters. The purpose of the corporation is to make people aware of the homeless in their community and allow them to give back and help. What type of corporation is Avalyn?

a benefit corporation

A public corporation is:

a corporation established for governmental purposes and for the administration of public affairs.

Using the traditional definition, if Susan's company is entering into an agreement with GTS whereby GTS and Susan's company combine Susan's company becomes part of GTS, the two companies have gone through:

a merger

A corporation must have:

a name.

Arthur, Betty, and Clara each inherit an undivided one-third interest in an apartment complex. Instead of selling it, they decide to continue to operate it for the next few years as a sideline to their other occupations just to see if they can earn some extra money. What are they?

a partnership

Suppose Lenny is the sole owner of the football team, and has never created a separate business organization for it. How is the team owned?

a sole proprietorship

In the absence of a contrary agreement, each partner has which of the following rights?

a. The right to a share of the partnership profits. b. The right to take an equal part in transacting the business of the firm. c. All of these are correct. d. None of these are correct.

In the case Graves v. Norred the court determined:

a. a partner or partnership has an insurable interest in the life of one of the partners.

An enterprise that conducts business following a merger or consolidation succeeds:

a. all of the rights of the predecessor. b. all of the property of the predecessor. c. all of the debts and liabilities of the predecessor. d. All of these are correct

John Evans and Tanner Hall started a corporation and wanted to use a combination of their names as the corporate name. They decided on "Evans & Hall, Ltd." as a corporate name. Is this permissible?

a. as long as it is distinguishable from the name of any domestic corporation or any foreign corporation authorized to do business within the state it is permissible.

Dissolution of a partnership:

a. ends the right of the partnership to exist as a going concern. b. is followed by a winding-up period. c. reduces the authority of the partners. d. All of these are correct

Members of a limited liability company share profits:

according to the terms of the operating agreement.

The spread of limited liability corporation statutes resulted from:

an internal revenue ruling

For property insurance, an insurable interest must exist:

at the time of the loss.

Which form of business entity was created primarily to shield innocent owners, particularly those in professions, from malpractice liability generated from other owners in the firm?

b. The limited liability partnership.

An insurer who wrongfully refuses to defend the insured is liable for:

breach of contract

Jordan applied for a health insurance policy using the company's on-line application. The application was approved and Jordan began making payments using a paperless system where customers could make payment automatically from their checking accounts. Six months later however, Jordan stopped making payments and the insurance company found that Jordan had closed the checking account from which the payments were coming. The insurance company is now cancelling Jordan's policy. What is the best way for the insurance company to notify Jordan that the policy is cancelled?

by mail

The rules and regulations enacted by a corporation to govern the affairs of the corporation and its shareholders, directors and officers are called:

bylaws

Part of every whole life insurance premium covers the cost of insurance. The remainder of the premium is devoted to the investment component of the policy, which builds up over time to its:

cash surrender value

Under the Revised Uniform Limited Partnership Act, a limited partner may contribute:

cash, property and services

A ______ requires the insured to maintain insurance on the covered property up to a certain amount or certain percentage of the value.

coinsurance clause

an insurance policy designed to protect a business from mostly sums that the insured may become legally obligated to pay as damages because of bodily injury or property damage cause by an occurrence is a:

commercial general liability policy

Using the traditional definition, if Susan's company is entering into an agreement with GTS whereby GTS and Susan's company combine and each ceases to exist, but instead emerge as a new company, the two companies have gone through:

consolidation

Winona negotiated for the purchase of insurance and paid the premium. The policy was mailed to her, but before it arrived a loss was suffered. When Winona read the policy, she could not determine whether the loss was covered because the policy was too difficult to understand. The insurance contract is:

construed strictly against the insurer

When a partnership is dissolved by the act of a partner, notice:

d. must be given to both other partners and third persons.

In the absence of a provision in the partnership agreement on the sharing of profits, partners share profits:

d. on an equal basis without regard to capital or services contributed.

Brook, while married to Dale, purchases an insurance policy and names Dale as the beneficiary. Two years later, Brook and Dale divorce and Brook marries Landon and tells him she is going to change her beneficiary. Before she can change it, Brook dies. Who is entitled to the insurance money?

dale

Greenhouse Inc has followed all the procedures for incorporating the business but when they applied for incorporation, it was found that they had a substantial error in incorporation even though they attempted in good faith to organized, attempted to organize in compliance with the statutory requirements and have used their corporate powers. What type of corporation would they be considered?

de facto corporation

Where a corporation is properly formed, it is called a corporation:

de jure

The authority of an agent to perform a certain act is:

express authority

ABC Corporation is merging with Whitten Corporation. The majority of shareholders approve the purchase, but a minority of shareholders objected to the proposal and have applied to the court to appraise the value of their stock. . If the appraisal remedy is granted, the shareholders will be paid the:

fair value of their shares

Stanton Inc. is chartered in Oklahoma but has several facilities in Arkansas. In Arkansas, those facilities would be considered what type of corporation?

foreign

Persons who are in a partnership are called __________ partners.

general

the partners who manage the limited partnership and are personally liable for the firm debts are ____ partners.

general

The dissolution and winding up of a limited partnership is governed by the same principles applicable to a:

general partnership

What kind of business organization are Caleb and Anna operating under now?

general partnership

An application for insurance:

generally is attached to the policy and becomes a part of the insurance contract.

Mike Reilly suffered the loss of his home as a result of a chimney fire that was caused by the ignition of soot in the chimney. This fire would be described as:

hostile fire

If a provision in an insurance policy is ambiguous:

it is interpreted against the insurer.

__________ apportions partners' responsibility for partnership debt equally.

joint liability

__________ of a corporation may occur when management is deadlocked and the deadlock cannot be broken by the shareholders.

judicial dissolution

Jill is a member of Appleton LLC, and Sam is the manager in this manager-managed company. Which of the following aspects do they share in common?

liability

A person admitted as a partner into an existing partnership has __________ liability for all obligations of the partnership arising before such admission.

limited

Robert and Keith want to form a business entity with equal control and limited liability. They should form a:

limited liability company

Jerry, Beaux and Nate want to form a business organization for their new accounting firm, and want to shield innocent owners from malpractice liability generated from other owners in the firm but allow all owners to participate in the management of the firm. Which type of entity should they form?

limited liabilty partnership

In a member-managed limited liability company, who controls the operation of the firm?

members

The owners of a limited liability company are known as:

members

Assume the football team is set up as a general limited liability company (LLC) and that Lenny, Sarah, and Sam are the owners of the LLC. Lenny, Sarah and Sam are properly referred to as:

members.

After a corporate charter has been forfeited, the owners and officers of the dissolved corporation are __________ shielded from personal liability by using the corporate name when making contracts.

not

When two corporations merge:

one of the corporations absorbs the other.

Paul purchased a house and also purchased fire insurance coverage on the house. The policy contained an 80 percent coinsurance clause. Paul maintained coverage in the amount of $150,000 and the value of the house was $250,000. A fire caused a loss of $100,000. Paul will collect:

only part of the $100,000 loss, because he failed to maintain coverage at 80 percent of the value of the house.

Marshall lives in the city of Valley, Inc. What type of corporation is a city?

public corporation

In the case Patel v. Patel:

the contract for sale was not binding.

If the insured lives to the end of the policy period of an endowment insurance policy, the policy pays:

the face amount of the policy

Andre invested $100,000 in a partnership with Erik and Louis for the purchase of an apartment complex, with each owner sharing equally in the profits and losses. The property is owned by:

the general partnership

In the case Morgan v. American Security Ins. Co the court determined that:

the insurable interest must exist at the time of the loss.

In the case In re 75,629 Shares of Common Stock of Trapp Family Lodge, Inc.:

the majority of the Trapp Family Lodge, Inc. shareholders approved the merger. the Trapp Family Lodge, Inc. retained certain royalty rights to the family story as portrayed on Broadway and in a movie. the Trapp Family Lodge, Inc. was incorporated as a holding company for certain assets of the Von Trapp Family. ALL OF THESE ARE CORRECT

In determining the rights of partner a specific partner within given partnership, the most important reference point is:

the partnership agreement.

In a limited partnership, the most limited partners can lose is:

their investment in the limited partnership, as well as all of their personal assets, since the term "limited" refers to the limited partners' managerial obligations, rather than to their liability exposure.

A partnership exists only if:

there is clear evidence that the partners carried on as co-owners in a business for profit.

Luke typically spends 50-55 hours per week working in the real estate partnership he co-owns with Spencer. Spencer only spends about 30 hours a week on partnership business. Under the RUPA: After a year of the partnership, Luke gets tired of doing more work and demands that the gets an extra 5% of the profits. Which of the following is true?

unless the partners have otherwise agreed, Luke is not entitled to payment for his work for the partnership, even if it is disproportionate to his partner's work.

Hannah wants to purchase an insurance policy that provides lifetime protection but can also be used an investment so that she may be able to turn the policy in for a cash amount if she decides to cancel the policy before she dies. What type of insurance would be best for her?

whole life insurance

If Jack contributed $10,000 as a limited partner, but no certificate of limited partnership was filed, Jack:

will be liable as a general partner.