business law exam 5

Corporations, partnerships and limited liability companies are all tax paying entities according to the federal tax law.

false

Implied authority arises when the principal's actions cause a third party to believe that the agent is authorized to act in a certain way on behalf of the principal.

false

In a partnership equally owned by two partners, each partner is personally liable for half the debts of the partnership business.

false

An agent enters in to a construction contract with a third party that is not consistent with the authority granted by the principal. The principal is aware of the contract and begins to perform the contract and accepts the initial payment due from the third party. This is an example of:

implied ratification

An agent who contracts with an innocent third party while lacking authority from the principal may become personally liable to the third party under which of the following implied warranties?

implied warranty of authority

Which of the following would subject the principal to direct liability (as opposed to vicarious liability) for a tort committed by an agent?

keeping an incompetent and unsuitable agent on the job even though the principal is aware of the agent's unsuitability

An agent may find himself personally liable to perform the contract obligations of the principal in one of the following circumstances.

nonexistent principal

Which one of the following business entities does not require a filing with the state when it is created?

partnership

Cash or other property contributed to a partnership upon its formation is referred to as:

partnership capital

The owners of a corporation are referred to as which one of the following?

shareholders

As a fiduciary, an agent is free to any manner even if detrimental to the principal.

false

Agents have a duty to:

- obey the principal's reasonable instructions for agency business - exercise appropriate care and skill - promptly communicate to the principal matters reasonably relevant or material to the agency business - provide an accounting of the principal's business

Which of the following is not an example of implied authority?

A golf course supervisor borrows money and mortgages the clubhouse to make improvements to the golf course.

Marisa was a CPA who formed a partnership with another CPA, Dave. They formed a limited liability partnership (LLP). If Marisa negligently fails to correctly calculate a client's tax liability, resulting in fines to the client:

Marisa and Dave are both personally liable, since the tort occurred in the course of business, and, as professionals, they retain personal liability.

A limited liability company is much like a limited partnership, with the following exception:

Members of LLCs may participate in management without risking personal liability for business debts while limited partners may not.

Apparent authority may arise when an individual, without the principal's knowledge or consent, falsely tells a third party that she is fully authorized to act on behalf of the principal.

false

In terms of liability consequences, a limited partner in a limited partnership is most nearly like

a partner in a general partnership

In terms of tax treatment, a limited partner in a limited partnership is most nearly like

a partner in a general partnership

A principal can insulate herself from liability for misrepresentation by appointing an agent to make the false statement.

false

Agents are always considered employees of the principal.

false

An agent acting within his or her stated authority can never be personally liable on a contract made on behalf of the principal.

false

An agent is ordinarily forbidden to deal with himself when conducting the principal's business, even if the transaction in question is outside the subject matter of the agency.

false

An employer is liable for all torts committed by its employees including those acting beyond the scope of their employment.

false

Rauber and Ryan, Inc. was a management consulting business operating in 27 states. If they decide to change their business organization to a limited liability company (LLC), a potential disadvantage would be:

that it may trigger capital gains tax liability caused by the termination of the corporation

A written agency contract normally states the duties the principal owes the agent, but law implies certain duties on the principal:

to indemnify the agent for losses suffered in conducting the principal's business

A corporation has a life separate from its owners and managers.

true

A limited liability company (LLC) is similar to a partnership except that an LLC pays federal income tax.

true

A limited partnership is generally divided into two classes of owners: general partners and limited partners.

true

A principal is normally bound by a contract made by his agent acting with either actual or apparent authority.

true

A sole proprietor is personally liable for all the debts of his business and thus his personal assets may be used to satisfy business creditors.

true

Agency is a two-party relationship in which one party (agent) is authorized to act on behalf of, and under the control of another party (principal).

true

An agent's duty of confidentiality continues after the agency ends.

true

Apparent authority is based on whatever the principal communicates or manifests to a third party and whatever the principal "communicates" or "manifests" to the third party must cause the third party to form a reasonable belief that the agent has authority.

true

Apparent authority protects third parties who reasonably rely on the principal's manifestations that the agent has authority.

true

Both the principal and the agent can be liable for a tort committed by the agent.

true

Limited partnerships generally share profits and losses according to each partner's capital contribution.

true

One exception to the rule that principals are not ordinarily liable for torts committed by nonemployee agents is harm caused by a nonemployee agent who carelessly performs some dangerous activity.

true

Respondeat superior is a form of vicarious liability that makes employers liable for the torts committed by employees acting in the scope of their employment.

true

There are two kinds of actual authority: express authority and implied authority.

true

Unless otherwise agreed, an agent may not use or share confidential information of the principal for the agent's own benefit or for the benefit of a third party.

true