FIL 375 Exam 2 Me

Under the Revised Model Business Corporation Act, a corporate director is authorized to A. Rely on information provided by the appropriate corporate officer. B. Serve on the board of directors of a competing business. C. Sell control of the corporation. D. Profit from insider information.

A is the correct answer. Because directors cannot personally investigate or study every matter themselves, they are allowed to rely on information provided by corporate officers if it is reasonable to do so. Choice B is incorrect because serving on a competing board would usually violate the duty of loyalty.

Forming an agent relationship requires that A. The agreement between the principal and agent be supported by consideration. B. The principal and agent not be minors. C. Both the principal and agent consent to the agency. D. The agent's authority be limited to the express grant of authority in the agency agreement.

C

If a partner wants a court to determine that partner's share of partnership assets, the partner should seek A. A charging order B. An indemnification C. An accounting D. A dissolution

C is the correct answer. An accounting determines the individual claims of the partners to partnership assets and profits.

Unless prohibited by the organization documents, a stockholder in a publicly held corporation and the owner of a limited partnership interest both a have the right to A. Ownership of the business' assets. B. Control management of the business. C. assign their interest in the business. D. An investment that has perpetual life.

C is the correct answer. Most property rights are assignable, including ownership interests in any type of business. Choice A is incorrect because shareholders and limited partners have an ownership interest in the business, but do not have a direct ownership interest in the individual assets of the business.

Under the Revised Model Business Corporation Act, which of the following must be contained in a corporation's articles of incorporation? A. Quorum voting requirements. B. Names of stockholders C. Provisions for issuance of par and non-par shares. D. The number of shares the corporation is authorized to issue.

D is the correct answer. Choice B is incorrect because it is the incorporators, not the shareholders, whose names must appear in the articles.

True or False. Unlimited liability for obligations of the partnership, both for those arising before she joined the partnership and those arising after joining.

False

A stockholder's right to inspect books and records of a corporation will be properly denied if the stockholder A. Wants to use corporate stockholder records for a personal business B. Employs an agent to inspect the books and records. C. Intends to commence a stockholder's derivative suit. D. Is investigating management misconduct.

A is the correct answer. Choices C and D are incorrect because they both represent legitimate reasons to inspect the books and records

Price owns 2,000 shares of Universal Corp.'s $10 cumulative preferred stock. During its first year of operations, cash dividends of $5 per share were declared on the preferred stock but were never paid. In the second year, dividends on the preferred stock were nether declared nor paid. If Universal is dissolved, which of the following statements is correct? A. Universal will be liable to Price as an unsecured creditor for $10,000. B. Universal will be liable to Price as an unsecured creditor for $20,000. C. Price will have priority over the claims of Universal's bond owners. D. Price will have priority over the claims of Universal's unsecured judgment creditors.

A is the correct answer. Even when preferred stock is cumulative, dividends become a liability of the corporation only if they are declared by the board of directors. In this question, only a portion of one year's dividends had been declared, thus Price has a claim to only the $10,000 that has been declared. For this amount, he is an unsecured creditor. Price will have a claim to the other $10,000 of the first year's dividends, and the second year's dividends, but those claims will be as a preferred shareholder and not as an unsecured creditor. Choice D is incorrect because Price will have equal priority with other unsecured creditors for the amount that has been declared.

Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership. Park wishes to dissolve the partnership. Park wishes to dissolve the partnership. Which of the following statement is correct? A. Park may dissolve the partnership at any time B. Unless Graham consents to a dissolution, Park must apply to a court and obtain a decree ordering the dissolution. C. Park may not dissolve the partnership. D. Park may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors.

A is the correct answer. Note the logical relationship of answer choices A and C. It is highly unlikely that neither is correct, thus the question can quickly be narrowed down to A and C, which improves the chance of correctly answering the questions. Choice A would be true even if the partnership agreement provided that Park could not withdraw. In such a case, Park would have the power to withdraw, but not the right to do so. Without a fixed duration, Park has both here.

Which of the following facts is (are) generally included in a corporation's articles of incorporation? 1. name of registered agent 2. number of authorized shares A. YES & YES B. YES & NO C. NO & YES D. NO & NO

A is the correct answer. Under the Revised Model Business Corporation Act, both the name of the registered agent and the number of authorized shares must be included in a corporation's articles of incorporation.

The limited liability of a stockholder in a closely held corporation may be challenged successfully if the stockholder A. under-capitalized the corporation when it was formed. B. Formed the corporation solely to have limited personal liability. C. Sold property to the corporation D. was a corporate office, director, or employee

A is the correct answer. Under-capitalization is one of the two primary reasons that courts will pierce the corporate veil. Choice B is incorrect because it is completely proper to form a corporation solely to have limited liability.

Kroll, Inc., a partner in the JKL Partnership, assigns its interest in the partnership to Trell, who is not made a partner. After the assignment, Trell assets the rights to I. Receive Kroll's share of JKL's profits and II. Inspect JKL's books and records Trell is correct as to which of the rights? A. I only B. II only. C. I and II. D. Neither I or II.

A is the correct answer. When a partnership interest is assigned, the assignee receives the right to the assignor's share of profits as well as the assignor's rights in the event of a liquidation. The assignee does not become a partner and does not acquire the other rights of a partner.

When a valid contract is entered into by an agent on the principal's behalf, in a non-disclosed principal situation, which of the following statements concerning the principal's liability is correct? The principal The principal may must ratify be held liable the contract to once disclosed be held liable a. Yes Yes b. Yes No c. No Yes d. No No

Answer: The correct answer is B. Once disclosed, an undisclosed principal can be held liable on a contract made on the principal's behalf by an agent if the agent had authority. There is no need to ratify; indeed, an undisclosed principal can never ratify because a principal can ratify only when a person represents that he is an agent acting with authority on the principal's behalf when in fact the person lacks authority. When a principal is undisclosed, there is no representation of agency and so a prerequisite for ratification is missing.

With respect to the following matters, which is correct if a general partnership agreement is silent? a. A partnership will continue indefinitely unless a majority of the partners votes to dissolve the partnership. b. Partnership losses are allocated in the same proportion as partnership profits. c. A partner may assign his interest in the partnership but only with the consent of the other partners. d. A partner may sell the goodwill of the partnerships without the consent of the other partners when the sale is in the best interest of the partnership.

Answer: The correct answer is B. As a general principle of partnership law, as well as under the Revised Uniform Partnership Act, in the absence of an agreement otherwise, partnership losses are allocated among partners in the same proportion as partnership profits.

Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the rights to I. Participate in the management of TLC. II. Cobb's share of TLC's partnership profits. Bean is correct as to which of these rights? a. I only. b. II only. c. I and II. d. Neither I nor II.

Answer: The correct answer is B. The assignee of a partner's interest in the partnership does not thereby become a partner absent the unanimous consent of the other partners. Thus, the assignee has no right to participate in the management of the partnership and has only a right to receive the assignor's share of the partnership profits.

Which of the following statements is(are) correct regarding the relationship between an agent and a nondisclosed principal? I. The principal is required to indemnify the agent for any contract entered into by the agent within the scope of the agency agreement. II. The agent has the same actual authority as if the principal had been disclosed. a. I only. b. II only. c. Both I and II. d. Neither I nor II.

Answer: The correct answer is C. A principal owes her agent the duty of indemnification, which is a type of reimbursement for costs and liabilities incurred by the agent as a result of authorized acts on behalf of the principal. Actual authority is the authority that the agent reasonably believes she possesses because of the communications to the agent. The agent has the same actual authority whether the principal is disclosed or undisclosed.

North, Inc. hired Sutter as a purchasing agent. North gave Sutter written authorization to purchase, without limit, electronic appliances. Later, Sutter was told not to purchase more than 300 of each appliance. Sutter contracted with Orr Corp. to purchase 500 tape recorders. Which of the following statements is correct? a. Sutter will be liable to Orr because Sutter's actual authority was exceeded. b. Sutter will not be liable to reimburse North if North is liable to Orr. c. North will be liable to Orr because of Sutter's actual and apparent authority. d. North will not be liable to Orr because Sutter's actual authority was exceeded.

Answer: The correct answer is C. Although Sutter had apparent authority by virtue of the written statement of authority, he had no actual authority because actual authority is that authority which the agent reasonably believes he has, and here North told Sutter that he no longer had authority to make unlimited purchases. There is no requirement that actual authority granted in writing be rescinded in writing. North is liable to purchase from Orr for 300 appliances because of actual authority and for 200 appliances because of apparent authority. Choice A is incorrect. An agent impliedly warrants to third parties with whom he deals that he has the authority that he purports to have. If this warranty is breached, he is liable to the principal for any damages that are caused. Choice B is incorrect. An agent who exceeds his actual authority is liable to his principal for any damages caused by the excess. There is no requirement that actual authority granted in writing be rescinded in writing; the oral limitation on actual authority was valid between North and Sutter. Choice D is incorrect. Although Sutter exceeded his actual authority, North will be liable because of Sutter's apparent authority. Apparent authority arises from a third party's reasonable beliefs of authority based on the principal's holding the agent out. Where the principal has given the agency written authority, the agent has apparent authority consistent with the written authority, even after actual authority is terminated, until the written authority is retrieved.

1. Which of the following actions requires an agent for a corporation to have a written agency agreement? A. Purchasing office supplies for the principal's business. B. Purchasing an interest in undeveloped land for the principal. C. Hiring an independent contractor to renovate the principal's office building. D. Retaining an attorney to collect a business debt owed the principal.

B

The corporate veil is most likely to be pierced and the shareholders held personally reliable if A. The corporation has elected S corporation status under the Internal Revenue Code. B. The shareholders have commingled their personal funds with those of the corporation C. An ultra vires act has been committed. D. A partnership incorporates its business solely to limit the liability of its partners.

B is the correct answer. Choice A is incorrect because S status affects only the corporation's taxation. Otherwise, the corporation is treated like any other. In fact, the office of the secretary of state would not even know if a corporation had elected S status on its tax return. Choice C is incorrect because an ultra vires act occurs when a corporation acts beyond its powers. The act might be enjoined, or the responsible party sued for damages, but the veil would not be pierced solely because the act was ultra vires.

Johns owns 400 shares of Abco Corp. cumulative preferred stock. In the absence of any specific contrary provision in Abco's articles of incorporation, which is the correct statement? A. Johns is entitled to convert the 400 shares of preferred stock to a like number of shares of common stock. B. If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco. C. If Abco declares a dividend on its common stock, Johns will be entitled to participate with the common stock shareholders in any dividend distribution after preferred dividends are paid. D. John will be entitled to vote if dividend payments are in arrears.

B is the correct answer. Choice B correctly states the rule that Johns would become a creditor only upon the declaration of a dividend. Choice A is incorrect because preferred stock is convertible only if the preferred stock so states. Likewise, choice C is incorrect because preferred stock is participating only if it so states.

Under the Revised Model Business Corporation Act, which of the following statements is correct regarding corporate officers of a public corporation? A. An officer may not simultaneously serve as a director. B. A corporation may be authorized to indemnify its officers for liability incurred in a suit by stockholders. C. Stockholders always have the right to elect a corporation's officers. D. An officer of a corporation is required to own at least one share of the corporation's stock.

B is the correct answer. The ability to indemnify directors and officers for liability incurred in shareholder suits removes some of the risk of being a director or officer, and is considered a proper expenditure of corporate funds.

Long Corp. is a real estate developer and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts, but are instructed to do so in their own names without disclosing Long's identity or Long's relationship to the transaction. If a broker enters into contract witha seller on longs behalf A. Long will not be liable for any negligent acts committed by the broker while acting on Long's behlaf B. The broker will have the same actual authority as if Long's identity had been disclosed C. The broker will not be personally bound by the contract because the broker has express authority to act D. Long will be bound by the contract because of the broker's apparent authority

B is the correct answer. The actual, or express, authority of an agent depends on the terms of the agency agreement between the principal and the agent. Those terms are unaffected by whether or not the principal is disclosed. Choice A is incorrect because Long will have tort liability for any torts of the agent committed within the scope of the agency; this is true whether or not the agent ever enters into a contract on behalf of the principal. Choice C is incorrect because the liability of the broker does not depend on the type of authority, but on the degree of disclosure. Choice D is incorrect because it is impossible to have apparent authority where the identity of the principal is not disclosed, because the apparent authority must come from words or acts of the principal to the third party, and would make the principal's identity known.

A general partnership must A. Pay federal income tax B. Have 2+ partners C. Have written articles of partnership D. Provide for apportionment of liability for partnership debts

B is the correct answer. There must be at least two partners in a partnership. Choice C is incorrect because an agreement can be oral or can be implied from the conduct of the parties. Choice D is incorrect because this in not required. Furthermore, even with such an agreement, it will not eliminate the personal liability of the partners for partnership debts.

Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the paymetns of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half-time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each year. How should the profits of $120,000 be divided up? A. Gillie $60,000, Taft $30,000, Dall $30,000 B. Gillie $40,000, Taft $40,000, Dall $40,000 C. Gillie $30,000, Taft $60,000, Dall $30,000 D. Gillie $30,000, Taft $30,000, Dall $60,000

B is the correct answer. When a partnership agreement is silent as to the division of partnership profits, they are divided equally. There is no right, unless specifically provided in the partnership agreement, to an additional share of profit based on time worked, capital invested, or income generated.

2. A principal and agent relationship requires a A. Written agreement. B. Power of Attorney. C. Meeting of the minds and consent to act. D. Specified consideration.

C

Lee repairs high-speed looms for Sew Corp., a clothing manufacturer. Which of the following circumstances best indicates that Lee is an employee of Sew and not an independent contractor? A. Lee's work is not supervised by Sew personnel. B. Lee's tools are owned by Lee. C. Lee is paid weekly by Sew. D. Lee's work requires a high degree of technical skill

C

Simmons, an agent for Jensen, has the express authority to sell Jensen's goods. Simmons also has the express authority to grant discounts of up to 5% of list price. Simmons sold Hemple goods witha alist pirce of $1,000 and granted Hemple a 10% discount. Hemple had not previously dealt with either simmons or jensen. Which of the following courses of action may Jensen properly take? A. Seek to avoid the sale to Hemple B. Seek recovery of $50 from Hemple only C. Seek recovery of $50 from Simmons only D. Seek recovery of $50 from either Hemple or Simmons

C is the correct answer. A principal is bound by the contract entered into by its agent so long as any one of the types of authority is present. Here there was no express authority for the 10% discount. Implied authority might exist if there were a history of Jensen accepting discounts larger than 5%, but that is not the case. There is apparent authority because Jensen, the principal, has indirectly told the world that Simmons has authority to make reasonable and customary discounts by virtue of his position as an agent of Jensen. Because a 10% discount is reasonable, there is apparent authority, and that authority means that Jensen is bound to honor the contract. Jensen cannot recover from Hemple, the customer, but Jensen can recover from Simmons for violating the agent's duty of obedience.

Which of the following statements is correct with respect to a limited partnership? A. A limited partner may not be an unsecured creditor of the limited partnership. B. A general partner may not also be a limited partner at the same time. C. A general partner may be a secured creditor of the limited partnership. D. A limited partnership can be formed with limited liability for all partners.

C is the correct answer. Choice A is incorrect because a limited partner can simultaneously be an unsecured creditor. Choice B is incorrect because a limited partner can also simultaneously be a general partner.

Which of the following statements best describes an advantage of the corporate form of doing business? A. Day to day management is strictly the responsibility of the directors. B. Ownership is contractually restricted and is not transferable. C. The operation of the business may continue indefinitely. D. The business is free from state regulation.

C is the correct answer. Choice A is incorrect because the officers are primarily responsible for the day-to-day management of the corporation. The directors share this responsibility, but it is not true that the directors are the only persons responsible. Choice B is incorrect because shares of stock are freely transferable unless the stockholders enter into an agreement to restrict the transferability. Choice D is incorrect because a corporation is subject to considerable state regulation, beginning with the requirement that articles of incorporation be filed to create the corporation.

To which of the following rights is a stockholder of a public corporation entitled? A. The right to have annual dividends declared and paid. B. The right to vote for the election of officers. C. The right to a reasonable inspection of corporate records. D. The right to have the corporation issue a new class of stock.

C is the correct answer. Choice A is incorrect because the payment of dividends is at the discretion of the board of directors. Shareholders have a right to dividends only if the board declares them. Choice B is incorrect because the shareholders elect the directors, but the directors elect the officer. Note that the word "public" is used in the sense of a publicly held corporation, not in the sense of a corporation owned by a government entity.

After proper incorporation of Bryan, it was decided to purchase a plant site. Shephard, a newly elected director, has owned a desirable site for many years. He purchased the property for $60,000, and its present fair value is $100,000. What would be the result if Shephard offered the property to Bryan for $100,000 in an arm's-lent transaction with full disclosure at a meeting of their seven directors of the corporation? A. the sale would be proper only upon requisite approval by the appropriate number of directors and at no more than Shephard's cost. B. The sale would be void under the self-dealing rule. C. The sale would be proper and Shephard would not have to account for his profit if the sale was approved by a disinterested majority of the directors D. The sale would not be proper, if sold for the present fair value of the property, without the approval of all the directors

C is the correct answer. If a majority of the disinterest directors approves the sale, the contract is valid and the selling director would not violate the duty of loyalty. Choice A is incorrect because selling the land above cost is acceptable so long as either a majority of the disinterested directors approve the transaction or the transaction is fair to the corporation. Choice D is incorrect because unanimous approval is not needed.

Carr Corp. declared a 7% stock dividend on its common stock. The dividend A. must be registered with the SEC pursuant to the Securities Act of 1933. B. is includable in the gross income of the recipient taxpayers in the year of receipt. C. has no effect on Carr's earnings and profits for federal income tax purposes. D. Requires a vote of Carr's stockholders

C is the correct answer. Note that this question refers to a stock divided, which is a distribution of additional shares to current shareholders. Choice D is incorrect because the board of directors, not the shareholders, votes to declare dividends of any kind. Note that choice C would be true even if the question concerned a cash dividend. For cash dividends, choice B would also be true.

When an agent acts for an undisclosed principal, the principal will not be liable to third parties if the A. Principal ratifies a contract entered into by the agent B. Agent acts within an implied grant of authority C. Agent acts outside the grant of actual authority D. Principal seeks to conceal the agency relationship

C is the correct answer. This question deals with contract authority although it does not explicitly state so. The principal would have tort liability to third parties so long as the agent was within the scope of the agency, which is a broader concept than actual authority. For contract liability, the principal is always liable on contracts entered into by the agent unless the agent acts beyond the scope of the authority or has acted without any authority. Choice A is incorrect because ratification makes the principal liable on an unauthorized contract, but will not end the agent's liability

Which of the following statements is correct regarding the division of profits in a general partnership when the agreement only provides that losses be divided equally among the partners? Profits are to be divided A. based on the partners' ratio of contribution to the partnership. B. Based on the partners' participation in day to day management C. Equally among the partners. D. Proportionately among the partners.

C is the correct answer. When a partnership specifies the allocation of profits, but not losses, any losses are divided in the same way as profits. But the converse is not true. Where the partnership agreement specifies that allocation of losses, but not profits, the allocation of losses does not affect profit allocation, and any profits are divided equally.

For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholders' derivative suit in the name of the corporation? A. To compel payment of a properly declared dividend. B. To enforce a right to inspect corporate records. C. To compel dissolution of the corporation D. To recover damages from corporate management for an ultra vires management act.

D is the correct answer. A derivative suit is a suit brought by a shareholder with the goal of recovering an amount for the corporation. Management would be liable to the corporation for any damages resulting from an ultra vires act. Choice A and B are incorrect because they describe suits against the corporation rather than on its behalf.

Absent a specific provision in its articles of incorporation, a corporation's board of directors has the power to all of the following, except A. Repeal the bylaws B. Declare dividends. c. Fix compensation of directors D. Amend the articles of incorporation .

D is the correct answer. Amendment of the articles of incorporation generally requires the approval of the shareholders. Choice C is incorrect because the directors are authorized to set their own compensation. Although this might appear to be a conflict of interest, the fact that the shareholders can vote to remove a director or directors operates as an incentive for the directors to not pay themselves an excess amount

Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is A. Void because of Knox's self-dealing. B. Void because the disclosure was made after execution of the contract. C. Valid because of Knox's full disclosure. D. Valid because the contract is fair to Quick.

D is the correct answer. Because the contract is fair to the corporation, it is valid. Choice C is incorrect because the full disclosure would be a reason to allow the contract only if the disclosure was made prior to the contract's formation. Choice B is incorrect because the full disclosure is not needed where the contract is fair to the corporation.

Locke and Vorst were general partners in a kitchens equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves and Gage sought to enforce the contract. Gage will A. Lose, because Locke's action was not authorized by the partnership agreement. B. Lose, because Locke was not an agent of the partnership. C. Win, because Locke has express authority to bind the partnership D. Win, because Lock has apparent authority to bind the partnership

D is the correct answer. By virtue of being a partner, Gage has apparent authority to bind the partnership on matters of partnership business. Choice A is incorrect because Gage's position will create the apparent authority, and this apparent authority will not be affected by the terms of the partnership agreement which are not known to third parties.

Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership? A. Stockholders may be entitled to vote on corporate matters, but limited partners are prohibited from voting on any partnership matters. B. Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interest are automatically exempt from those requirements. C. Directors owe fiduciary duties to the corporation and limited partners owner such duties to the partnership. D. A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organization document with the proper governmental body.

D is the correct answer. Generally, any form of business organization with limited liability for any of its owners requires a filing of the appropriate document. Choice A is incorrect because there are certain matter, generally those outside the day-to-day operations, on which limited partners are entitled to vote. Choice B is incorrect because most limited partnership interests are classified as securities and might be required to be registered. Choice C is incorrect because limited partners owe no fiduciary duties to the partnership.

In a general partnership, a partner's interest in specific partnership property is A. Transferable to the partner's individual creditors. B. Subject to a partner's liability for alimony. C. Transferable to the partner's estate upon death. D. Subject to a surviving partner's right of survivorship.

D is the correct answer. Specific partnership property is owned by the partners as a tenancy in partnership which has a right of suvivorship. Thus, the remaining partners will own it. Choices A, B, and C are incorrect because in each case only the partner's partnership interest could be transferred, but not the partner's share in individual partnership property.

True or False. Liability to the extent of her investment for all obligations, arising either before or after she joined the partnership.

False

True or False. No liability for obligations arising from before she joined the partnership and limited liability for those arising afterwards.

False

True or False. No liability for obligations arising from before she joined the partnership and unlimited liability for those arising afterwards.

False

The apparent authority of a partner to bind the partnership in dealing with third parties A. Will be effectively limited by a formal resolution of the partners of which third parties are aware. B. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. C. Does not permit a partner to execute an instrument in the partnership name. D. Must be derived from the express powers and purposes contained in the partnership agreement.

The correct answer is A. Each agent in a general partnership is an agent of the partnership. The partners may not limit partnership liability to third parties by agreement between the partners alone. But apparent authority is effectively limited to the extent a third party knows of limitations imposed on a partner's authority. Answer B is incorrect because the scope of apparent authority is limited by communications by the principal (the partnership) of which the third party is deemed to be aware. Answers C and D are incorrect because a partner's act, such as execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business, or business of the kind carried on by the partnership, is binding unless the partner lacked actual authority and the other party knew or had notice of such lack of authority.

Skip & Trip decide to start a boutique selling preppy clothing. They sign a partnership agreement providing that Skip will contribute $6,000 toward the necessary $10,000 in start-up capital, and Trip will contribute $4,000. If the agreement is silent as to management and profits, Skip should receive A. 60% of the profits and share management equally with Trip. B. 60% of the profits and control 60% of the management functions. C. 50% of the profits and share management equally with Trip. D. 50% of the profits and control 60% of the management functions.

The correct answer is C. Absent a contrary agreement, partners have equal rights in the management and conduct of the partnership business. In addition, absent an agreement to the contrary, each partner has the right to share equally in partnership profits even if their contributions are unequal. Skip and Trip had no such contrary agreement. Answers A and B are incorrect because Trip is entitled to an equal share of the profits and equal rights in the management of the business. Answer D is incorrect because Trip is also entitled to equal rights in the management of the business.

Which of the following rights will a third party be entitled to after validly contracting with an agent representing an undisclosed principal? A. Disclosure of the principal by the agent. B. Ratification of the contract by the principal. C. Performance of the contract by the agent. D. Election to void the contract after disclosure of the principal.

The correct answer is C. An agent contracting for an undisclosed principal is liable on any contracts entered into. Choice A is incorrect because the agent is not obligated to disclose the principal. Choice B is incorrect because so long as the contract is within the agent's authority, the principal is always liable on contracts made by the agent, thus ratification is meaningless here. The facts of the question state that the contract was validly entered into. Choice D is incorrect because a third party cannot void a contract merely because it was entered into by an agent.

An agent will usually be liable under a contract made with a third party when the agent is acting on behalf of a(an) Disclosed Undisclosed principal principal a. Yes Yes b. Yes No c. No Yes d. No No

The correct answer is C. An agent will usually be liable under a contract made with a third party when the agent is acting on behalf of an undisclosed principal. An agent will usually not be liable under a contract made with a third party when the principal is disclosed.

Bolt Corp. dismissed Ace as its general sales agent and notified all of Ace's known customers by letter. Young Corp., a retail outlet located outside of Ace's previously assigned sales territory, had never dealt with Ace. Young knew of Ace as a result of various business contacts. After his dismissal, Ace sold Young goods, to be delivered by Bolt, and received from Young a cash deposit for 20% of the purchase price. It was not unusual for an agent in Ace's previous position to receive cash deposits. In an action by Young against Bolt on the sales contract, Young will a. Lose, because Ace lacked any implied authority to make the contract. b. Lose, because Ace lacked any express authority to make the contract. c. Win, because Bolt's notice was inadequate to terminate Ace's apparent authority. d. Win, because a principal is an insurer of an agent's acts.

The correct answer is C. While employed, Ace had express authority from the terms of his employment and perhaps apparent authority because of the position given to him by the principal, Bolt. Upon his termination, the express authority ended immediately. But he continued to have apparent authority after his termination. Bolt should have published a notice in trade journals or other appropriate places to terminate this apparent authority. Note that the reasons given in answer choices A and B are correct statements (Ace and neither express nor implied authority), although the conclusion that Young loses is incorrect.

Noll gives Carr a written power of attorney. Which of the following statements is correct regarding this power of attorney? a. It must be signed by both Noll and Carr. b. It must be for a definite period of time. c. It may continue in existence after Noll's death. d. It may limit Carr's authority to specific transactions.

The correct answer is D. A general power of attorney grants broad powers, but a principal can also execute a special power of attorney granting limited powers. Choice A is incorrect because only the principal must sign. Choice C is incorrect because a power of attorney ceases at death.

Partners have a fiduciary relationship with each other. Accordingly, a partner A. May engage in a business that competes with the partnership if it is operated with his or her own resources. B. May take advantage of a business opportunity within the scope of the partnership enterprise if the partnership agreement will terminate before the benefit will be received. C. Must exercise a degree of care and skill as a professional. D. May not earn a secret profit in dealings with the partnership or partners.

The correct answer is D. A partner is an agent of the partnership and the other partners and thus owes fiduciary duties of loyalty and due care. A partner also has an obligation of good faith and fair dealing. In dealings with the partnership or other partners, a partner may not earn a secret profit. She must account to the partnership and hold as trustee for it any benefit derived in the conduct or winding up of the partnership business or from use of partnership property (including appropriation of a partnership opportunity). Answers A and B are incorrect because a partner's duty of loyalty precludes competition with the partnership. Answer C is incorrect because a partner's duty of care to the partnership is limited to refraining from gross negligence, reckless conduct, intentional misconduct, or knowing violation of the law. She is not liable for ordinary negligence to fellow partners if her honest errors of judgment are not intended and do not result in personal benefit.

Which of the following statements best describes the effect of the assignment of an interest in a general partnership? a. The assignee becomes a partner. b. The assignee is responsible for a proportionate share of past and future partnership debts. c. The assignment automatically dissolves the partnership. d. The assignment transfers the assignor's interest in partnership profits and surplus.

The correct answer is D. The assignee of an interest in a partnership receives the assignor's rights to profits and surplus.

True or False. Liability to the extent of her investment for obligations from before joining the partnership, and unlimited liability for those arising afterwards.

True