Test 2 Business law

Which of the following is true of the rights given to limited partners in a limited partnership? - Limited partners have the right to share in the profits of the business. - Limited partners do not possess the right to receive an account of the partnership. - Limited partners have the right to dissolve the limited partnership. - Limited partners typically recover their investment after general partners do.

Limited partners have the right to share in the profits of the business.

Which of the following statements is true of limited partnerships? - All the partners in a limited partnership play an active role in the management of the business. - If a general partner dies, a limited partnership is typically unaffected. - Limited partners pay taxes on their share of the profit in a business. - Limited partners assume unlimited personal liability for a partnership's debts.

Limited partners pay taxes on their share of the profit in a business.

Which of the following is true of the requirements to be met by an S corporation? An S corporation cannot have more than 50 shareholders. No shareholder can be a nonresident alien. Only partnership firms can be shareholders in an S corporation. All S corporations must be foreign corporations.

No shareholder can be a nonresident alien.

_____ means agreeing to substitute a third party for one of the two original parties in a contract and terminating the rights under it. Absolute privilege Illusory promise Privity of contract Novation

Novation

The _____ rule says that directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time. business judgment internal affairs responsible person Ultramares

business judgment

Partners complete the winding-up stage: -by taking account of the assets of the partner who has left and redistributing them among the other partners. - when any partner stops fulfilling the role of a partner to the business by choice. - by working for the benefit of the partnership in accordance with the partnership agreement. - when any partner stops fulfilling the role of a partner to the business by default.

by taking account of the assets of the partner who has left and redistributing them among the other partners.

An agency relationship: - can be created only for a lawful purpose. - cannot be formed by implied authority. - cannot be created by ratification. - can be formed only by contract.

can be created only for a lawful purpose , almost anyone can be an agent but someone who doesnt have contractual capacity such as a minor can not hire an agent to make contracts on his/her behalf

An agent who feels that he or she is not being properly compensated, especially when working on commission,: - can enact a constructive trust. - can demand an accounting. - cannot withhold performance of duties. - can use right of avoidance.

can demand an accounting

In a _____, the franchise operates under the franchisor's business name and is required to follow the franchisor's standards and methods of business operation. - manufacturing arrangement - chain-style business operation - distributorship - media franchise

chain style business operation In a chain-style business operation, such as McDonald's and Burger King, the franchise operates under the franchisor's business name and is required to follow the franchisor's standards and methods of business operation.

When more than one shareholder has suffered damages caused by the same act of a corporation, the shareholders can bring a _____ suit against the corporation. shareholders derivative class action preemptive declaratory

class action

The most influential power of shareholders is to: appoint and supervise officers. make financial decisions for a corporation. elect and remove directors. authorize corporate policy decisions.

elect and remove directors.

When a principal falsely leads a third party to believe that another individual serves as his or her agent, the principal has created agency by: - ratification. - agreement. - implied authority. - estoppel.

estoppel

A _____ is a person who has a duty to act primarily for another person's benefit. - surety - fiduciary - guarantor - conservator

fiduciary

Mitchel, a real estate agent, buys a property that his principal, Henry, wanted to buy. If Mitchel is aware that Henry wanted to buy the property, then the court will: - grant Henry the legal rights for the property. - grant Mitchel legal rights for the property. - conduct an auction of the property. - sell the property to a third party.

grant Henry the legal rights for the property

When a breach of contract is caused by an agent's negligence, a principal: - must enact a constructive trust. - has a right of avoidance. - cannot utilize tort remedies. - has a right to indemnification.

has a right to indemnification

_____ are takeovers to which the management of the target corporation objects. Exchange offers Hostile takeovers Beachhead acquisitions Cash tender offers

hostile takeovers

Dissolution: must be initiated by the shareholders. is the legal termination of a corporation. must be involuntary. is the process by which the directors of a corporation convert the corporation's assets into cash.

is the legal termination of a corporation.

Which of the following is true of the remedy of specific performance? - It can be used by the agent when the agency relationship is not contractual. - It can be used by the agent to recover for services rendered and/or future damages. - It can be used by the agent to force the principal to - fulfill specific contractual agreements. - It can be used by the agent to force the principal to continue to employ him or her

it can be used by the agent to recover for services rendered and/or future damages - the agent may recover for services rendered and/or future damages, but may not force the principal to fulfil the specific contractual agreements or even to continue to employ the agent.

A _____ occurs when a group within a corporation (usually management) buys all outstanding corporate stock held by the public. merger hostile takeover self-tender offer leveraged buyout

leveraged buyout

Business self-dealing occurs when a director or officer: makes business decisions that benefit him/her personally. mixes funds that he or she holds in the care of a client with his/her own funds. makes decisions that benefit other companies with which he/she has a relationship. avoids disclosing conflicts of interest that arise in corporate transactions.

makes decisions that benefit other companies with which he/she has a relationship.

A _____ occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist. suretyship merger consolidation hybrid agency

merger- one corporation absorbing another corporation, yielding a single surviving corporation.

An agent who makes an unauthorized agreement has failed to meet the duty of _____. - cooperation - performance - obedience - accounting

obedience

In a tender offer, the aggressor: offers target shareholders a price above the current market value of the stock. offers to exchange the target corporation's current stock for stock in the aggressor's corporation. offers to pay cash for the target corporations stock. gradually accumulates a substantial number of the target corporation's shares and then initiates a proxy fight.

offers target shareholders a price above the current market value of the stock.

According to the Uniform Partnership Act (UPA), which of the following must be given the highest priority during the distribution of liquidated assets? - Payment of profits distributed to partners on the basis of the partnership agreement - Payment to creditors of the partnership - Payment to partners of the capital they invested - Payment of refunds or loans to partners for loans made to the firm

payment to creditors of the partnership

Federal Deposit Insurance Corporation (FDIC) is an example of a _____ corporation. closely held private public nonprofit

public- A public corporation is a corporation created by the government to help administer law. Public corporations, like the Federal Deposit Insurance Corporation (FDIC), often have specific government duties to fulfill.

Corporations can extend their operations by: selling their voting stocks. invoking their appraisal rights. purchasing another corporation's stock. getting involved in the process of zoning.

purchasing another corporations stock Besides engaging in mergers, consolidations, and asset purchases, corporations can extend their operations by purchasing another corporation's stock.

According to the doctrine of _____, corporations are liable for torts and crimes committed by their agents during the scope of their employment. lex incorporationis actus reus respondeat superior ultra vires

respondeat superior

According to the _____, a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity. rochdale principles doctrine of ultra vires internal affairs doctrine responsible person doctrine

responsible person doctrine, Even an officer who knew nothing about the criminal activity can be held criminally liable if the court determines that a responsible person would have known about and could have prevented it.

In a _____, the target corporation offers to buy its shareholders' stock. beachhead acquisition self-tender offer hostile takeover leveraged buyout

self tender offer

The goal of the _____ within a corporation is to raise the value of a company's stock. shareholders frontline managers officers directors

shareholders

A _____ is an investment group that comes together for the explicit purpose of financing a specific large project. - business trust - joint stock company - syndicate - cooperative

syndicate , to buy like basketball team

When a partner withdraws or is expelled according to a partnership agreement, dissolution occurs due to: - partnership at will. - the partner's act. - the act of the court. - the operation of the law.

the partners act

When an agent commits a crime: the principal cannot be held liable for the crime under any circumstance. - he or she would be relieved from liability if the crime was committed within the scope of employment. - he or she would be relieved from liability if the crime was committed to accomplish the objectives of the agency. - the principal can be liable for the crime if he or she authorized the criminal act.

the principal can be liable for the crime if he or she authorized the criminal act.

If a principal is partially disclosed: - the third party would be aware of the principal's identity. - the third party would be aware of the principal's existence but not his or her identity. - the third party would not know that an agent is acting on behalf of the principal. - only the agent would be liable in accordance with the contract.

the third party would be aware of the principal's existence but not his or her identity.

In the context of the types of bonds, no assets support a corporation's obligation to repay the face value of: - callable bonds. - unsecured bonds. - convertible bonds. - income bonds.

unsecured bonds

____ means a third party can choose to sue the partners separately or all partners jointly in one action if a partner commits a tort or a breach of trust. - Several liability - Joint liability - Joint and several liability - Accounting liability

- Joint and several liability

Which of the following statements is true of the right to compensation of partners in a partnership relationship? -When a partner dies during the term of a partnership, the surviving partners are not entitled to any compensation for services. -Partners do not possess the right to create salaries for any partner in a partnership agreement. -Partners cannot receive a salary irrespective of whether the other partners agree to pay a salary to that particular partner. - Partners do not enter into a partnership relationship with a right to compensation for performing business activities.

- Partners do not enter into a partnership relationship with a right to compensation for performing business activities.

Which of the following is excluded from a franchise agreement? - Sales quotas and record-keeping requirements - Location of the franchise - Method of termination of the franchise - Price at which the franchisee sells the goods

- Price at which the franchisee sells the goods The franchisor can set sales quotas and record-keeping requirements but cannot establish the price at which the franchisee sells the goods.

Which of the following is true of the principal's liability for an independent contractor's actions? - The principal will not be held responsible for any damages caused due to extremely hazardous activities undertaken by the independent contractor. - The employer cannot escape liability for an independent contractor's tort, if the employer directs the contractor to commit the tort. - The employer can escape strict liability by hiring an independent contractor to complete the tasks for her. - An individual who hires an independent contractor is held liable for the independent contractor's tortious actions under the doctrine of "respondeat superior."

- The employer cannot escape liability for an independent contractor's tort, if the employer directs the contractor to commit the tort.

Which of the following is considered a separate legal entity? - A corporation - A limited liability partnership - A syndicate - A sole proprietorship

A corporation -Corporation is a legal entity formed by selling shares of stock to investors, who then become shareholders and the owners of the company.

A partner may apply to the court to dissolve the partnership when: - a partner is incapable of carrying out his or her duties as established by the partnership agreement. - a partner is expelled from the partnership in accordance with the partnership agreement. - a partner is adjudicated bankrupt. the partnership business engages in an activity that suddenly becomes illegal.

- a partner is incapable of carrying out his or her duties as established by the partnership agreement. A partner may apply to the court to dissolve the partnership when: (1) A partner is incapable of carrying out his or her duties as established by the partnership agreement; (2) A partner is adjudicated insane; (3) Continuing the partnership becomes impractical; (4) Special circumstances exist.

When an agent acquires interest against the principal's interest, without the principal's knowledge, the agency relationship terminates due to: - change in law regarding the obligations of the agent. impossibility. - disloyalty of the agent. - the agency being coupled with an interest.

- disloyalty of the agent.

Under the _____, partnership assets are arranged in a certain order to pay any outstanding debts. - doctrine of estoppel - doctrine of legal aggregate - doctrine of worthier title - doctrine of marshaling assets

- doctrine of marshaling assets

A(n) _____ typically allows the agent to conduct all business for the principal. - general power of attorney - inherent agency power - special power of attorney - durable power of attorney

- general power of attorney

Which of the following statements is true of a joint venture? -It is usually terminated when all the stock has been sold. -It must be an agreement between two large businesses. - It must be formed by drawing up a formal agreement. - It is automatically terminated when one of the members dies.

- it is usually terminated when all the stock has been sold, truck company that delivers items for another company A joint venture is a relationship between two or more persons or corporations created for a specific business undertaking. Joint ventures can be agreements between small or very large businesses. A joint venture is usually terminated when all the stock has been sold or at the discretion of the members; it is not automatically terminated when one of the members dies.

When a party receives a share of profits for payment from the sale of goodwill of a business or some other property, there is: - no partnership. - a limited liability partnership. - a voluntary and consensual partnership. - a limited partnership.

- no partnership If a party receives a share of profits for any of the following reasons, there is no partnership: (1) Payment of a debt; (2) Payment of an annuity to a widow or representative of a deceased partner; (3) Payment from the sale of goodwill of a business or some other property; (4) Payment of interest on a loan.

Partnership is considered a legal aggregate of the partners when: - it is treated as a "person" separate from the partnership with a life of its own. - partnership debts eventually become the debts of the individual partners. - it is sued or being sued. - the partnership is taxed as a separate being.

- partnership debts eventually become the debts of the individual partners.

When the principal is disclosed: - the third party is aware of the principal's existence but not his or her identity. - the agent is partially liable because he or she is a party to the transaction. - the agent is the only person who could be liable for the agreement. - the principal is liable for the agreements made with the third party.

- the principal is liable for the agreements made with the third party.

Under the doctrine of "respondeat superior," the principal/employer holds _____, which is liability assigned without fault, for any harm the agent/employee causes while working for the principal. - misrepresentation liability - joint liability -vicarious liability - contributory liability

- vicarious liability

Misrepresentation liability depends on: - whether the principal authorized the agent's act. - the agent's duty of cooperation. - the doctrine of "respondeat superior." - whether the agent/employee was acting in the scope of employment.

- whether the principal authorized the agent's act.

Which of the following statements is true of the liability of incoming partners? -A new partner has no liability for any obligations that occurred before he or she was added. -A new partner can be held personally liable for the obligations that occurred before he or she was added. -The capital a new partner adds cannot be used to pay off debts that occurred before he or she was added. -A new partner assumes limited liability for any obligations that occurred before he or she was added.

-A new partner assumes limited liability for any obligations that occurred before he or she was added. -Can not be held personally liable, but capital can be used to pay it off

Which of the following types of termination occurs due to operation of law? -Disloyalty of agent -Renunciation of agent -Revocation of authority -Agency coupled with an interest

-Disloyalty of agent

Which of the following statements is true of the property rights of a partner? -Partners own the partnership property as tenants in property, which means they own it as a group. - Partners can use the partnership property to pay a personal debt. - Property in the name of an individual partner but purchased with partnership funds is not to be considered partnership property. - Partners can sell or use the partnership property if the purpose is outside the partnership interest.

-Partners own the partnership property as tenants in property, which means they own it as a group.

Which of the following termination occurs by act of parties? -Renunciation by an agent - Disloyalty of agent - Changed circumstances -Impossibility

-reuncation by agent : An agent can terminate the agency relationship by renouncing the authority given him or her. The agent can be liable for breach of contract if the agency agreement stated a specific amount of time that the relationship is to exist.

Identify the correct statement about the inspection rights of a shareholder. Shareholders cannot appoint an agent to conduct an inspection on their behalf. Corporations cannot deny shareholders the right to inspect confidential corporate information. Shareholders can inspect records and books only if they ask in advance and have a proper purpose. Shareholders have the right to inspection under statutory law but not under common law.

All shareholders have the right to inspection in both statutory and common law. Shareholders can appoint agents to conduct the inspection on their behalf. Shareholders can inspect records and books only if they ask in advance and have a proper purpose.

In which of the following types of takeovers does the aggressor gradually accumulate a substantial number of the target corporation's shares and then initiate a proxy fight? Cash tender offer Hostile takeover Beachhead acquisition Exchange offer

Beachhead acquisition

_____ requires that if a corporation cannot pay the required dividends in a given year, it must pay them in the next year before it pays any common stock dividends. Cumulative preferred stock Convertible preferred stock Redeemable preferred stock Participating preferred stock

Cumulative preferred stock

Which of the following statements is true of the Revised Uniform Limited Partnership Act (RULPA)? - It is the law governing general partnerships. - It changes as lawmakers revise it to better achieve social goals. - All states follow RULPA. - Once a new version of RULPA is available, the previous version becomes invalid.

It changes as lawmakers revise it to better achieve social goals.

Which of the following statements is true of a partnership at will? - It is an agreement that does not state exactly what capital contributions each partner will make. - It is an agreement that does not specify the objective or duration of the partnership. - It is an agreement that does not state the division of profits as well as losses. - It is an agreement that does not specify the partners' names, as well as the name of the partnership.

It is an agreement that does not specify the objective or duration of the partnership

Which of the following statements best defines a cooperative? - It is a business organization governed by a group of trustees, who operate the trust for the beneficiaries. - It is a partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners. - It is an investment group that comes together for the explicit purpose of financing a specific large project. - It is an organization formed by individuals who usually pool their resources to gain an advantage in the market.

It is an organization formed by individuals who usually pool their resources to gain an advantage in the market.

Which of the following statements is true of a de facto corporation? It substantially meets the requirements of the state incorporation statute. It is recognized by the courts as a corporation that makes minor errors in the incorporation process. Its existence as a corporate entity can be challenged only by the state. It is a status that is likely to be given when a corporation lacks adequate capital for formation.

Its existence as a corporate entity can be challenged only by the state.

A _____ is a relationship between two or more persons or corporations created for a specific business undertaking. - business trust - joint venture - syndicate - cooperative

Joint Venture- This relationship may entail financing, producing, and selling goods, securities, or commodities.

When partners have created a _____, all the partners assume liability for one partner's professional malpractice, but only to the extent of the partnership's assets. - general partnership - limited liability partnership - limited partnership - joint venture

Limited Liability Partnership

_____, also known as callable preferred stock, permits an issuing corporation to buy shares back from shareholders in certain circumstances. Convertible preferred stock Redeemable preferred stock Cumulative preferred stock Participating preferred stock

Redeemable preferred stock

Which of the following statements is true of the rights and liabilities of the shareholders in a corporation? Shareholders' liability is limited to their investment in a corporation. Shareholders do not have to pay tax for the dividends they receive. Shareholders of a corporation can sell their shares but cannot give them to charity. Shareholders of a corporation are required to participate in corporate management by default.

Shareholders' liability is limited to their investment in a corporation.

Which of the following statements is true of the right of survivorship? - The rights in specific partnership property pass to the surviving partners. - The surviving partners need not necessarily account to the deceased partner's estate for the value of that partner's interest in the specific property. - A partner's personal creditor can seize specific items of partnership property. -A partner's share of profits and a return of capital contributed by the partner pass to the surviving partners.

The rights in specific partnership property pass to the surviving partners.

Which of the following statements is true of the purchase and sale of assets? Shareholders of the acquired corporation who disagree with the transfer of assets cannot demand appraisal rights in most states. When an asset purchase occurs, the acquiring corporation assumes ownership and control over only the tangible assets of the selling corporation. The selling corporation needs the approval of both its board of directors and its shareholders before it can sell its assets. Under normal circumstances, asset purchases change a corporation's legal status.

The selling corporation needs the approval of both its board of directors and its shareholders before it can sell its assets.

Which of the following statements is true of the directors' rights in a corporation? They do not possess the rights to purchase shares of a new issue of stock. Their rights are defined by employment contracts drawn up by the shareholders and the employees. They have the right to compensation for their work, which is granted in the same way by all corporations. They have the right to be notified of all meetings and have access to all books and records.

They have the right to be notified of all meetings and have access to all books and records. Directors have four rights: the rights of compensation, participation, inspection, and indemnification ( paid for losses)

A partnership by estoppel exists when: -an agreement addresses the date or event that signals the agreement's expiration. - the partners' names, as well as the name of the partnership, are clearly mentioned in an agreement. - a third party is aware of and consents to a misrepresentation of partnership. - a nonpartner represents himself or herself as a partner, and the third party fails to rely on this information.

a third party is aware of and consents to a misrepresentation of partnership.

A(n) _____ is a review and listing of all partnership assets and/or profit and lists the distribution of assets and profit to the partners. -management report -reference report -charging order -accounting

accounting

At the winding-up stage, the partner who decides to terminate the partnership: -withdraws from the partnership at his or her own will. -specifies the reason for the termination of the partnership. - does not have implied authority to bind the partnership. - completes unfinished partnership business.

completes unfinished partnership business Once a partnership has been liquidated, the partners begin the process of winding up, the activity of completing unfinished partnership business, collecting and paying debts, collecting partnership assets, and taking inventory. During the process, the partners must still fulfill their fiduciary duty to one another and disclose all information about the partnership assets.

According to the Revised Uniform Limited Partnership Act (RULPA), a limited partnership can be dissolved by the: bankruptcy of the limited partner. unanimous written consent of all the limited partners. completion of the objective established in the certificate. death of the limited partner.

completion of the objective established in the certificate According to RULPA, a limited partnership can be dissolved for the following reasons: (1) The expiration of the term established in the certificate of limited partnership; (2) The completion of the objective established in the certificate; (3) The unanimous written consent of all partners (limited and general); (4) The withdrawal of the general partner (unless the certificate establishes that other general partners will continue); (5) An act of the court.

Principal-agent relationships are most significant for issues that are included in the category of _____ law. - wage - contract - tort - discrimination

contract - The principal-agent relationship typically exists when an employer hires an employee to enter into contracts on its behalf. This is the most basic type of agency relationship.

A(n) _____, which literally means "a corporation from law," or a lawful corporation, has met the substantial elements of an incorporation process. C corporation de jure corporation S corporation de facto corporation

de jure corporation Courts usually hold that corporations that make minor errors in the incorporation process still enjoy de jure corporate status.

Who among the following plays the role of decision makers? Stakeholders Directors Shareholders Managers

directors

_____ is complete when any partner stops fulfilling the role of a partner to the business, either by choice or by default. Winding-up Ratification Dissolution Devolution

dissolution

Which of the following, as suggested by the courts, is the most important duty an agent owes to the principal? - Duty of performance - Duty of loyalty - Duty of notification - Duty of obedience

duty of loyalty