Module 3 examples question: ch. 16,17,18

True or False: when a person who is not a partner holds themself out as a partner, a court may improve liability-and partnership rights on the alleged partner

False because a partnership by estoppel may arise when a person who is not a partner holds himself or herself out as a partner and makes representations that third parties rely on. In this situation, a court may impose liability- but not partnership rights-on the alleged partner

True or false: A limited partner can force the dissolution of a limited partnership even if the other partners want to continue the business

False not true because for a limited partner, bankruptcy, death or assignment o the interest(right to receive distributions) does not dissolve the partnership. a limited partnership can be dissolved by court decree

Like other limited liability companies, for federal jurisdictional purposes, Rodeo Productions LLC is most likely a citizen of a. all states in the United States b. every state of which its members are citizens c. any state in which it does business d. no state-an LLC is not a "citizen"

b. every state of which its members are citizens because under the federal jurisdiction statue, a corporation is deemed to be a citizen of the state where it is incorporated and maintains its principal place of business. The statue does not mention the state citizenship of partnerships, LLCs, and other unincorporated associations. The courts, however, have tended to regard these entities as citizens of every state of which their members are citizens

Erin, a shareholder of Finance Inc. demands the right to inspect corporate records to determine whether management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erins challenge, a court is most likely to hold that her request constitutes a. harassment b. unreasonable access to trade secrets and other confidential information c. a proper purpose d. potential abuse

c. a proper purpose because a shareholder has a right to inspect and copy corporate books and records only for a proper purpose, and the request to inspect must be made in advance. A shareholder who is denied the right of inspection can seek a court order to compel the inspection. The power of inspection is fraught with potential abuses, and the corporation is allowed to protect itself from them

True or False: when the owner of sole proprietorship dies, the business automatically transfers to family members or other heirs rather than being dissolved

false because the sole proprietorship also has the disadvantage of lacking continuity after the death of the proprietor. when the owner dies, so does the business it automatically dissolved

True or False A de jure corporation is one that is formed to accomplish a single purpose within a limited time

false because if a corporation has substantially complied with all conditions precedent to incorporation, the corporation is said to have de jure (rightful and lawful) existence. If the defect is minor, such as an incorrect address listed on the articles of incorporation, most courts will overlook the defect and find that a de jury corporation exists

True or false: If a member of a limited liability company dissociates from the firm in violation of the operating agreement, the member can be held liable for any loss to the business resulting from the withdrawal

true because if the members dissociation violates the LLC's operating agreement, it is considered legally wrongful, and the dissociated member can be held liable for damages caused by the dissociation

True or False Because bonds do not represent debt, they need never be repaid

False because bonds normally have a designated maturity date-the date when the principal, or face amount, of the bond is returned to the bondholder. Bondholders also receive fixed-dollar interest payments, usually semiannually, during the period of time prior to maturity. For that reason, they are sometimes referred to as fixed-income securities.

True or False: To pierce the corporate veil is to disregard the corporate entity and hold the directors liable for corporate obligation

False because the action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations

True or false: In a limited partnership, every partner has full responsibility for the management of the partnership and its obligations

False because a general partner assumes management responsibility for the partnership and has full responsibility for the partnership and for all its debts. a limited partner contributes cash or other property and owns an interest in the firm but is not involved in management responsibilities. A limited partner is not personally liable for partnership debts beyond the amount of his or her investment

True or false: a court may decide that a franchisor has wrongfully terminated a franchise if the franchisors decision was arbitrary

True because if a court perceives that franchisor has arbitrarily or unfairly terminated a franchise, the franchisee will be provided with a remedy for wrongful termination. A court will be less likely to consider a termination. A court will be less likely to consider a termination wrongful if the franchisors decision was made in the normal course of business and reasonable notice was given

True or False: A shareholders right to transfer their shares to another party can be subject to restrictions set out in the bylaws or a shareholder agreement

True because The law generally recognizes the owners right to transfer stock to another person unless there are valid restrictions on its transferability, such as frequently occur with close corporation stock

True or false: Dissociation terminates some of the rights of they dissociated partner, requires the firm to buy that dissociated partners interest, and alters the parties liability to third parties

True because dissociation normally entitles the partner to have his or her interest purchased by the partnership. It also terminates the partners actual authority to act for the partnership and to participate in running its business

Kris and Layla are partners in Meals at Your Door, an online marketing firm. Kris signs a contract with Natures Best Chocolate, a candy maker, apparently on Meals behalf. The contract is binding on a. Kris, Layla, and Meals at Your Door b. Kris only c. Meals at Your Door only d. Natures Best only

a. Kris, Layla, and Meals at Your Door because partnerships operated under agency law-meaning the individuals (agents) are charged with knowledge of, and responsibility for, acts carried out within the scope of the partnership relationship

Paolo, Quito, Reyes, and Sari form Toda el Mundo LP, a limited partnership to import and sell clothing made in remote global locales. In the absence of an agreement among the partners to the contrary, profits will be shared a. On the basis of percentages of capital contributions b. on a FIFO-first in, first out-basis c. equally among the partners d. in the same ratio of losses

a. On the basis of percentages of capital contributions because on dissolution, creditors claims, including those of partners who are creditors, take first priority. After that, partners and former partners receive unpaid distributions of partnership assets. Unless otherwise agreed, they are also entitled to a return of their contributions in the proportions in which they share in distributions

Cal, Dex, and Erin agree to be partners in Fajitas, a food cart outfit, splitting the profits equally. Cal contributes 65 percent of the capital. When Fajitas is dissolved, its liabilities are greater than its assets. The losses are paid by a. all of term-12 the partners in proportion to their capital contributions b. all of the partners in proportion to their shares of the profits c. Cal because he contributed most of the capital d. Dex and Erin because they contributed the least of the capital

b. all of the partners in proportion to their shares of the profits because a partners assets are distributed according to the following priorities. Payment of debts, including those owed to partner and non partner creditors. Return of capital contributions and distribution of profits to partners. If the partnerships liabilities are greater than its assets, the partners bear the losses in the same proportion in which they shared the profits unless they have agreed otherwise

Elliot is the sole proprietor of On Your Mark, a game subscription service. As a sole proprietor, on the businesses profits, Elliot pays a. No income taxes b. only personal income taxes c. both personal and business income taxes c. only business income taxes

b. only personal income taxes

Rodrigo is a director of STEM Inc. As a director, with respect to the corporation, Rodrigo is expected to use a. prolonged business judgment b. prudent business judgement c. pluperfect business judgement d. perfect business judgement

b. prudent business judgement because directors and officers are expected to exercise due care and use their best judgement in guiding corporate management, but they are not insures of business success. Under the business judgement rule, a corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgement and bad business decisions

Corporate shareholders will most likely be held personally liable for the firms debts if they a. insist on separating their personal interests from the of the firm. b. use the firm to perpetrate a fraud. c. encourage the firm to unsuccessfully enter a new market. d. refuse to transfer their shares to dilute control of the firm

b. use the firm to perpetrate a fraud. The courts will ignore the corporate structure by piercing the corporate veil and exposing the shareholders to personal liability when the owners use a corporate entity to perpetrate a fraud, circumvent the law, or in some other way accomplish an illegitimate objective.

An S corporation avoids taxes at a. the market level. b. no level. c. the corporate level. d. the shareholder level.

c. the corporate level. An S corporation is treated differently than a regular corporation for tax purposes. An S corporation is taxed like a partnership, so the corporate income passes through to the shareholders, who pay personal income tax on it. This treatment enables the S corporation to avoid the double taxation imposed on regular corporations.

Ensure Care LLC's owners are Avery and Aaron. As a limited liability company, Ensure Care enters into contracts a. as an aggregate of its owners b. only through its owners c. only in conjunction with its owners d. as a legal entity apart from its owners

d. as a legal entity apart from its owners because the LLC as an entity can be held liable for any loss or injury caused by the wrongful acts or omissions of its members. however, members themselves generally are not personally liable

Java and Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Java and Juice trade name as a member of a group of dealers that engage in retail beverage sales. To prospective franchisees, Java and Juice must disclose a. the range of goods and services included b. the value of the franchise c. the estimated profitability of the franchise d. the range of goods and services included, the value of the franchise, and the estimated profitability of the franchise

d. the range of goods and services included, the value of the franchise, and the estimated profitability of the franchise because the FTC's Franchise Rule requires franchisors to disclose certain material facts that a prospective franchisee needs in order to make an informed decision concerning the purchase of a franchise. exhibit 16-1

Juan is a limited partner in Port Exports, a limited partnership. By participating in the firms management, Juan is liable for its obligations a. in proportion to the number of partners in the firm b. to an extent c. to the extent of his capital contribution to the firm d. to the full extent

d. to the full extent because limited partner who participates in management and control of the business will be just as liable as a general partner to any creditor who transacts business with the limited partnership. Liability arises when the creditor believes, based on the limited partners conduct, that the limited partner is a general partner

True or false: organizing as a limited liability company prevents the firm from attracting foreign investors

false Foreign investors are allowed to become LLC members, so organizing as an LlC can enable a business to attract investors from other countries