business law 2 final

Atlantic Corporation's articles of incorporation prohibit a sale of its assets without a vote of the board of directors. Atlantic's officers sell some assets to Pacific Company without notice to the board. The officers also fail to pay Atlantic's taxes on time, and some Atlantic funds are not accounted for. Refer to Fact Pattern 41-3A. The appropriate remedy is most likely

Atlantic's dissolution.

Jody owns KuppaJava Kiosks, a sole proprietorship. Jody's liability is

unlimited

Precise Device Corporation and Quality Instruments, Inc., decide to merge. This corporate combination does not require the approval of

Precise and Quality's officers.

Fact Pattern 40-1A Ruben is a shareholder of Speed Bikes Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm's behalf. Refer to Fact Pattern 40-1A. Any damages recovered by Ruben's suit will normally go to

SBC

Titan Business Corporation can be compelled to dissolve by

itself, through its shareholders and directors, or the state.

Binary Corporation and Coda, Inc., two software firms, wish to combine their research and development capabilities to make a special, limited edition computer game. The appropriate legal entity for this project is most likely

joint venture

Inger is a franchisee of Honey Bear Restaurants, LLC Their contract gives Honey Bear the right to control virtually all aspects of Inger's operation, including the hiring of employees. One of the employees, Joris commits a tort against Kiley, one of Inger's customers. Kiley files a suit against Honey Bear. Honey Bear is most likely

liable because Honey Bear exercises control over Inger's operation.

Omega Corporation makes and markets digital timers, clocks, and related products. Like other business corporations, Omega issues securities to

obtain financing.

Firelite Corporation wants to purchase all of the assets of Glo Power Products, Inc. Helen is a Glo Power shareholder. The approval of Helen and other Glo Power shareholders is necessary

only if Firelite plans to pay with unauthorized, unissued stock

Melba and Leon are directors of Fresh Foods, Inc. The right of Melba and Leon to be notified of special meetings of the board is the right to

participation

Wild & Scenic River Tours, Inc., is a corporation. Wild & Scenic has the implied power to

perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

Otis is interested in buying a franchise from Plentiful Markets Inc. This transaction, like other franchise deals, is regulated to protect

prospective franchisees from dishonest franchisors.

Heidi and Ian are directors and shareholders of Globe Software, Inc. Heidi's written authorization to Ian to vote Heidi's shares at a Globe shareholders' meeting is

proxy

Suki is a registered agent for Trans-state Trucking, Inc. (TTI), which incorporated in Utah. As a registered agent, Suki

receives legal documents on behalf of TTI.

In all states, Exercise & Fitness Club Company and other corporations can pay dividends from

retained earnings

Sweet Styles, Inc., a franchisor of clothing stores, wishes to standardize the pricing practices of its franchisees that have engaged in price-cutting to increase their respective shares of the market. The most prudent action might be for Sweet to

suggest the prices at which its franchisees sell their products.

Stacy contracts to buy a franchise from Tender Steak House Company. In this contract, as in most franchise contracts, the determination of the territory to be served is made by

tender steak house

Pilar is interested in buying a franchise from Quixotic Bike Corporation. Quixotic must disclose material facts that Pilar needs to make an informed decision concerning this purchase, according to

the Federal Trade Commission's Franchise Rule.

Dominique buys a franchise from Cheyenne Artisans, Inc. This provides Cheyenne with an outlet for the firm's goods, some of which Dominique is required to buy at an established price. In their agreement, Cheyenne may also specify

the franchise's business organizational form.

Carl sells Direct Marketing Enterprises, a sole proprietorship, to Eve. This is a transfer of

the ownership of the business.

Vacation Adventures, Inc., and Wild River Tour Company plan to merge. Most likely, the articles of merger will be filed with

the state's secretary of state.

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lucy is personally liable for the debts

to the extent of her capital contribution.

A corporate takeover is the process of acquiring control over a corporation by the purchase of a substantial number of the voting shares of its stock.

true

A franchise is a contractual arrangement.

true

A franchisee ordinarily pays an initial fee or lump sum price for a franchise license.

true

A franchisor can require a franchisee to purchase certain supplies from the franchisor at an established price.

true

A franchisor's decision to terminate a franchise may be made in the normal course of business operations.

true

A holding company is a company whose business activity consists of holding shares in another company.

true

A limited liability company can be taxed as a partnership.

true

A partner owes to the partnership and the other partners a duty of loyalty.

true

A promoter is personally liable for a preincorporation contract until the corporation assumes liability.

true

Common stock provides a proportionate interest in the corporation with regard to control.

true

Corporate profits can be subject to double taxation.

true

Directors have a right to participate in all board of directors' meetings.

true

Every shareholder is entitled to examine specified corporate records.

true

Federal securities laws strictly control the terms, duration, and circumstances under which most tender offers are made.

true

In a general partnership, all partners have equal rights in managing the partnership.

true

In many states, an operating agreement is not required for a limited liability company to exist.

true

Laws governing franchising are designed in part to prevent franchisors from terminating franchises without good cause.

true

Shareholders are co-owners of the corporation.

true

Some states require franchisors to provide presale disclosures to prospective franchisees.

true

The Uniform Partnership Act governs the operation of partnerships.

true

The duration of a franchise is a matter to be determined between the parties.

true

The liability of the members of a limited liability company is limited to the amount of their investments.

true

The simplest form of business is a sole proprietorship.

true

To pierce the corporate veil means to ignore the corporate structure, exposing the shareholders to personal liability.

true

Venture capital is capital provided to new business ventures by professional, outside investors.

true

Bev is a shareholder of All-Terrain Vehicle Company. As a shareholder, Bev does not have

a right to compensation.

Hermione starts up, and assumes the financial risk of, Graphic Ads, a new enterprise. Hermione is

a sole proprietor.

Jim organized, and owns and operates, Jim's Landscaping Service in the simplest form of business organization. This is

a sole proprietorship.

Clark is a shareholder of Bedrest Mattress Company. Clark will be deemed to have a fiduciary duty to Bedrest and its minority shareholders if he has

a sufficient number of shares to exercise de facto control.

Burger Heaven, Inc., conducts a chain-style franchise. This involves the transfer to Chester, one of its franchisees, of

a trade name

Venture Capital, LP, is a limited partnership. Its limited partners include more than 150 sophisticated investors and investment professionals. A Venture limited partner loses his or her limited liability if he or she

acts as the firm's manager.

Flip Gymnastics & Karate, Inc., grants a franchise to Gibby to operate a Flip gym. Flip may require Gibby to pay the franchisor a percentage of his

annual sales or volume of business.

Mika buys a Nuance Cabinets, Inc., franchise, which the franchisor later terminates. In determining whether the termination was proper, a court will generally

balance the rights of both parties.

A corporation is a legal entity created and recognized by federal law.

false

A franchise contract may use only one type of business organization¾the sole proprietorship.

false

A franchisor is the purchaser of a franchise.

false

A limited liability company must be managed by non-member managers.

false

A limited liability company that has only one member cannot be taxed.

false

Good faith and fair dealing are not important in terminating a franchise relationship.

false

If a party to a franchise contract fails to perform its contractual duties, the other party may be subject to a lawsuit for breach of contract.

false

In a sole proprietorship, the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

false

State limited liability company statutes are uniform.

false

Stocks represent the borrowing of funds by firms.

false

Typically, the franchisee determines the territory to be served by the franchise.

false

Real Events Promotion Corporation licenses trademarks to Stadium Souvenirs, Inc., to use in selling caps, sweatshirts, and similar goods. This is

franchise

Star Resorts Corporation wants to terminate its franchise arrangement with Tony. Their contract does not provide for notice of termination or set a time for winding up the business. This means that to wind up, Tony

has a reasonable time, with notice.

Once a dissenting shareholder elects appraisal rights, the shareholder loses his or her shareholder status.

True

Leo buys an exclusive territory in which he is authorized to set up a plant to make Midwest Dairy, Inc., products. After receiving the formula, Leo begins making Nice Ice-brand ice cream and other Midwest products. This is

a manufacturing franchise.

Ewa is a shareholder of Farm Fresh Foods, Inc., whose management is considering a tender offer by Growers Market Corporation. Ewa elects appraisal rights. This affects

Ewa's shareholder status

A corporation that is selling all of its assets must obtain approval only from its board of directors.

False

A short-form merger is the legal combination of two or more corporations online.

False

A takeover cannot be challenged on the ground that it would result in a substantial increase in the acquiring corporation's marker power.

False

Courts do not apply the business judgment rule to analyze whether the directors acted reasonably in resisting a takeover attempt.

False

Generally, a corporation that purchases the assets of another corporation is automatically responsible for the liabilities of the selling corporation.

False

How the value of the shares of each merging corporation will be determined is stated after the plan of merger has been approved.

False

In a consolidation, two or more corporations combine so that each corporation continues to exist.

False

Officers hire the directors and other executive employees.

False

On dissolution, corporate assets are distributed to shareholders according to their stock rights and any remaining assets are used to pay creditors.

False

The board of directors of each corporation involved must approve a merger.

True

The state can bring an action to dissolve a corporation that has failed to pay its annual taxes.

True

When a corporation is dissolved voluntarily, the corporation must file articles of dissolution with the state.

True

When a merger takes place, the surviving corporation issues shares or pays fair consideration to the shareholders of the corporation that ceases to exist.

True

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

a fiduciary.

Bee Hive Honey, LLC's members include Chad. For purposes of suing and being sued, Bee Hive Honey is

a legal entity apart from the owners.

Ridgeway Sand & Gravel Corporation and Quick-Set Paving Company combine so that all that remains after the papers have been signed is Ridgeway. This is

a merger.

Sustainable Café LLC is a limited liability company. Like any other LLC, unless Sustainable Café chooses otherwise, the firm will be taxed as

a partnership

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is

adopting java's bylaws

CPA Accounting, LLC, is a limited liability company. If the law in CPA's state is like the law in most states, unless the members have agreed otherwise, participants in the firm's management will be considered to include

all members

Petro Drilling Corporation combines its assets and debts with those of Oil Refining Company to form New Energy, Inc. Refer to Fact Pattern 41-2A. New Energy acquires

all of Petro's and Oil's assets.

Petro Drilling Corporation combines its assets and debts with those of Oil Refining Company to form New Energy, Inc. Refer to Fact Pattern 41-2A. New Energy assumes

all of Petro's and oil's assets

Cherry Grove Apartments, Inc., merges with Dutch Elm Realty, Inc. Only Dutch Elm remains. Refer to Fact Pattern 41-1A. Cherry Grove owed money to Eager Beaver Repair Service and other creditors. After the merger, Dutch Elm must pay

all of cherry grove's debts

Thor Power Products Corporation permits the election of its directors by cumulative voting. This

allows minority shareholders to be represented on the board.

Gladys is a shareholder of Frozen Yogurt, Inc. As a shareholder, Gladys must approve

amending the bylaws.

Fact Pattern 41-1A Cherry Grove Apartments, Inc., merges with Dutch Elm Realty, Inc. Only Dutch Elm remains. Refer to Fact Pattern 41-1A. Cherry Grove held rights in certain real property. After the merger, Dutch Elm acquires the rights

automatically

Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delite's

board of directors

VeriVisual Company makes HD 3D film and video equipment. VeriVisual is like most corporations in that its officers are hired by the firm's

board of directors.

Fact Pattern 41-2A Petro Drilling Corporation combines its assets and debts with those of Oil Refining Company to form New Energy, Inc. Refer to Fact Pattern 41-2A. The formation of New Energy is

consolidation

Mari buys 500 shares of common stock in National Livestock Traders, Inc. As a shareholder of record, Mari owns a proportionate interest in terms of

control, earnings, and net assets.

Corbin, a partner in Doctors Medical Clinic, applies for a loan with Evermore Bank allegedly on Doctors' behalf but without the authorization of the other partners. Evermore knows that Corbin is not authorized to take out the loan. Corbin defaults on the loan. Liability for its unpaid amount is imposed on

corbin only

Start-Up Corporation substantially complies with all conditions precedent to incorporation. Start-Up has

de jure existence.

Ruben is a shareholder of Speed Bikes Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm's behalf. Refer to Fact Pattern 40-1A. Ruben's suit is a shareholder's

derivative suit.

Clu, Dolf, and Elton do business as Fertile Valley Farm. Clu's relationship to the firm ends, but it continues to do business. This is

dissociation

Flip is a member of Great States Trucking LLC. Flip's relationship to Great States ends, but the firm continues to do business. This is

dissociation

The term for the legal death of the artificial "person" of Skytop Services, Inc., or any other corporation, is

dissolution

Hud and Iggy form Jerry-Bilt Construction to enter into a contract to build one bridge. Under their partnership agreement, Jerry-Bilt is to dissolve when the bridge is built. Iggy signs a contract for the firm to build a second bridge. Jerry-Bilt

dissolves as soon as the first bridge is built.

Vision Optical Company and Wide Eyes Open, Inc. decide to combine. Xavier, a Wide Eyes shareholder, is dissatisfied with the price that he will receive for his stock. In the absence of fraud or other illegal conduct, Xavier's exclusive remedy is to

exercise an appraisal right.

A partner who pursues his or her own interests automatically violates the partner's fiduciary duties to the partnership.

false

An agreement between shareholders to restrict the transfer of a closely held corporation's stock is illegal.

false

Bylaws can conflict with the incorporation statute or the articles of incorporation.

false

Directors are entitled to use corporate funds for their personal advantage.

false

Each incorporator must have an interest in the corporation.

false

Firms are obligated to return a principal amount per share to each holder of common stock.

false

Shareholders are personally liable for the debts of a corporation.

false

When a member dissociates form a limited liability company, the member's duty of loyalty continues.

false

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which

governs spex

Energy Unlimited, LP, is a limited partnership to which its partners, including Fink, have contributed capital. Energy's creditors include Graves Engineering, Inc. On Energy's dissolution, its assets will be distributed to pay

graves first

Discount Factory Outlets, Inc., issues bonds. Bonds

have maturity dates.

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what Luke believes is the firm's best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule Luke is

immune from liability

Jim and Kiley are architects and members of J&K, P.C., a professional corporation. Jim supervises Luc, an employee of the firm. As a member, Jim

may be personally liable for malpractice committed by Luc.

Digitech is a foreign corporation, which means that Digitech

may be required to obtain a certificate of authority to do business.

Stan incorporates his scientific products business as Tech Precision Supply, Inc. This firm could have perpetual existence in

most states

Fact Pattern 37-1A Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred. The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites' profits, each month. The term is two years. Desi hires Gwen to work at eSites' tech support desk at an hourly wage of $12.50, plus a commission of 10 percent of the profits. The term is also two years. Refer to Fact Pattern 37-1A. Desi and Fred are

not partners, because Fred does not have an ownership interest or management rights in eSites.

Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred. The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites' profits, each month. The term is two years. Desi hires Gwen to work at eSites' tech support desk at an hourly wage of $12.50, plus a commission of 10 percent of the profits. The term is also two years. Refer to Fact Pattern 37-1A. Desi and Gwen are

not partners, because Gwen does not have an ownership interest or management rights in eSites.

Sullivan and Taylor want to form a corporation to provide catering services. The first step in the incorporation procedure is to

select a state in which to incorporate.

Lon and Merry act as the incorporators for NuGame Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of NuGame's

shareholders

B2B, LLC, is a limited liability company. Among its members, a dispute arises that the operating agreement does not cover. The dispute is governed by

the applicable state LLC statute.

A corporation formed in another country but doing business in the United States is referred to in the United States as an alien corporation.

true

A corporation generally can engage in any act and enter into any contract available to a natural person.

true

A director must make a full disclosure of any potential conflict of interest that might arise in any corporate transaction.

true

A director or officer is required to exercise the care that an ordinarily prudent person would exercise in similar circumstances.

true

Frida, Gayla, and Hart occupy the positions of director on the board of Integral Components Corporation. With respect to these directors, a quorum is the minimum number

who must be present to validly transact business.