Legal Environment of Business Test 3 (Ch. 17, 20, and 21)

Which of the following statements is correct?

-Bonds are long-term debt secured by company assets. -Debentures are long-term unsecured debt. -Notes are short-term debt and may be secured or unsecured.

If the agent is disloyal to the principal:

-The principal may rescind the transaction. -The principal can recover from the agent any damages the breach has caused. -The principal has a right to recover any profits the agent earned as a result of the wrongdoing.

HBR Accounting hired Denise, a CPA, to prepare tax returns.

Denise, as a CPA, is an agent with special skills. She is held to higher duty than ordinary negligence.

The doctrine of respondent superior:

Applies to a principal"s liability fr actions of employees but not to actions of independent contractors.

Most business corporations are incorporated under federal, rather than state, law.

False

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee?

Franchise

Mohammad was an employee in the new product development department of Estay Inc. Mohammad was directly involved in the development of a new product that Estay took great care to keep information concerning the new product a secret. Ceries, Inc., a competitor of Estay, persuaded Mohammad to leave Estay to direct Ceries' marketing department.

Mohammad cannot share with Ceries the confidential information he knows about Estay's new product because he has a duty not to disclose confidential information he acquired during the agency. This duty extends beyond the term of the agency.

Rex owns 50 shares of In-Pro, Inc. stock. The type of stock he owns is entitled to dividends before other types of stock. In-Pro could not afford to pay dividends last year, so Rex lost the dividend for that year for good. If In-Pro dissolves, Rex and others owning the same type of stock have a right to receive their share of corporate assets before other shareholders. What type of In-Pro stock does Rex own?

Non-cumulative preferred stock

Fashions, Inc. has 12 shareholders. There is no shareholder agreement concerning the board of directors. The company is subject to the Model Act. How many directors is Fashions, Inc. required to have?

One

Jim agreed to show Donna's car to potential buyer. Donna was not able to be home since she had to attend a meeting. After showing the car, Jim left the keys in it and the car was stolen.

Since Jim is a gratuitous agent, he will only be liable for the loss of the car if his conduct constitutes gross negligence.

What federal agency requires that the seller of a franchise give the potential buyer a disclosure statement called an offering circular?

The Federal Trade Commission (FTC).

The term "S corp" comes from:

The Internal Revenue Code

When a principal is partially disclosed or unidentified:

The agent and principal will be liable on the contract.

Who establishes executive compensation?

The board of directors.

an agency agreement automatically terminates in all but which the following instances:

The principal is declared bankrupt.

A corporation must always have an official address within the state of incorporation. If the corporation does not maintain an office in that state, the corporation may hire a registered agent.

True

Consent, control, and a fiduciary relationship are necessary to establish an agency relationship.

True

Shorry decided to incorporate his business under the name of "Zamm." In addition to Zamm, the Model Act requires that Shorry include one of the following words in the business name: "corporation," "incorporated," "limited," or "company."

True

Termination of a partnership involves two concepts: 1. the partnership either buys out the departing partners or 2. wind up, and termination the business.

True

The main advantages of a sole proprietorship are that it is easy and inexpensive to create and operate and that the owner has limited liability for the business's debts.

True

The most common and dominant form of business ownership is the corporation.

True

Paula appointed Al to be her agent via a contract in writing that spelled out the scope of Al's authority. The contract provided that Al was not to disclose that he was acting on behalf of Paula. Al did not disclose to the third party that he was acting as an agent. In this case, the principal was:

Undisclosed

A corporate charter is filed with:

a state's Secretary of State office.

The officers of a corporation are:

appointed or elected by the board of directors.

Charles and Ellen, an unmarried couple, run an ice cream store. The business has not filed any organizational papers with the Secretary of State. Their business is a:

general partnership.

Harold and Zack have pooled their money to buy real estate. Harold, a builder, handles all the construction and Zack, a real estate broker, finds buyers for the property they have subdivided. Harold and Zack are engaged in a:

general partnership.

The Federal Trade Commission requires franchisors to disclose:

information about finances, costs to the franchisee, what goods must be purchased from the franchisor, and how many franchises have gone out of business in the prior 3 years.

Tom, the production manger at Esday, was told by his supervisor to hire Elton, a 15-year-old, to operate an industrial machine. Hiring the 15-year-old violates the child labor laws, Tom:

should not hire Elton. Tom has a duty to obey Esday's instructions only if they are not illegal or unethical.

The proceeds, if any, of a derivative lawsuit, go to:

the corporation

All of the following are characteristics of a closely held corporation EXCEPT:

the shares are publicly traded.