FORMS OF BUSINESS ORGANIZATIONS

1.In a sole proprietorship, the owner

a.has full liability for all business debts and obligations.

b.has limited liability, only liable for up to the value of her investment.

c.must buy insurance to cover all liabilities.

d.is liable for all business debts and obligations up to the extent of all profits taken from the business.

2.Sarah Smith and Tara Thomas formed a general partnership to run a shoe store.Sarah went on vacation one year, and while she was gone, Tara purchased $50,000 in shoes on credit from Glamour Shoes.Sarah was furious when she got home, saying this was a mistake.It was. These shoes did not sell very well, and the store had a hard time paying back the money.Glamour sues both Sarah and Tara.Tara dies during the lawsuit, and her estate has very little money.Glamour

a.must drop the claim against Sarah.

b.can recover the full amount owed from Sarah.

c.can recover half of the amount owed from Sarah.

d.can recover up to the amount Sarah invested in the partnership.

3.Jake, Paula and Rebecca are partners in a restaurant, Eat'n Run. The restaurant is surrounded on three sides by pasture.Eat'n Run desperately needs more parking, so the partners agree that Jake will explore buying some of the surrounding property to expand the parking lot.Without telling Paula and Rebecca, Jake had seen this need coming and had already asked his cousin to buy about half an acre to the west side of Eat'n Run.Jake then reported to Paula and Rebecca that the best deal available is to buy that same half-acre.Jake's actions:

a.were smart business practices.

b. were unethical but not illegal.

c.violated his duty of care to the partnership.

d. violated his duty of loyalty to the partnership.

4.Betty Brown and Caroline Carson form a partnership.Their partnership agreement does not follow the Uniform Partnership Act (UPA).In that case:

a.The UPA supersedes their agreement.

b.Their agreement controls.

c.A court will later choose whether the UPA or the agreement is fairer.

d.The parties may later choose which provisions, those of the UPA or of the agreement, to follow.

5.Jim, Sally and Jerri formed a limited liability company, called JSJ, LLC.Some time later, Jerri died.They had made no provisions in their operating agreement about a member's death.Upon Jerri's death:

a.her membership interest passed to her heirs.

b.her membership passes to Jim and Sally, who now each are 50% owners.

c.the LLC must dissolve.

d.the LLC continues, with Jim and Sally the sole members, but Jerri's heirs are entitled to a buyout.

6.JSJ, LLC is sued for $1,000,000.Jim, Sally and Jerri individually could be liable:

a.jointly and severally for $1,000,000.

b.only to the amount of their contribution to the limited liability company.

c.personally for $333.333.33 (one-third of $1,000,000).

7.Rambo Oil, Inc. forms a limited partnership to drill for oil in Grady County, Oklahoma called "Grady Rambo L.P." Rambo Oil is the general partner and limited partnerships can be purchased for $15,000 apiece.

Grady Rambo L.P.accidentally pollutes the water table and a court orders that it must pay for the cleanup, which is extremely costly.The liability for the cost:

a.is entirely Rambo Oil's responsibility.

b.is shared equally by Rambo Oil and all the limited partners.

c.the limited partners are liable for up to $15,00 apiece, but Rambo Oil is liable for the full amount of its investment in the project.

d. the limited partners are liable for up to $15,00 apiece, but Rambo Oil has unlimited liability.

8. A corporation that meets certain qualifying requirements specified in Subchapter S of the Internal Revenue Code can choose to operate as an S corporation. What is one of the qualifying requirements to operate as an S corporation?

a. The corporation must have only one class of stock.

b. The corporation may have nonresident alien shareholders.

c. The corporation must be a member of an affiliated group.

d.The corporation must have more than 100 shareholders.

9.The acquisition of a share of stock makes a person an owner and a shareholder in a corporation. Shareholders exercise ownership control through the power of their votes.

Which class of stockholders has a right to vote?

a.Bond holders

b.Preferred stockholders

c.Common stockholders

d."A" class stockholders.

10.Which form of business structure can issue stocks to the general public to obtain financing?

a.C corporation.

b.S corporation.

c.limited liability company.

d.limited partnerships.

11.Jim, Sally and Jerri are considering forming a corporation.What is a disadvantage of that choice?

a.perpetual existence.

b.unlimited liability for each shareholder.

c.double taxation.

d.increased fiduciary duties to each other as compared to a partnership.

AGENCY

1.Able Company agrees with Tom Baker that Tom will search out widget suppliers and to purchase widget supplies.In this relationship

a.Able is principal, Baker is agent, and Able has a duty to indemnify Baker for his purchases.

b.Able is principal, Baker is its agent, and Able has a duty to reimburse Baker for his purchases.

c.Able is employer, Baker is employee, and Able has a duty to reimburse Baker for his purchases.

d.Able is client, Baker is independent contractor, and Able has a duty to indemnify Baker for his purchases.

2.Jane Smith takes Sally Jones to the store where Jane Smith has a charge account.Jane Smith tells the store owner she and Sally Jones will be buying refreshments for a party, and to put the items on Jane Smith's account.After loading Smith's car, Smith leaves.Sally Jones returns a few minutes later in her own car, grabs some cases of soda, and walks to her own car. Smith later sees the second set of purchases on her account and protests.What then?

a.The store will have to seek payment from Sally Jones.

b.Smith must pay as Jones was her agent by estoppel, and Jones had apparent authority to purchase the items.

c.Smith must pay because Jones was her agent by agreement, and Jones had actual authority to purchase the items.

d.Smith must pay because Jones was her agent by ratification and had actual authority to purchase the items.

3.Jane Smith takes Sally Jones to the store where Smith has a charge account.Smith tells the store owner she and Jones will be buying refreshments for a party, and to put the items on Smith's account.After loading Smith's car, Smith leaves.Jones returns a few minutes later in her own car, grabs some cases of soda, and walks to her own car, which she then took to Smith's house; but Smith had never asked her to make the second purchase.However, Smith later used all those refreshments that Jones purchased at the party. What then?

a. The store will have to seek payment from Jones.

b. Smith must pay as Jones was her agent by estoppel, and Jones had apparent authority to purchase the items.

c. Smith must pay because Jones was her agent by agreement, and Jones had actual authority to purchase the items.

d. Smith must pay because Jones was her agent by ratification.

3.Able represents Baker Ltd.in making deals for oil leases.He is authorized to enter into leases with landowners, including making any deposit payments that are required.Able enters into a lease that allows Baker to drill for oil on Carson's land, and pays Carson an initial signing deposit.The following statement is true:

a.Baker may repudiate that deal but must reimburse Able for the deposit he paid.

b.Baker is bound by the deal and must indemnify Able for the payment he made.

c.Baker is bound by the deal and must reimburse Able for the payment he made.

d.Baker may repudiate that deal and refuse to pay Able back for the deposit he made.

5.Baker Realty Company appoints Able as its agent for the purposes of collecting rent and related actions, like evicting tenants who do not pay.Able keeps bad records, and mistakenly and negligently brings an eviction action against a tenant who in fact is current on his rent.The tenant counterclaims for wrongful eviction.Who can be liable in that action?

a.Baker

b.Able

c.Baker and Able

6.Able enters into an agreement with Baker to buy a painting.Able is representing Carson, butAble does not tell Baker that he is representing anyone.Carson is a famous art collector, and he fears that if Baker knew Able was his agent,Baker would seek a higher price.When the deal falls apart later, who may be liable to Baker?

a.Able, because he had an undisclosed agency relationship, and Baker thought he was dealing only with Able.

b.Both Carson and Able.

c.Carson.

7. Respondeat superior means "let the master answer."This doctrine means that

a.employers are responsible for the negligence of their employees when the employee was acting within the scope of his or her employment.

b.principals are responsible for the negligence of their agents when the agent was acting within the scope of his or her agency.

c.clients are responsible for the negligence of their independent contractor, even when the independent contractor is not acting to represent the client as an agent.

d.Both a) and b).

12.Able asks Baker to drive Able's car from Able's home on the East Coast to Able's new home in California.In a written agreement, Able states "I authorize Baker to drive my car from the East Coast to California.Signed, Able."During the drive, Baker puts gas into the car several times, and at the end of the trip asks Able to reimburse him. What happens next?

a.Baker had express authority to fill the tank with gas, and Able has a duty to reimburse Baker.

b.Baker had implied authority to fill the tank with gas, and Able has a duty to reimburse Baker.

c.Baker has apparent authority to fill the tank with gas, and Able has a duty to reimburse him.

d.Baker has implied authority to fill the tank with gas, and Able has a duty to indemnify him.

13.Jim Able went to the grocery store where his wife, May, has an account.He bought groceries for the house and charged it to her account.Is May responsible to pay for those groceries on her account?

a.Yes, Jim is her agent by operation of law.

b.Yes, Jim is her agent by estoppel.

c.No, Jim is not allowed to use her account.

d.No, because Jim did not have written authority.