Multiple Choice Practice Flashcards
1) Which of the following is correct with respect to sole proprietorships?
A) The sole proprietorship is a separate legal entity.
B) A sole proprietorship exists where two or more people carry on business together with a view toward profits.
C) The sole proprietor has limited liability.
D) The sole proprietor has unlimited liability.
E) A sole proprietorship must be incorporated.
D) The sole proprietor has unlimited liability.
3) Which one of the following statements is correct with respect to sole proprietorships?
A) The sole proprietor has the same extent of liability as a shareholder.
B) The sole proprietor must consult with the other owners before making any major decisions regarding the business.
C) The sole proprietor is responsible for the torts committed by an employee that take place within the scope of employment.
D) The sole proprietor need not adhere to any licensing and government regulations.
E) The sole proprietor has limited liability.
C) The sole proprietor is responsible for the torts committed by an employee that take place within the scope of employment.
Which one of the following situations will result in a partnership existing? Assume that no corporation has been created.
A) Joe and Mary own a house together and share the income from it.
B) A lawyer and a real estate agent split a commission.
C) Employees are given bonuses because of increased profits.
D) Joe pays back a debt to Harry by giving Harry a percentage of the profits from his business. E) Joe and Mary own a shoe store together and share the profits.
E) Joe and Mary own a shoe store together and share the profits.
Which of the following is the proper definition of a partnership as set out in the Partnership Act?
A) Partnership exists where two or more persons carry on business in common with a view to profit.
B) A partnership exists only where two or more people enter into a written agreement to be partners.
C) A partnership is created where a corporation with shareholders is registered with the federal government.
D) A partnership is only created where the partners actually share the profits from a business. E) A partnership exists where any business is carried on with a view toward profits.
A) Partnership exists where two or more persons carry on business in common with a view to profit.
Adams was approached by a Mr. McCarthy of XYZ Co., who requested that Adams pay
$10 000 to extinguish a debt owed by the partnership of Adams and Jefferson. Adams denied the partnership and the liability. In asserting his claim, McCarthy cited the following facts, all of which he could prove. Which of these facts is the strongest evidence of the existence of a partnership?
A) Adams and Jefferson co-owned property.
B) Adams and Jefferson shared gross returns from a business.
C) Adams and Jefferson worked together for a non-profit charity.
D) Adams received a commission from Jefferson based on the sale price of the goods sold by Adams for Jefferson.
E) Adams and Jefferson shared the profits from a business.
E) Adams and Jefferson shared the profits from a business.
In which of the following is there not a fiduciary duty owed? A) officer of a company to the company
B) partners to each other
C) manager to employer
D) agent to her principal
E) director to shareholders
E) director to shareholders
Which one of the following is correct with respect to the rights of partners unless they have agreed otherwise?
A) No major decision can be taken without a majority vote agreement of all partners.
B) Only the partners that have contributed the largest capital amount have the right to share in management.
C) All profits are shared equally among the partners.
D) A partner can sell her share of the partnership to another person without the agreement of the other partners.
E) Personal expenses incurred by the partners in the course of business are reimbursed.
C) All profits are shared equally among the partners.
Chuck, Howard, and Ben decide to start a business venture, developing and distributing educational software. For tax reasons, they do not incorporate. Each contributes $10 000, and Howard also contributes a truck and his programming expertise. They agree that all three will be actively involved in the day-to-day management of the business. To determine their rights and obligations, they enter into a one-page agreement that provides only that each of Chuck, Howard, and Ben will receive 33.3% of the profits but also states specifically they are not to be viewed as partners. Based on these facts, which of the following statements is true?
A) Chuck, Howard, and Ben will not be considered partners because of their express intention in their agreement.
B) Chuck, Howard, and Ben will be considered partners in the eyes of the law, because they share profits and are involved in the management of the business.
C) Chuck, Howard, and Ben will be considered partners, but someone claiming against the partnership will only be able to collect 33.3% from any one partner because of the agreement. D) Chuck, Howard, and Ben are not partners because they do not share profits in proportion to their capital contributions.
E) Chuck, Howard, and Ben are not partners because to be partners they must be professionals, such as dentists, lawyers, or doctors.
B) Chuck, Howard, and Ben will be considered partners in the eyes of the law, because they share profits and are involved in the management of the business.
12) Which of the following is incorrect with respect to the creation of a partnership?
A) A partnership can only be created with the consent of the parties.
B) The duties and obligations of partners to each other can be modified by agreement. C) The business activity must be continuing in order for it to indicate the existence of a partnership.
D) The common method of creating a partnership is by agreement.
E) An important indication as to whether a partnership exists is the sharing of the profits of the business activity.
A) A partnership can only be created with the consent of the parties.
In which one of the following situations will a court find that a partnership exists?
A) Joe sells his business to Harry for $10 000 for the assets and a further $20 000 for goodwill, the goodwill portion to be paid at a rate of 20% of the profits from the business until paid.
B) Joe is a partner in a shoe store and sells his share of the business to Harry without the consent of his partner.
C) Joe and Mary promote several dances at school and split the profits.
D) Joe, a partner in a law firm, dies and Joe’s widow takes over Joe’s share of the profits.
E) Joe and Mary, while attending university, purchase a house and share the profits from the rent after deducting expenses.
C) Joe and Mary promote several dances at school and split the profits.
Which of the following statements is correct with respect to unlimited liability?
A) Only the partner’s share of the partnership assets can be used to satisfy the debt incurred by another partner.
B) Each partner can be held responsible for the debts of the partnership no matter how great they are.
C) Unlimited liability means the partner can lose what he has invested but no more.
D) The partner cannot only lose what she has invested but can also be required to pay an additional amount equal to what she has invested.
E) If there are two partners, each partner can be held responsible for an amount equal to but no more than one half of the debts of the partnership.
B) Each partner can be held responsible for the debts of the partnership no matter how great they are.
Fred and Carole were trying to create a list of the pros and cons of sole proprietorship, partnership, and corporation to determine the best structure for carrying on business. Which of the following is true with regard to being a general partner?
A) Each partner is an agent for every other partner and for the firm itself, so a partner may be liable for the contracts made by an incompetent partner.
B) Every general partner faces limited liability for the debts of the partnership.
C) A partner is liable for only the amount that he or she invested in the partnership firm.
D) Retiring from a partnership by giving notice to the partners frees a partner from the liabilities he or she faced while being a partner of the firm.
E) A partner is liable to pay from his or her personal assets only when the partner has committed a criminal act.
A) Each partner is an agent for every other partner and for the firm itself, so a partner may be liable for the contracts made by an incompetent partner.
Which of the following is correct with respect to partnership? A) A partnership can be made up of only limited partners.
B) Partnership is a separate legal entity.
C) Partners are not agents for each other.
D) General partners have unlimited liability.
E) General partners have limited liability.
D) General partners have unlimited liability. E) General partners have limited liability.
Dave and his sister Chris make unusual kites. They both create the designs and Dave makes the patterns. Friends have always wanted to buy their kites. After Chris completes a post- secondary marketing program, she begins to talk to Dave about going into business selling kites. Ed, a friend of Chris, wants to be involved. He says he could buy the supplies and do other odd chores. They decide to try to make a go of it and to share the profits as follows: Dave, 35%; Chris, 35%; and Ed, 30%. Things go well for seven months. They even hire George to deliver kites to the increased number of stores buying them. Unfortunately for the business, Chris and Ed become romantically involved. This is followed by a heated dispute. Ed disappears with $1300 collected from customers and $600 worth of supplies, which he had bought on behalf of the business from its regular supplier. At about the same time, George negligently breaks a customer’s $200 lamp while delivering a kite. On these facts, which of the following is true?
A) If the partnership funds are not sufficient to pay the partnership debts, the creditors can look to the individual partners for payment.
B) Although George broke the lamp while delivering a kite, the partners are not liable because it was George’s own fault.
C) When Ed buys supplies for the business on credit, he is acting as an agent for the business and he alone is liable for those debts.
D) Only Chris would be responsible for Ed’s misapplication of the customers’ money.
E) Since Dave, Chris, and Ed did not sign a partnership agreement, they are not considered a general partnership.
A) If the partnership funds are not sufficient to pay the partnership debts, the creditors can look to the individual partners for payment.
Recent changes in partnership law allow partnerships to be registered as a “limited liability partnership” or LLP. When carrying on business as a limited liability partnership, non-negligent partners stand to lose:
A) their investment in the firm.
B) all of their personal assets if a successful claim is brought against the partnership on the basis of another partner’s mistake.
C) absolutely nothing.
D) all of their personal assets except those protected from seizure under bankruptcy legislation.
E) assets jointly held with a spouse.
A) their investment in the firm.
Which of the following is an example of a breach of a fiduciary duty?
A) A partner in a firm learned of a business forced to sell some heavy equipment. Although the partnership could have used the equipment, he bought and sold it at a substantial profit before the partnership was given a chance to buy it.
B) A shareholder of ABC Ltd., a trucking corporation whose shares are listed on the Vancouver Stock Exchange, is working as an employee for ABC Ltd.’s competitor, Jonstone Trucking.
C) A shareholder of a corporation voted in favour of an acquisition by the corporation at the annual general meeting because he secretly had an interest in the corporation being purchased. D) The directors of the corporation, contrary to a request made by the shareholders, refused to declare dividends.
E) A promoter of a corporation sold property to the corporation for four times what he had paid for it after he made full disclosure of his interest to an independent board of directors, which voted for the purchase.
A) A partner in a firm learned of a business forced to sell some heavy equipment. Although the partnership could have used the equipment, he bought and sold it at a substantial profit before the partnership was given a chance to buy it.
Which of the following is a violation of the fiduciary duty of a partner?
A) A violation occurs where one partner carries on a business unrelated to the partnership with the permission of the partners.
B) A violation occurs where a partner uses the partnership property for partnership business.
C) A violation occurs where one partner learns of an investment opportunity in the field of the partnership and tells the partners. The partners decline on the opportunity, so he takes advantage of it himself.
D) A violation occurs where one partner uses information that he has gained from the partnership for the advantage of the partnership.
E) A violation occurs where one partner starts another business, without the consent of the other partners, that is the same as or in competition with the partnership business.
E) A violation occurs where one partner starts another business, without the consent of the other partners, that is the same as or in competition with the partnership business.
Which of the following is true with regard to the characteristics of corporations?
A) The shareholders would be vicariously liable for any damage caused by a employee of the corporation carrying out his or her duties.
B) The corporation is a separate legal person, but neither can sue nor be sued.
C) Directors are responsible for the shareholders of the corporation.
D) Shareholders are liable for the debts and other obligations of the corporation.
E) A shareholder’s liability is limited to the amount he or she paid for the shares.
E) A shareholder’s liability is limited to the amount he or she paid for the shares.
Which of the following is an advantage of incorporation? A) Shareholders owe a duty to the corporation.
B) Shareholders are liable for debts of the corporation.
C) Shares are easily transferred.
D) Shareholders can veto the decisions of directors.
E) There are no tax advantages as compared to a sole proprietorship.
C) Shares are easily transferred.
John and two friends incorporated a closely held corporation. Each bought an equal number of common shares in the corporation. Each became a director, an officer, and an authorized agent of the corporation. Which of the following is true?
A) Each of them, as a director, owes a fiduciary duty to the others, as shareholders.
B) As director, each owes a fiduciary duty to the creditors of the corporation.
C) The corporation is more highly regulated and less free of government regulations and control than a broadly held corporation would be.
D) If the affairs of the corporation are being conducted in a manner that is unfairly prejudicial to any one shareholder, that shareholder could seek relief from such oppression from the court.
E) Since the corporation is a legal fiction, all of its activities must be carried out through principals.
D) If the affairs of the corporation are being conducted in a manner that is unfairly prejudicial to any one shareholder, that shareholder could seek relief from such oppression from the court.
Which of the following is a fiduciary relationship?
A) directors of the corporation and the corporation
B) officer of the corporation and the shareholders
C) agent and the third party
D) shareholders and the corporation
E) director of the corporation and the shareholders of the corporation
A) directors of the corporation and the corporation
When a house is built on a lot, the house is an example of: A) a profit à prendre.
B) a house not being considered property.
C) a chattel.
D) an easement.
E) real property.
E) real property.
Which of the following statements is correct with respect to personal property that becomes attached to real property?
A) When a tenant attaches tangible personal property to the real property he has rented in order to use it in his trade or profession, those trade fixtures cannot be removed when he leaves.
B) When a person renting a home attaches a mirror to the wall to better use it, he cannot take that mirror with him when he leaves.
C) When tangible personal property becomes attached to the real property, it is unlawful to remove it under any circumstances.
D) When tangible personal property becomes attached, it becomes part of the real property.
E) The owner of real property does not have the right to detach a fixture if he so desires.
D) When tangible personal property becomes attached, it becomes part of the real property.
Which of the following is considered real property in legal terms?
A) chattels
B) land
C) a claim against someone that has value
D) intellectual property (ideas and creative work)
E) intangible property or chose in action
B) land
Which of the following statements is correct with respect to the person who is entitled to found property?
A) When a person finds valuable property, he must turn it over to the police, and if the rightful owner is not found, the property goes to the government.
B) When a person finds a valuable watch in a public place, he is entitled to that property over everyone else except the rightful owner.
C) When a person finds a valuable watch in a public place, he is entitled to that property over everyone else including the rightful owner.
D) When an employee finds an item of lost property on the premises of his employer, he is entitled to that lost property if the rightful owner cannot be found.
E) You only have a claim to personal property you find if it is a chose in action.
B) When a person finds a valuable watch in a public place, he is entitled to that property over everyone else except the rightful owner.
After saving his money for years, Taylor was finally able to buy property with a small house and a lake. Which of the following is false?
A) Taylor’s interest is referred to as a fee simple.
B) Taylor owns all of the area above his land and all of the land below it.
C) Taylor can sell part of his interest and create a joint tenancy.
D) Taylor’s ownership extends to include “fixtures.”
E) Despite the extent of Taylor’s interest, the Crown can grant the mineral rights to someone else.
Ans
B) Taylor owns all of the area above his land and all of the land below it.
Which of the following is true with regard to real property law?
A) The essential characteristic of an estate in land is that the owner of the estate, whether it is a fee simple, life estate, or leasehold, has exclusive possession.
B) People gain an interest in land when they are given the right to use or access property for some particular purpose.
C) Restrictive covenants that are negative in nature are not binding on future owners.
D) A profit à prendre is a type of restrictive covenant attaching to all properties within a particular development plan.
E) An easement acquired by prescription must be restrictive in nature to be binding on subsequent purchasers of land.
A) The essential characteristic of an estate in land is that the owner of the estate, whether it is a fee simple, life estate, or leasehold, has exclusive possession.
Mario bought a small house in Nelson and was puzzled when he saw the conveyancing documents, which referred to a transfer of a “fee simple.” The following statements were made to him to explain the term. Which is correct?
A) The owner of the fee simple has the right to exclusive possession of the land until his death. B) If the owner of the fee simple dies without a will, his estate reverts back to the Crown.
C) The owner of the fee simple has rights to the surface of the earth and also unlimited use of the airspace above his property.
D) The owner of the fee simple also owns what is below the land, including mineral rights.
E) Technically, only the Crown owns the land, but the fee simple interest is the greatest bundle of rights, other than the Crown’s, that a person can own.
E) Technically, only the Crown owns the land, but the fee simple interest is the greatest bundle of rights, other than the Crown’s, that a person can own.
If a person wanted to build a log cabin in a new subdivision. what might prevent him or her from doing so?
A) restrictive covenant
B) federal statute
C) prescription
D) easement
E) strata regulations
A) restrictive covenant
Brenna owns two adjacent lakeside lots. She sells one lot to Burt and Ernie, with the provisions that they agree not to develop any commercial facilities on the land and to plant a row of rose bushes between the properties. The covenants are registered in the appropriate land title office. Which of the following is true?
A) If Burt and Ernie do not plant the bushes as agreed, Brenna could sue them for private nuisance.
B) If Burt and Ernie sell the property, the new owner would not have to plant the row of rose bushes as provided in the original contract.
C) If Burt and Ernie sell the property, the new owner would have to plant the row of rose bushes as provided in the original contract.
D) The registration of a covenant guarantees that it is valid interest that runs with the land.
E) If Burt and Ernie sell their lot to Holly, Holly would not be bound by the covenant to refrain from developing commercial facilities.
B) If Burt and Ernie sell the property, the new owner would not have to plant the row of rose bushes as provided in the original contract.
