Unit 4

Question 1

AI Medical, Inc., is a private, for-profit corporation that is owned by six shareholders who are not members of the same family but are personally known to one another. They also serve as the directors and officers. To prevent a majority shareholder from dominating the firm, the corporation may

Answer 1

Require more than a majority of directors approve any board action.

Question 2

A power of attorney can be

Answer 2

Special and general

Question 3

Don is a shareholder of Energy Renew Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Don files a suit on its behalf. Don’s suit is

Answer 3

A shareholder’s derivative suit.

Question 4

Avery wants to go into business as Boom! to make and market fireworks. When deciding which form of business organization would be most appropriate, Avery would normally take into account all of the following except

Answer 4

The forms of competitors’ business organizations.

Question 5

Contracts entered into when the business is not yet formed is called

Answer 5

Preincorporation contracts.

Question 6

A key advantage of the LLC for members is

Answer 6

The members are not personally liable.

Question 7

Dissolution of a partnership can be brought about by

Answer 7

the acts of the partners.

operation of law

judicial decree.

Question 8

When the principal, by either words or actions, causes a third party to reasonably believe that an agent has authority to act, even though the agent has no express or implied authority, this is considered

Answer 8

Apparent authority.

Question 9

The principal must indemnify the agent for the value of benefits that the agent confers on the principal, and the amount of indemnification is

Answer 9

Specified in the agency contract.

Question 10

Diamonds & Gold LLC hires Elle to buy gems and precious metals from various sources on its behalf. In this relationship, Diamonds is

Answer 10

A principal.

Question 11

Olin is a partner in Precision Plumbing. When the partners decide to dissolve the firm, Olin collects and distributes the assets. This results in

Answer 11

The termination of the firm’s legal existence.

Question 12

Erin, a shareholder of Finance Inc., demands the right to inspect corporate books and records to determine whether management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin’s challenge, a court is most likely to hold that her request constitutes

Answer 12

A proper purpose.

Question 13

By definition, independent contractors are

Answer 13

Not employees, and employers have no control over the details of their physical performance.

Question 14

Burgers & Brew Inc. prepares its articles of incorporation. The articles are likely to include

Answer 14

the corporation’s name.

the number of shares the corporation is authorized to issue.

all of the choices.

the corporation’s registered agent.

Question 15

Kit hires Lanie to manage Kit’s Cattle Ranch. Lanie agrees to act on Kit’s behalf, subject to Kit’s control, and Kit trusts Lanie to so act. Their relationship is

Answer 15

A principal and an agent.

Question 16

Global Enterprises Inc. competes in many product, service, and geographic markets. Global’s board consists of a large number of directors. The firm faces myriad complex business issues. To avoid its governance from becoming unwieldy, the company can delegate some of its functions to

Answer 16

An executive committee.

Question 17

For the sole proprietor, business profits are reported

Answer 17

As personal income.

Question 18

Bread Company hires Craig to sell the company’s products in a certain area. Bread agrees to pay Craig a salary, plus commission, for a trial period. They also agree that he can sell using any methods and during any hours that seem appropriate. The key factor in whether Craig is Bread’s employee is

Answer 18

The degree of the employer’s control over the details of the work.

Question 19

The members of an LLC can decide how to operate the various aspects of the business by forming

Answer 19

An operation agreement.

Question 20

Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to the hosts of banquets and other events. In this capacity, Rosario is

Answer 20

An independent contractor.

Question 21

The termination of a partnership is referred to as

Answer 21

Dissolution

Question 22

Integrated Devices, Inc., is a private, for-profit corporation that is owned by seven shareholders who are members of the same family. Integrated is

Answer 22

A close corporation.

Question 23

How can an LLC be managed?

Answer 23

It can be member-managed.

It can be manager managed.

Question 24

The rule requiring that an agent’s authority must be in writing has a basis in the

Answer 24

Equal dignity rule.

Question 25

A major advantage of the sole proprietorship is that the proprietor

Answer 25

Owns the entire business.

Question 26

Roz, a director of Soy Inc., is specially trained in petroleum trading. Soy’s board approves several deals in which the company pays too much for soybeans. Roz approves all the deals without first reviewing them. Roz is most likely liable for breach of

Answer 26

The duty of care.

Question 27

If the principal negotiates a contract but is called out of town the day it is to be signed and orally authorizes an assistant to act as agent to sign the contract, the oral authorization

Answer 27

Is sufficient.

Question 28

Welding Corporation makes a good faith attempt to incorporate but there is a defect in its incorporation. Welding undertakes business as a corporation. In this circumstance, the firm’s existence may be challenged by

Answer 28

The state.

Question 29

Ned and Olga are shareholders of Pizza Pies Inc. Ned’s written authorization to Olga to vote Ned’s shares at a shareholders’ meeting is

Answer 29

A proxy.

Question 30

Compared to a partnership, a sole proprietorship allows more

Answer 30

Flexibility

Question 31

What is required for decisions such as to admit a new partner or engage in a new business?

Answer 31

Unanimous consent.

Question 32

Paper & Scissors Inc. wants to incorporate. The primary document needed to incorporate a business is

Answer 32

The articles of incorporation.

Question 33

Romero employs Supply Procurement Service as an agent under a written agreement that describes the rights and duties of both parties. This is

Answer 33

Express authority.

Question 34

Oil Industries Inc. is a private, for-profit corporation that is owned by five shareholders who are members of the same family. Po, the majority shareholder, misappropriates company funds. The shareholders whose interests are injured by Po’s misconduct should

Answer 34

Have their shares appraised and be paid the fair market value for them.

Question 35

Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes. His best defense against liability for these mistakes is

Answer 35

The business judgment rule.

Question 36

Gil is an officer for HVAC Corporation. Due to Gil’s choice of a certain supplier, HVAC’s costs are somewhat higher than they might have been if a different supplier had been chosen. Gil is most likely liable for

Answer 36

Nothing

Question 37

Orin is a corporate officer for Pacific Trade Inc. In this capacity, Orin

Answer 37

Manages corporate day-to-day operations.

Question 38

When the owner of a sole proprietorship dies,

Answer 38

So does the business.

Question 39

Penny creates an exclusive agency by granting Andrew an exclusive territory within which Andrew may sell Penny’s organic skin care products. If Penny starts to sell the products herself within Andrew’s territory—or permits another agent to do so—Penny

Answer 39

Has failed to cooperate with the agent.