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Exam 21: Forms of Business Organization

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Question 31

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Community Fair.Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos.They live in a rather small rural community that has not,to date,had a community fair.Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards,beauty contests,pie eating contests,food vendors,and amusement rides.The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop.Apart from some minor skirmishes between Craig and Melinda regarding management rights,preparations go fairly well.When the weekend of the fair arrives,things initially go fairly smoothly.Unfortunately,however,one of the beauty contestants slipped on the runway.An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators.Finally,an elderly lady,who was angry because she did not win the prize for the best honey,jabbed the volunteer judge with her cane.All injured parties threaten to sue Craig and Melinda.Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers,and she obtained all necessary permits.Melinda,on the other hand,tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions.They can reach no agreement regarding winding up the project and splitting the meager profits,and angrily go their separate ways with no resolution.As she is leaving,Melinda shouts to Craig that as her agent he should have done a better job with security.Which of the following is true regarding management rights to the project?

A) Unless an agreement gives one party greater management responsibilities,Craig and Melinda would share equal management for the task for which they have come together.
B) For this type of project,generally state law requires that responsibilities of management be specifically assigned in writing to one of the parties.
C) For this type of project,generally state law requires that responsibilities of management be specifically assigned to one of the parties,but the assignment may be oral.
D) In the absence of an agreement between the parties,the party who filed for the business license for the project is charged with management responsibilities.
E) Regardless of any agreement existing between the parties,the party who filed for the business license for the project is charged with management responsibilities.

F) B) and D)
G) C) and E)

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Question 32

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A joint stock company is a partnership agreement in which company members hold transferable shares,whereas all the goods of the company are held in the names of the partners.

A) True
B) False

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Question 33

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A limited partnership is a legal entity formed by issuing stock to investors,who are the owners of the limited partnership.

Which of the following is a correct statement regarding S corporations?

Substantiation is a process that allows limited liability companies to register in additional states in which they want to operate.

List the advantages and disadvantages of the sole proprietorship form of business organization.

Which of the following was the result in Cousins Subs Systems,Inc.v.Michael R.McKinney,the case in the textbook in which defendant McKinney asserted in a counterclaim that he was entitled to terminate an agreement requiring that he operate submarine sandwich shops because Cousins Subs Systems,Inc.failed to meet promises it verbally made to him?

Members of the board of directors of a corporation are appointed by the chief executive officer of the corporation.

In a limited partnership,who has no part in the management of the business?

Which of the following is a group that comes together for the explicit purpose of financing a specific large project?

Chocolate Chips.Molly makes great chocolate chip cookies and sells them.She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies.They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says,however,that she does not have enough time to bake any more cookies.She agrees,for a price,to allow her friends to use her recipe and her name.Suzette,one of Molly's friends who was selling the cookies,was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer,Fred,becoming ill.Fred threatens to sue both Suzette and Molly.Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met,the franchise agreements were good for a period of two years,Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation.Will Molly likely be held liable to Fred?

Peanut Allergy.Kitty,who had a love of baking,decided to open her own bakery.She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership.Unfortunately,Kitty had not paid attention in business law class.She proceeded,with little thought,to simply open her business called Kitty's Baking.Bobby came in to order some cookies for his girlfriend,Bitsy,who was allergic to peanuts.Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts.Kitty told him not to worry because she would make up a special batch just for him.Kitty had hired some assistants because she was so busy.She told an assistant,Cathy,to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order.Cathy,however,forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts.Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car.Bitsy became violently ill,vomited in Bobby's car,and had to have her stomach pumped.Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts,that the business was new and not making any money at the moment,and that she had no personal liability.Following the incident involving Bobby and Bitsy,Kitty discussed with her parents her problems with the bakery.Kitty's parents would like to invest in her business and share in any profits,but they do not want to share in the management responsibilities.What type of business did Kitty initially set up?

According to the Uniform Limited Liability Company Act,unless the operating agreement specifies otherwise,limited liability companies are ________.

Which of the following is a false statement regarding a manager-managed limited liability company (LLC) ?

Community Fair.Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos.They live in a rather small rural community that has not,to date,had a community fair.Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards,beauty contests,pie eating contests,food vendors,and amusement rides.The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop.Apart from some minor skirmishes between Craig and Melinda regarding management rights,preparations go fairly well.When the weekend of the fair arrives,things initially go fairly smoothly.Unfortunately,however,one of the beauty contestants slipped on the runway.An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators.Finally,an elderly lady who was angry because she did not win the prize for the best honey jabbed the volunteer judge with her cane.All injured parties threaten to sue Craig and Melinda.Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers,and she obtained all necessary permits.Melinda,on the other hand,tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions.They can reach no agreement regarding winding up the project and splitting the meager profits,and angrily go their separate ways with no resolution.As she is leaving,Melinda shouts to Craig that as her agent he should have done a better job with security.Which of the following is true regarding the liability of Craig and Melinda for the fair?

A ________ is a partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners.

Distributorships are franchises in which the franchisor manufactures a product and licenses a dealer to sell the product in a non-exclusive territory.

When a person decides to go into business on his or her own and is solely responsible for management and profits,a(n) ________ is formed.

In most states,which law governs partnerships in the absence of an express agreement?

Peanut Allergy.Kitty,who had a love of baking,decided to open her own bakery.She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership.Unfortunately,Kitty had not paid attention in business law class.She proceeded,with little thought,to simply open her business called Kitty's Baking.Bobby came in to order some cookies for his girlfriend,Bitsy,who was allergic to peanuts.Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts.Kitty told him not to worry because she would make up a special batch just for him.Kitty had hired some assistants because she was so busy.She told an assistant,Cathy,to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order.Cathy,however,forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts.Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car.Bitsy became violently ill,vomited in Bobby's car,and had to have her stomach pumped.Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts,that the business was new and not making any money at the moment,and that she had no personal liability.Following the incident involving Bobby and Bitsy,Kitty discussed with her parents her problems with the bakery.Kitty's parents would like to invest in her business and share in any profits,but they do not want to share in the management responsibilities.Which of the following would be a form of business organization for Kitty and her parents such that her parents could invest but not participate in management?