Q&A Hero

Q: If a group of people act as if they are a corporation when in fact and in law they are not, they have the right to deny that the corporation exists.

Q: A corporation may be incorporated in any state that has a general incorporation statute.

Q: Janet is the promoter of a corporation called Time Inc., which is in the process of being formed. Janet rents office space in Time's name. Time is bound by Janet's contract.

Q: Kincaid, a promoter, enters into contracts that include XYZ Co., a corporation not yet formed. Kincaid is personally liable on these contracts.

Q: Viola, a promoter, wants to be certain the name Xenographics Inc. is available for her corporation. She can reserve the name in advance of incorporation.

Q: A business concern incorporated in Canada and doing business in Ohio would be called an alien corporation.

Q: Outstanding shares of stock of the Bittman Corporation were held by seven shareholders, all from the same Bittman family. The Bittman Corporation may be designated as a close corporation.

Q: The shareholders of an S corporation have the profits or losses of the corporation taxed directly to them in order to avoid double taxation.

Q: LLCs are subjected to double taxation.

Q: A corporation is considered a citizen of the state in which it is incorporated and not the state where it has its principal place of business.

Q: An electric company would be an example of a quasi-public corporation.

Q: Zeno Corp. has issued common stock and noncumulative preferred stock. The board of directors of Zeno has not paid a dividend in 10 years. Discuss the rights of shareholders to demand a dividend payment and the ability of the noncumulative preferred shareholders to collect back dividends for the years in which no dividend was paid.

Q: Wong and Burton owned several hundred shares of preferred stock in Classic Inc. For three years, neither were paid dividends. In the fourth year, Classic paid dividends to both shareholders. Wong also received payment for dividends from the preceding three years. Burton did not receive any dividends from those years. Identify the type of stock owned by each shareholder.

Q: The process of doing business as a corporation is called associative corporativism.

Q: A corporation is a legal entity created under the authority of a state or federal statute that gives certain individuals the capacity to operate an enterprise.

Q: The Twelfth Amendment grants due process rights to corporations.

Q: Clothe You Inc. was incorporated as a nonprofit organization that gave away secondhand clothes to homeless persons. In order to pay overhead and administration costs, Clothe You Inc. also sold the secondhand clothes to any interested individuals who did not qualify as homeless. One year after its formation, Clothe You Inc. was incorporated in the same state. Clothe Me Inc. was a consignment shop that sold its secondhand clothes cheaply. Clothe Me Inc. ran an aggressive print advertising campaign, marketing its clothes "to everyone, for every reason, for practically no cost." After this campaign Clothe You Inc. discovered that people, especially homeless individuals, were confusing the two organizations. What legal action, if any, can be taken by Clothe You Inc.?

Q: A&B, a general partnership, wants to become "A&B, LLC." "A&B Co." is already in use by another business and the state agency refuses to allow the new corporation to use the name "A&B." Discuss how A&B should proceed.

Q: In creating ABZ Inc., Newman and Zimmer followed all the steps in the incorporation process as authorized in their state's incorporation statute except for the appointment of a statutory agent. They were never informed of the oversight and proceeded under the assumption that they were properly incorporated. Several years later, a customer was injured by one of their products. The customer's lawyer told Newman and Zimmer that they were individually liable because ABZ Inc. was not properly incorporated. Was the lawyer correct? Explain.

Q: Tom and Jim from JT Co. plan to engage in the building construction business. They obtain contracts in the name of JT Co. but fail to keep separate bank accounts for JT Co. funds, placing JT Co. money in their personal bank accounts. In addition, much of the JT Co. equipment is titled in the name of Tom and Jim. JT Co. breaches a construction contract with Titan Co. Discuss if Tom and Jim might have personal liability for this breach of contract.

Q: Big Co. creates a wholly owned subsidiary, Small Co. Small Co. sells poor quality merchandise on credit to consumers at unlawful rates of interest and violates the warranty agreements made with consumers. Discuss if Big Co. may be held liable for the actions of Small Co.

Q: Patricia holds 150 shares of common stock in a large corporation. Patricia: A. is guaranteed the rights to some of the profits of the corporation. B. is most likely entitled to two votes for each share of stock she holds. C. will not be included in the distribution of capital upon dissolution of the corporation. D. risks whatever money she invested in the 150 shares of common stock.

Q: ABC Co. owns land that is in the path of a new proposed interstate highway. ABC does not want to surrender this land. Discuss what rights ABC or the shareholders of ABC have to challenge this proposed taking?

Q: Global Corp. is incorporated in Mexico and wants to do business in Ohio. Discuss the legal status of Global in relationship to Ohio and what Global must do to qualify to do business in Ohio.

Q: Jon, a promoter, is concerned about being personally liable on preincorporation contracts he signs on behalf of corporations that have not yet been formed. Discuss what Jon may lawfully do to avoid this liability.

Q: Janice requires information about the voting rights of members of Titan, LLC. Which document will contain this information? A. Articles of incorporation B. Articles of organization C. Bylaws D. Operating agreement

Q: A _____ is one that has been formed properly by incorporators who followed all of the steps outlined by the state incorporation statute. A. corporation by estoppel B. de facto corporation C. de jure corporation D. partnership

Q: The status of a de facto corporation can be directly challenged by: A. private citizens. B. the state government. C. both private citizens and the state government. D. neither private citizens nor the state government.

Q: Alan sells merchandise on credit to ABC Co. ABC fails to pay for the merchandise. Alan later discovers that ABC is not a corporation but a partnership consisting of Alice, Betty, and Charles. Which legal doctrine might shield Alice, Betty, and Charles from personal liability? A. De facto corporation B. De jure corporation C. Corporation by estoppel D. Piercing the corporate veil

Q: Vivian, owner of Titan Corp., uses Titan Corp. as a way to order merchandise for her personal benefit and fails to pay for the merchandise. Creditors who have shipped merchandise to Titan want to sue Vivian personally. Which of the following legal doctrines would allow a personal suit against Vivian? A. Corporation by estoppel B. Piercing the corporate veil C. De facto corporation D. De jure corporation

Q: Striuli asks Sarducci to become a limited partner in Avionics Ltd., a limited partnership that will sell computer software. Both Striuli and Sarducci delay filing the certificate of limited partnership. If the limited partnership is sued before the certificate is filed, will Sarducci be named as a defendant? Explain.

Q: Wellington and Haggerty were partners in a souvenir shop. It is a general traditional partnership. While on a regular delivery trip, Wellington caused an accident when he ran a red light. Haggerty claimed that only Wellington was liable for the injuries sustained by the other driver. Was Haggerty correct? Explain.

Q: Promoters can escape potential liability by having the corporation and the third party agree to release them. The agreement releasing a promoter is known as a(n): A. novation. B. estoppel. C. operating agreement. D. articles of organization.

Q: Liz, a promoter, hired an office support staff for a corporation that had not yet been incorporated. If there is a novation clause in a subsequent contract with the corporation and the staff, then: A. the corporation will not be bound by any of Liz's contracts. B. the office support staff will work without pay until the corporation becomes incorporated. C. Liz will escape potential liability under the novation contract entered into. D. Liz and the corporation will be held equally liable under all contracts entered into.

Q: Which of the following is the official authorization of a corporation to do business in a state? A. Articles of incorporation B. Certificate of incorporation C. Articles of organization D. Certificate of authority

Q: Grant wants to know the date of the annual shareholders meeting of Big Co. Which document will contain this information? A. Articles of corporation B. Articles of organization C. Bylaws or regulations D. Operating agreement

Q: _____ refer(s) to the written application to the state for permission to form a limited liability company. A. Novation. B. Estoppel. C. Operating agreement. D. Articles of organization.

Q: A large machine is purchased by Vida and is sometimes used for her personal work and sometimes used for work by the partnership of which she is a member. Discuss what factors a court will consider in deciding if the machine is partnership property. In what name was the property obtained and whose funds were used to purchase it? Is the property on the partnership account books? Has the partnership paid funds to repair, improve, pay taxes on, or maintain the property? All of these factors operate collectively to determine that an item is partnership property.

Q: Jackson, Thomas, and Susan are partners in an investment firm. There is a vote taken to purchase government bonds, with Thomas and Susan in favor and Jackson opposed. Jackson decides to sell government bonds and the partnership loses $50,000. Discuss Jackson's liability to the partnership.

Q: Morgan, Slater, and Jergenston were partners in a legal consulting partnership. Jergenston pocketed $500,000 he had solicited in bank loans for expanding the partnership. When Morgan and Slater discovered Jergenston's impropriety, Jergenston told them, "Tough luck, but as partners, we are jointly liable on this debt and must pay off the $500,000 plus interest together." Was Jergenston correct? Explain.

Q: Due to a typing mistake, Delta, a limited partner in Derby Limited Partnership, is identified in the certificate of limited partnership as a general partner. Discuss how this error should be corrected.

Q: Tangent Enterprises is a partnership consisting of Delen, Javid, and Kaya. Kaya leaves the partnership to do volunteer work in Africa. Discuss the legal status of Tangent Enterprises.

Q: Brylea is paid 10% of the net profits by Delta Partnership as compensation for her work for Delta. Delta ceases business, owing many creditors who attempt to collect from Brylea, asserting that Brylea is a partner. Discuss Brylea's partnership status and liability.

Q: Tina is a limited partner in Aon Enterprises, a limited partnership, while Mark is a general partner. Tina assumes management duties when Mark is recovering from heart surgery. Who has liability for partnership actions in this period? A. Aon Enterprises only B. Mark only C. Tina only D. Mark and Tina only

Q: In a limited partnership: A. general partners have limited liability for the firm's debts. B. a certificate of limited partnership must be filed with the secretary of state's office. C. limited partners are participating investors. D. general partners take a limited part in the management of the firm.

Q: Anita wants to go into business for herself, but does not know how to start. Discuss the best way for Anita to begin.

Q: Todd and Walker form a venture to operate snow cone stands in Smallville. The stands are only open for five warm weather months. The remainder of the year, Todd and Walker do no business together. Discuss the legal status of their business.

Q: John knows that the Franklin Partnership, in which John is a partner, is interested in purchasing a particular tract of land for a business location. Can John lawfully have his aunt buy the land so that she may resell the land to Franklin Partnership? A. No, it violates John's duty of care. B. Yes, assuming the price to Franklin was a fair market price. C. No, it violates John's duty of loyalty. D. Yes, the aunt is not a Franklin partner and has no loyalty to it.

Q: Under RUPA, a _____ takes place whenever a partner is no longer associated with the running of the firm. A. dissolution B. dissociation C. rescission D. devolution

Q: Charlotte is declared mentally incompetent by a court and is unable to participate as a partner in Aflac Enterprises. Charlotte wants to leave the Aflac partnership but is contractually obligated for three more years. Can Charlotte leave the Aflac partnership? A. Yes, she can do so without any liability to the partnership. B. No, there is no right to leave. C. Yes, she has a right to leave, but is liable for breach of contract. D. No, there is no right to leave unless all the partners agree.

Q: Jack has an auto accident while on business for Small Enterprises, an RLLP consisting of Jack and Alex. Who is liable for damages resulting from the auto accident? A. Small Enterprises only B. Jack only C. Jack and Alex only D. Small, Jack, and Alex

Q: General partners: A. take an active part in the management of the firm. B. have no liability for the firm's debts. C. are nonparticipating investors. D. they contribute cash, property but do not take part in the management of the firm.

Q: Which of the following is true of limited partners? A. They take an active part in the management of the firm. B. Their nonpartnership property can be used to satisfy any debts owed by the partnership. C. They are nonparticipating investors. D. They have unlimited liability for the firm's debts.

Q: Susan and Stanley are in a partnership called Easy Partnership. Susan purchases a truck with her personal funds with title to the truck naming Easy Partnership. Who owns the truck? A. Susan B. Susan and Stanley C. Easy Partnership D. Susan, Stanley, and Easy Partnership

Q: Jackie is interested in the property of the Big Partnership, in which Jackie is a full partner. She wants to mortgage the property in order to avail of loans for the organization. All the partners do not agree with Jackie. What is Jackie's legal position with regard to the mortgage under UPA? A. Her partners' non-agreement is legally irrelevant. B. Jackie's interest in the partnership property cannot be assigned. C. Jackie can mortgage her share of the organization's property. D. UPA does not address this issue and a court will decide on a case by case basis.

Q: Under the UPA, a tenancy in partnership has all the following characteristics except: A. a partner has an equal right with all other partners to possess and use specific partnership property for partnership purposes but not for that partner's personal use. B. partners' rights in partnership property are not subject to attachment for personal debts. C. a deceased partner's interest in real property held by the partnership passes to the surviving partners. D. a partner is not co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily.

Q: The Revised Uniform Partnership Act has eliminated: A. all management rights enjoyed by partners. B. the concept of tenancy in partnership. C. partnership entity status. D. each partner's interest in the firm.

Q: The Titanic Partnership's loan from Big Bank is structured so that payments on the loan are made out of profits and the amounts of the payments vary according to profitability. What conclusions may one draw from this arrangement? A. This is evidence of a partnership between Titanic and Big Bank; additional evidence may overcome this assumption. B. This is conclusive evidence of a partnership between Titanic and Big Bank. C. This may be evidence of a partnership between Titanic and Big Bank. D. This is not evidence of a partnership between Titanic and Big Bank.

Q: Thomas invests $10,000 in the Thomas and Trudy partnership named Tremendous Enterprise. Thomas needs $2,000 for medical expenses and insists that he is entitled to withdraw that amount immediately from what he has invested. Trudy asserts that the $10,000 investment is partnership property. Who owns the $10,000? A. Tremendous Enterprise. B. Thomas only. C. Thomas individually and Trudy individually. D. The $10,000 is owned by no one, but is merely a future interest of Thomas.

Q: Which of the following is an advantage of a sole proprietorship? A. The owner of a sole proprietorship has no liability. B. The owner of a sole proprietorship has complete control over the business. C. The sole proprietorship's existence does not depend entirely upon the sole proprietor. D. Owners of sole proprietorships can raise a lot of cash quickly for expansion purposes.

Q: Arian is a sole proprietor and owes a number of business creditors. The business creditors may: A. only take Arian's business assets. B. only take Arian's personal assets. C. take both Arian's business and personal assets. D. not take any assets but only the profits of the business.

Q: Which of the following developed the Revised Uniform Partnership Act? A. National Conference of Commissioners on Uniform State Laws B. American Bar Association C. NCCUSL and the American Bar Association D. NLRB and NCCUSL

Q: Under the RUPA: A. partnerships have continuity of existence. B. a partnership is considered an entity in all situations. C. a partnership is no longer viewed as an aggregate in relation to liability. D. partners have no liability for the obligations of the partnership.

Q: Alan and Baker are disappointed in the profitability of their A and B Partnership. They want to join their partnership with the X and Y Partnership. Is it possible for a partnership to be a partner? A. Yes. B. No. C. Yes, if the partners agree to personally guarantee the debts of the new partnership. D. No, because a partner must be an entity.

Q: Alan and Delen enter an agreement after the creation of a partnership. Subsequently, Delen loans Alan $1,000. The loan is: A. incorporated into the partnership agreement. B. a loan to the partnership rather than to Alan. C. a loan to both the partnership and to Alan. D. separate from the partnership agreement.

Q: A partner can sue another partner directly or, under the entity theory, the partnership itself to enforce his or her partnership rights as expressed in the RUPA or granted by the partnership agreement.

Q: Partnerships at will are liable to be dissolved when a partner dies or enters bankruptcy.

Q: In a registered limited liability partnership each partner is liable and may be sued in a separate action or in a joint action.

Q: Limited partnerships are governed by the Revised Uniform Limited Partnership Act (RULPA).

Q: Limited partners receive a return on their investment while risking only that original investment.

Q: Capital contributions are sums that are contributed by the partners as temporary investments which the partners are entitled to have returned whenever they wish to.

Q: If the property was obtained by a partner in his or her role as a partner, it is considered partnership property.

Q: Under the RUPA, a tenancy in partnership includes the clause that partners' rights in specific partnership property are subject to allowances or rights to widows, heirs, or next of kin.

Q: Annuity payments or health benefit payments to a beneficiary would constitute a partnership.

Q: A solitary profit-making business transaction by itself is enough to establish a partnership.

Q: Louisiana is the only state that has not adopted the Uniform Partnership Act.

Q: The UPA clearly states that a partnership should be considered an entity but with an existence separate from the partners.

Q: RUPA considers a partnership to be an aggregate in relation to liability.

Q: Jean and Bert enter into a written agreement to establish their partnership. Their written agreement is called the articles of partnership.

Q: The RUPA requires that a partnership agreement be in writing.