Test Bank For The Law of Corporations and Other Business Organizations 6th Edition by Angela Schneeman

Introduction to Agency and Business Organizations…………………………………………………………. 112 Sole Proprietorships……………………………………………………………………………………………………… 114 Partnerships ………………………………………………………………………………………………………………… 116 Limited Partnerships …………………………………………………………………………………………………….. 119 Limited Liability Partnerships and Limited Liability Limited Partnerships ………………………….. 121 Limited Liability Companies …………………………………………………………………………………………. 123 Corporations ……………………………………………………………………………………………………………….. 125 Incorporations ……………………………………………………………………………………………………………… 127 The Corporate Organization ………………………………………………………………………………………….. 129 The Corporate Financial Structure………………………………………………………………………………….. 131 Public Corporations and Securities Regulations……………………………………………………………….. 133 Mergers, Acquisitions, and Other Changes to the Corporate Structure ………………………………… 136 Foreign Corporation Qualification………………………………………………………………………………….. 138 Corporate Dissolution …………………………………………………………………………………………………… 140 Employee Benefits and Employment Agreements ……………………………………………………………. 142

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CHAPTER 1
Introduction to Agency and Business Organizations

MULTIPLE CHOICE

1. Agency is a legal relationship in which

1. the principal acts on behalf of the agent.
2. the principal becomes personally liable forall actions of the agent.
3. awrittencontractmustspecifyallauthorityof the agent.
4. the agent acts for or represents the principalby the principal’s authority.

ANS: D

2. When used in relation to the agency relation- ship, the master

1. retains some control over his or her servant (employee).
2. gives his or her servant (employee) full discretion to act on the master’s behalf.
3. hires the employee for a specific task for which the master is not responsible.
4. is not liable for any actions taken on his or her behalf by the servant (employee).

ANS: A

3. A special type of power of attorney designed to continue for certain purposes even after the incapacity of the principal is referred to as a
A. specialpowerofattorney.

B. willpowerofattorney.
C. durablepowerofattorney. D. generalpowerofattorney.

ANS: C

4. An agency relationship may not be created
A. byexpresscontract.
B. byconductoftheprincipalandagent.
C. without the principal’s knowledge or con-

sent.
D. byratification.

ANS: C

5. When the principal intentionally or negligently causes a third party to reasonably believe that an individual is acting as the principal’s agent, and the third party relies on that belief, then

A. no agency relationship exists.
B. anexpressagencyagreementiscreated.

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C. thepurportedagentassumespersonalliabil- ity for his or her actions.

D. an apparent agency may exist.

ANS: D

6. An agent’s duties to the principal include
A. thedutyofloyalty.
B. thedutytoactwithoutcompensation.
C. the duty to perform any tasks requested by

the principal.
D. thedutytocompensatetheprincipal.

ANS: A

7. The principal’s duties to the agent do not include

1. the duty to compensate the agent as agreed on.
2. thedutytocooperatewiththeagent.
3. thedutytoexercisereasonablecaretoavoidplacing the agent in harm’s way.
4. the duty to always put the agent’s interestsfirst.

ANS: D

8. A principal is not liable for the torts of his or her agent if the

1. tort is committed by the agent acting in the scope of his or her employment by the principal.
2. agent’s action is unrelated to the agency relationship.
3. principal is negligent or reckless in super- vising the agent.
4. agent is acting under the principal’s direc- tion when committing the tort.

ANS: B TRUE/FALSE

9. Disputes concerning agency law are typically resolved under the contract or common law of the state where the agency was created.ANS: T
10. A power of attorney need not be put in writing.

ANS: F

11. Unlike most contracts, consideration need not beexchangedtoformanagencyrelationship.

ANS: T

12. An agency may be created by ratification when the principal accepts the benefits derived from the agent acting on his or her behalf.

ANS: T

13. An apparent agency can be created by the actions of an apparent agent alone, without any action by the principal.

ANS: F

14. The doctrine of respondeat superior applies to the relationship between an employer and employee and not to the relationship between an employer and an independent contractor.

ANS: T

15.

16.

Under the doctrine of respondeat superior, an agent is not responsible for torts committed while working for an employer.

ANS: F
Partners act as agents for the partnership and

the other partners. ANS: T

CHAPTER 1 Introduction to Agency and Business Organizations 113

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CHAPTER 2 Sole Proprietorships

MULTIPLE CHOICE

1. A sole proprietorship is considered to be

1. an entity formed to protect the small busi-nessperson from personal liability.
2. an extension of the individual sole pro-prietor.
3. any business organization that is owned,managed, and operated by only oneindividual.
4. an entity that is easily transferred from oneindividual to another.

ANS: B

2. The number of sole proprietorships in the United States is

1. greater than the number of corporations.
2. less than the number of corporations.
3. lessthanthenumberofpartnerships.
4. about the same as the number of partner-ships.

ANS: A

3. The income of sole proprietorships in the United States is

1. greater than the income of corporations.
2. less than the income of corporations.
3. less than the income of partnerships.
4. about the same as the income of corpora-tions.

ANS: B

4. Advantages to transacting business as a sole proprietorship include

1. doubletaxationontheincomeofsoleproprietors.
2. limits on the sole proprietor’s personalliability.
3. the ease and low cost of starting thebusiness.
4. the sole proprietor’s lack of responsibilityforactionsbyemployeesoragents.

ANS: C

5. Disadvantages to transacting business as a sole proprietorship include
A. double taxation of the sole proprietor’s

income.

6.

2. personal liability for the debts and obliga- tions of the business.
3. the limited duration of the sole proprietor- ship allowed by state law.
4. costly filing fees for forming the sole proprietorship.

ANS: B

When hiring an employee, the sole proprietor must

1. fileacertificateofassumedname.
2. file a notice with the secretary of state orother appropriate state official.
3. obtain a federal employer identificationnumber.
4. amend the business’s certificate of assumedname.

ANS: C

Paralegals who are assisting in providing services to a sole proprietorship should not

1. advise the sole proprietor with regard to theincome tax consequences of doing businessas a sole proprietor.
2. assist with the preparation of state and fed-eral forms to comply with state and federaltaxation requirements.
3. draft and file an application for a certificateof assumed name when that document isrequired.
4. draft and file an application for employeridentification number when that document is required.

ANS: A

The application for employer identification number must be filed with the
A. secretaryofstate.
B. State Unemployment Insurance Department. C. InternalRevenueService.

D. U.S.DepartmentofLabor.

ANS: C

The sole proprietor’s liability for the actions of his or her employee is best described as which ofthefollowing:

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7.

8.

9.

1. A sole proprietor is never responsible for torts committed by the sole proprietor’s employee.
2. A sole proprietor is responsible for actions taken by an employee while the employee is acting on behalf of the employer in the normal course of business.
3. Both the sole proprietor and the employee may be liable for torts committed by the employee.
4. BothBandC.

ANS: D

10. A certificate of assumed name is filed to

1. formasoleproprietorship.
2. formanassumed-nameentity.
3. create a trademark.
4. give notice of your intent to transact busi- ness under a name other than your own.

ANS: D TRUE/FALSE

11. A sole proprietorship certificate must be obtained from the secretary of state’s office before a sole proprietor can begin transacting business.

ANS: F

12. When a sole proprietor uses an assumed name, some states require that a notice of intent to transact business under an assumed name be published.

ANS: T

CHAPTER 2 Sole Proprietorships 115 13. A sole proprietor may hire any number of

employees.

ANS: T
14. The rules of ethics that apply to attorneys may

apply to the paralegals who work for them.

ANS: T

15. A sole proprietor may delegate management and decisions concerning the business to agents and employees.

ANS: T

16. A sole proprietor may transfer his or her business to another individual by selling all of his or her shares of stock to that individual.

ANS: F
17. Sole proprietorships are created and governed

by state statute.

ANS: F
18. Sole proprietors can attract new employees by

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offering shares of their compensation.

ANS: F

business as

19. The sole proprietorship is dissolved by filing a certificate of dissolution with the secretary of state.

ANS: F