0538452803_269412 - contract by failing to make the...

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BLTC-9e Sample Answer for End-of-Chapter Hypothetical Question with Sample Answer Chapter 33: Limited Liability Companies and Special Business Forms 33–2 Hypothetical Question with Sample Answer Faraway Corp. is considering entering into two contracts, one with a joint stock company that distributes home products east of the Mississippi River and the other with a business trust formed by a number of sole proprietors who are sellers of home products on the West Coast. Both contracts involve large capital outlays for Faraway, which will supply each business with soft-drink dispensers. In both business organizations, at least two shareholders or beneficiaries are personally wealthy, but each organization has limited financial resources. The owner-managers of Faraway are not familiar with either form of business organization. Because each form resembles a corporation, they are concerned about whether they will be able to collect payments from the wealthy members of the business organizations in the event that either organization breaches the
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Unformatted text preview: contract by failing to make the payments. Discuss fully Faraway’s concern. Sample Answer: Although a joint stock company has characteristics of a corporation, it is usually treated as a partnership. Therefore, although the joint stock company issues transferable shares of stock and is managed by directors and officers, the shareholders have personal liability. Unless the shareholders transfer their stock and ownership to a third party, not only are the joint stock company’s assets available for damages caused by a breach, but the individual shareholders’ estates are also subject to such liability. The business trust resembles and is treated like a corporation in many respects. One is the limited liability of the beneficiaries. Unless by state law the beneficiaries are treated as partners, making them liable to business trust creditors, Faraway Corp. can look to only business trust assets in the event of breach....
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