Charlie and Linda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a fantastic vacation to Hawaii. They live in a rather small rural community that has not, to date, had a community fair. Charlie and Linda decide to sponsor a fair on a weekend in September and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Charlie and Linda will come from ticket sales and from charges to food vendors for the privilege of setting up shop.

Apart from some minor skirmishes between Charlie and Linda 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 man, who was angry because he did not win the prize for the best pickles, jabbed the volunteer judge with his cane.

All injured parties threaten to sue Charlie and Linda. Charlie tells Linda 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. Linda, on the other hand, tells Charlie 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, Linda shouts to Charlie that as her agent he should have done a better job with security.

Which of the following is the type of business organization that best fits Charlie's and Linda's project?

Multiple Choice

• A partnership

• A double proprietorship

• A business trust

• A joint venture

• A distributorship

Which of the following is true regarding the liability of Charlie and Linda for the fair?

Multiple Choice

• Under state law, neither party is generally exposed to liability in this type of project.

• Charlie is solely responsible because he was charged with handling security.

• The party who obtained the business license is solely responsible.

• Each party can be held responsible for the liability of the other.

• Under state law, it is generally required that the parties agree on the issue of liability prior to starting the project and file a copy of the liability agreement with the appropriate state agency.

Which of the following is true regarding management rights to the project?

Multiple Choice

• Regardless of any agreement existing between the parties, the party who filed for the business license for the project is charged with management responsibilities.

• For this type of project, generally state law requires that responsibilities of management be specifically assigned in writing to one of the parties.

• 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.

• 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.

• Unless an agreement gives one party greater management responsibilities, Charlie and Linda would share equal management for the tasks for which they have come together.

Which of the following is true regarding any agency relationships between Charlie and Linda?

Multiple Choice

• Neither was the agent of the other.

• They were both agents of each other.

• They were agents of each other for contracts only.

• They were agents of each other for finances only.

• They were agents of each other for insurance purposes only.