Business Law Chapter 14 Questions

To prevent problems that may arise when a partner dies or withdraws from a partnership, the articles of partnership should include a(n) ______. A. buy and sell agreement B. escrow instruction C. establishment clause D. commerce clause E. interest agreement

A

Which of the following is essential if limited partners are to be assured of their limited liability? A. substantial compliance with all the technical requirements of the limited partnership law B. signing an agreement according to the limited liability law to dissolve a partnership whenever a member withdraws C. using a limited partner's surname in a partnership's name D. inclusion of a limited commerce clause in the partnership agreement E. participation in an organization's management

A

In a closely held corporation, the majority shareholders A. have no influence on management. B. can control election of a board of directors. C. cannot be employed by the corporation. D. have the same impact on policy as minority stockholders. E. bring derivative suits on behalf of the corporation.

B

In a(n) ______, the shareholders are taxed only on income distributed. A. limited partnership B. corporation C. limited liability company D. sole proprietorship E. S corporation

B

In the context of factors to consider when selecting a business's organizational form, one of the most significant creation-related issues is A. the location of the business. B. how much paperwork is involved. C. how many people are recruited on average in a year by the organization. D. the organization's policies. E. the demographic to which the organization targets its services or products.

B

Which of the following is the characteristic of a sole proprietorship? A. It can be publicly held. B. It is not taxed as an organization. C. It is the hardest business organization to create. D. It is the most expensive business organization to create. E. It can be created by multiple owners.

B

Despite the advantages, there is some concern that the overuse of deferred prosecution agreements could A. restrict the rights of minority shareholders in limited liability companies. B. reduce the attractiveness of forming a limited liability partnership. C. reduce the number of sole proprietorships formed in the country. D. lead to an environment where corporations are treated unfairly. E. lead to an overly lenient environment for addressing corporate malfeasance.

E

Which of the following is a disadvantage of partnerships? A. They have a high cost of formation. B. They are tax-paying entities. C. They are subject to more governmental supervision than corporations. D. They need to obtain a license if they wish to operate in more than one state. E. They will be dissolved any time a partner leaves the partnership.

E

In a limited liability company, the transferability of a member's interest A. is restricted in the fashion of a partner. B. is not subject to any restrictions. C. depends on the number of shareholders in the company. D. depends on the profitability of the company. E. is similar to the free transferability of a corporate shareholder.

A

Jonathan intends to have maximum control over his decisions in his business. Which of the following forms of business organizations is most likely to give Jonathan total control over his business decisions? A. sole proprietorship B. partnership C. corporation D. S corporation E. limited liability company

A

The ______, by which the corporate veil can be pierced, may also be used to impose personal liability upon corporate officers, directors, and stockholders. A. alter-ego theory B. negligent conduct theory C. Med-Arb theory D. corporate envelopment theory E. corporate doppelganger theory

A

Which of the following is a significant trend in corporate organization and control? A. the inclusion of personal privacy rights for corporations B. the emergence of benefit corporations C. a decline in the use of deferred prosecution agreements by the federal government D. an increase in the restrictions on sole proprietorships E. an increase in managerial control for limited partners

B

Which of the following is an advantage of partnerships? A. A partnership is practical because only a limited number of persons can be partners. B. A partnership is easily formed because it is based on a contract among persons. C. Each partner's liability is unlimited. D. Partners are taxed on their share of the partnership's profits, whether the profits are distributed or not. E. A partnership is dissolved anytime a partner ceases to be a partner, regardless of whether the reason is withdrawal or death.

B

Which of the following statements is true of corporations? A. Corporations do not have to pay income taxes on their profits. B. In comparison with partnerships, corporations are more costly to form. C. A corporation's organizational structure changes whenever a shareholder sells his or her stock. D. In comparison with proprietorships, corporations are easier to form. E. The law treats a corporation's existence in tandem with its owners' status as shareholders.

B

Technically, a(n) ______ is an agent appointed by a shareholder for the purpose of voting the shares. A. officer B. director C. proxy D. arbitrator E. signatory

C

When organizations are owned by only a few persons, they are said to be ______. A. publicly held B. legally held C. closely held D. openly held E. overtly held

C

A corporate charter is issued following an application made by individuals known as ______. A. incorporators B. arbitrators C. mediators D. officers E. directors

A

In the context of the continuity of limited liability companies (LLCs), which of the following statements is true? A. Membership in LLCs is limited to individuals. B. In an LLC, a business organization can be an owner. C. An LLC dissolves when the number of shareholders falls below 100. D. LLCs cannot be dissolved unless the owner of the LLC dies. E. In an LLC, only the government can dictate when the company can be dissolved.

B

In a closely held corporation, which of the following lawsuits is likely to be brought by a minority shareholder on behalf of a corporation if the majority is acting illegally or oppresses the rights of the minority shareholders? A. a derivative suit B. a preemption suit C. a petit suit D. a dissolution suit E. a termination suit

A

A corporation created under the authority of a foreign country may be called a(n) ______. A. imported corporation B. offshore corporation C. alien corporation D. distant corporation E. external corporation

C

Which of the following is a characteristic of partnerships? A. They cannot operate in more than one state without obtaining a license to do so. B. They are generally subject to more regulation and governmental supervision than a corporation. C. They may not use any word in the name that would imply the existence of a corporation. D. They are the least expensive form of business organization. E. They allow unlimited number of people to become partners.

C

When courts find that a corporate organization is being misused, the corporate entity can be disregarded. This has been called A. cracking the corporate shell. B. piercing the corporate veil. C. breaking the corporate shield. D. breaching the corporate defense. E. rupturing the corporate law.

B

While selecting a name for a partnership, if the name is other than that of the partners, the partners must give notice as to their actual identity under the state's ______. A. fictitious-name certification law B. annexed-name statute C. suppositious-name law D. fictious-name rule E. assumed-name statute

E

A(n) ______ is any change in the ownership of an organization that changes the legal existence of the organization. A. arbitration B. rescission C. restitution D. dissolution E. extradition

D

Which of the following is the disadvantage of the corporate form of organization? A. Control of a corporation may be held by those with a minority of the investment. B. Ownership may be divided into many unequal shares. C. Shareholders' liabilities are limited to their investments. D. The organization cannot have perpetual existence. E. Corporate income may be subject to double taxation.

E

As a creature of state legislative bodies, a ______ is much more complex to create and to operate than other forms of businesses. A. sole proprietorship B. partnership C. limited partnership D. corporation E. limited liability partnership

D

The owners of limited liability companies are called ______. A. shareholders B. partners C. proprietors D. members E. directors

D

The use of sole proprietorships is very limited because A. there is no formal documentation process for its creation. B. it gives limited control to the proprietor. C. it is the most expensive business organization to create. D. multiple owners cannot create a proprietorship. E. it is the hardest business organization to create.

D

Which of the following forms of organization requires no formal documentation but only business licenses for formation? A. l imited partnership B. corporation C. limited liability company D. sole proprietorship E. S corporation

D

Which of the following is a criticism of benefit corporations? A. They are the only type of corporation not treated as individuals. B. They are not treated as taxable entities even though they have shareholders. C. They place too much emphasis on profit maximization. D. They may be less accountable to shareholders. E. They are exempt from all forms of taxation.

D

Which of the following is a taxable entity? A. a partnership B. a limited liability partnership C. a limited liability company D. a corporation E. a sole proprietorship

D

Which of the following is an advantage of a sole proprietorship? A. A sole proprietor is personally obligated for the debt of the proprietorship. B. A sole proprietorship is not taxed as an organization. C. In a sole proprietorship, liability is shared with many partners. D. A sole proprietorship is the least expensive business organization to create. E. A sole proprietorship's business activity may be more stable than the proprietor's willingness to remain actively involved in the business.

D

Which of the following statements is true of the trends in operating business organizations? A. Public attention is moving away from the formation of benefit corporations. B. Shareholders are losing interest and are becoming less active. C. In comparison to corporations, sole proprietorships are becoming harder to create. D. In many cases, corporations and individuals reasonably have an equal claim to rights and protections under the law. E. Sole proprietorships and partnerships are now being treated as a taxable entity if they generate more than $100,000 in revenue.

D

Which of the following statements is true of liability of partners in a general partnership? A. Partners have limited liability for an organization's debts. B. Partners' personal assets, which are not associated with the partnership, may not be claimed by the creditors. C. From a creditor's perspective, the liability of each partner extends only to a pro rata share. D. A partner who has to pay beyond his pro rata share will have to make use of his future buyout interest. E. A partner having unlimited liability will be jointly and severally liable for the partnership's obligations.

E

Which of the following forms of organization is most easily formed at minimal costs? A. limited liability partnership B. partnership C. corporation D. S corporation E. limited liability company

B

The formal application for a corporate charter is called the ______. A. articles of confederation B. articles of incorporation C. articles of partnership D. articles of application E. articles of integration

B

Which of the following has a perpetual existence so long as the number of shareholders is limited? A. limited partnership B. partnership C. limited liability company D. sole proprietorship E. S corporation

E

Which of the following is the basic difficulty of owning a minority interest in a closely held corporation? A. There is no ready market for the minority stock should a shareholder desire to dispose of it. B. Stockholders with a minority interest have no rights in a closely held corporation. C. Buy and sell agreements to own a minority interest are not allowed in a closely held corporation. D. Minority shareholders have unlimited personal liability for the obligations of a closely held corporation. E. Minority shareholders risk losing more than their investment amount.

A

Which of the following statements is true of a general partnership? A. A general partnership is dissolved any time there is a change in the partners. B. A general partnership must have at least one controlling partner. C. A dissolution does not necessarily destroy the business of a partnership. D. Unlike proprietorships, partnerships are taxable entities. E. All partners in a general partnership have only limited liability for their organization's debts.

A

Which of the following statements is true of an S corporation? A. It cannot have more than 100 shareholders. B. It is the official designation for a corporation with less than 500 employees. C. It is the least expensive form of organization to create. D. It does not have shareholders. E. It need not file an information return with the Internal Revenue Services since it does not pay any taxes.

A

Which of the following is an advantage of the corporate form of organization? A. License fees and franchise taxes are not assessed against corporations. B. Control of a corporation may be held by those with a minority of the investment. C. The cost of forming and maintaining a corporation is minimal. D. A corporation need not be qualified in all states where it is conducting local or intrastate business. E. Corporate income is not subject to double taxation.

B

Which of the following makes sole proprietorship a less desirable form of organization? A. The creation of sole proprietorship is expensive and requires formal documentation. B. A proprietorship's business activity may be more stable than a proprietor's willingness to remain actively involved in the business. C. A proprietor may have to share his or her voice of control and responsibility for the business' success with the other acting members of the organization. D. Sole proprietorships are the hardest forms of organization to create. E. Sole proprietorships are subject to double taxation.

B

Which of the following statements is true of managerial control in a general partnership? A. It is mandatory for each partner to have equal voice in a firm's affairs. B. Partners may agree to divide control in such a way as to make controlling partners and minority partners. C. The differences in the degree of control do not affect a business's success. D. The possibility of deadlock is higher when there is a greater number of partners and an odd number of them. E. Language governing issues of managerial control need to be made orally clear to all partners.

B

A deferred prosecution agreement is used to encourage A. more derivative suits against majority shareholders who misuse company funds. B. the reduction in the number of limited liability partnerships formed. C. self-reporting and remediation of illegal acts before a criminal case is commenced. D. an environment where corporations are easier to form than sole proprietorships. E. the use of benefit organization as a corporate form.

C

A limited liability company is created through filing the ______ with a state official. A. articles of confederation B. articles of incorporation C. articles of organization D. articles of association E. articles of integration

C

The creation of a(n) ______ is automatic based on business conduct and is modified by agreement. A. limited partnership B. corporation C. partnership D. sole proprietorship E. S corporation

C

The crucial issue with the continuity factor of a business's organizational form is A. its management style. B. the average age of the employees working for the business. C. the method by which the business can be dissolved. D. the method adopted by the business to reach out to its customers. E. the control exercised by its managers.

C

Under the Revised Uniform Limited Partnership Act (RULPA), if a limited partner's name is used in a firm's name, that partner A. does not get his or her contribution returned when the partnership dissolves. B. cannot advise the general partner. C. will become personally liable to unsuspecting creditors. D. must actively participate in management activities to retain his or her status of limited liability. E. cannot receive any of the partnership's profits.

C

Which of the following is required to have its organizers file articles of organization with state official for formation? A. limited partnership B. partnership C. limited liability company D. sole proprietorship E. limited liability partnership

C

Which of the following organizations is equally managed by the members unless a manager is designated? A. l partnership B. corporation C. limited liability company D. sole proprietorship E. S corporation

C

Which of the following statements is true of publicly held business organizations? A. Publicly held organizations are owned only by a few persons. B. Publicly held organizations are only owned by the government. C. Shareholders of publicly held organizations can transfer their ownership without interfering with the organization's management. D. A family-operated business is an example of a publicly held business organization. E. Publicly held organizations are free from all legal liabilities to its shareholders, which is the primary reason for this corporate form being used.

C

Which of the following statements is true of benefit corporations? A. They are the only type of corporation not treated as individuals. B. They are not treated as taxable entities even though they have shareholders. C. They are formed through the use of deferred prosecution agreements. D. They combine the positive aspects of a limited liability company and a partnership to form an organization that is designed to give the maximum profits to the owners of the organization. E. They combine aspects of non-profit and profit organizations in a way intended to permit a business to make a profit while pursuing explicit, socially oriented goals.

E

Which of the following statements is true of limited partners? A. They cannot act as an agent of the partnership. B. They can control operations of the limited partnership. C. They cannot vote on the change of the partnership's name. D. They can have their surnames used in the partnership's name. E. They can act as a guarantor of the partnership's obligations.

E