Final Exam Study Guide

Individual state laws should be relied on to determine corporate law because, despite the existence and use of model corporation acts, there is considerable variation among the states. T/F

True

Insider trading is prohibited because trading on the basis of inside information can give the trader an unfair advantage over the investing public. T/F

True

Most of the states and the federal government have enacted statutes to protect employees who report wrongdoing from employer retaliation. T/F

True

Providing investors with more information helps them make buying and selling decisions about securities. T/F

True

Shareholders' assumption of personal liability, as guarantors, for the obligations of a corporation can enable the firm to obtain credit. T/F

True

The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws. T/F

True

The Telemarketing Sales Rule applies to any offer—domestic or foreign—made to consumers in the United States. T/F

True

The destruction of an original check after the creation of a substitute check prevents the check from being paid twice. T/F

True

It is in society's interest to condemn every acquisition of monopoly power as an antitrust violation even though a dominant market share may be the result of business acumen. True/False

False

Like the partners in a partnership, the shareholders in a corporation cannot change without affecting the continued existence of the firm. T/F

False

Once a bankruptcy petition is properly filed, creditors can commence or continue most legal actions against the debtor to recover claims. T/F

False

Requiring users of a social media site to agree to certain terms and conditions to use the site is most likely an antitrust violation. T/F

False

To avoid sanctions under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, scienter must exist. T/F

False

To deem an agreement a per se violation of antitrust law, a court must determine whether the agreement actually constitutes a restraint on trade. T/F

False

With a joint checking account, the bank can hold any joint-account owner liable for payment of an overdraft even if that owner did not sign the check or benefit from its proceeds. T/F

False

Brea and Colin do business as Dig Excavators. In acting on the firm's behalf, Brea makes an honest error in underestimating the cost of a certain project. In this situation, to her firm, Brea is liable for a breach of the duty of: A. Loyalty B. accounting C. none of the choices. D. care

C. none of the choices.

Health Food Inc. coordinates the purchase, sale, and delivery of organic products. The stated corporate purpose is to make a profit and to have a material positive impact on society and the environment. Health Food is: A. not a corporation. B. a private corporation. C. a nonprofit corporation. D. a benefit corporation.

D. a benefit corporation.

Integrated Devices, Inc., is a private, for-profit corporation that is owned by seven shareholders who are members of the same family. Integrated is: A. a benefit corporation. B. an S corporation. C. a public corporation and a private corporation. D. a close corporation.

D. a close corporation.

Market Data Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain: A. a copy of prospectuses to be provided to investors. B. a statement that securities being offered for sale are worth the price. C. a record of pre-registration sales in securities. D. a description of securities being offered for sale.

D. a description of securities being offered for sale.

Building Company adds a shipping dock to the property of Corporate Complex, but the owner does not pay. Building files a lien on Corporate's property. The property: A. must be sold to provide payment of the debt. B. must be returned to the debtor within a certain period of time. C. none of the choices. D. can be held to guarantee payment of the debt.

D. can be held to guarantee payment of the debt.

Oil Industries Inc. is a private, for-profit corporation that is owned by five shareholders who are members of the same family. Po, the majority shareholder, misappropriates company funds. The shareholders whose interests are injured by Po's misconduct should: A. promote the transferability of the company's shares to outside persons. B. reorganize the firm into a sole proprietorship or partnership. C. hold a special shareholders' meeting to elect new directors. D. have their shares appraised and be paid the fair market value for them.

D. have their shares appraised and be paid the fair market value for them.

Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply. T/F

False

The Americans with Disabilities Act defines disability to include a physical or mental impairment that causes "undue hardship." T/F

False

The Immigration Reform and Control Act makes it legal to hire, recruit, or refer for a fee someone not authorized to work in this country. T/F

False

The Lanham Act protects against the deceptive use of trademarks but does not cover false advertising claims. T/F

False

The principal is bound by the agent's unauthorized act, unless the principal negates it. T/F

False

The quality and safety of food may be important to consumers, but food labels that provide standard nutrition facts are a seller's option, not a requirement. T/F

False

United Contractors Inc. holds a lien on Vista Estate's real property. This property can be sold to satisfy the debt if, before the sale, notice is given to: A. the general public. B. Vista Estate. C. Vista Estate's other creditors. D. the state in which the property is located.

B. Vista Estate.

Brewery Company's debt to Credit Service is past due. Credit obtains a judgment against Brewery, but the firm refuses to pay. Credit asks the court to order the seizure of Brewery's property. This is a request for: A. an artisan's lien. B. a writ of attachment. C. a mechanic's lien. D. a writ of execution.

B. a writ of attachment.

Nora works at Oil & Gas Inc. She is a sales representative who works with Oil & Gas customers. The company closely supervises its sales reps, and dictates their schedules. With respect to third parties, Nora is: A. an employee only. B. a principal. C. an employee and agent. D. an independent contractor.

C. an employee and agent.

Lin is an employee at Manufacturing Plant Inc. Lin is called for jury duty and as a result cannot work her scheduled shift. The plant fires Lin, who subsequently successfully sues her employer for reinstatement. With respect to the employment-at-will doctrine, this is: A. an exception based on a statute. B. an exception based on contract theory. C. an exception based on public policy. D. an example of the doctrine.

C. an exception based on public policy.

A court cannot dismiss a debtor's petition under Chapter 13 even if the circumstances indicate bad faith. T/F

False

A debt-collection agency can always contact a debtor at his or her place of employment. T/F

False

Federal securities laws take priority over state securities laws. T/F

False

If a bank pays a stale check in good faith but without consulting the customer, the bank has no right to charge the customer's account for the amount. T/F

False

If any financial institution, such as a brokerage house, handles a check for payment or collection, the check is covered by UCC Article 4. T/F

False

In an agency relationship, one party called the principal agrees to represent or act for another called the agent. T/F

False

A bank may contractually shift to its customer the risk of forged checks created electronically or otherwise by the use of non-manual signatures. T/F

True

A business that cannot provide scientific evidence to support its marketing claims may be held liable for deceptive advertising. True/False

True

A check may fall under Uniform Commercial Code Article 3 as a negotiable instrument and be subject to UCC Article 4 in the course of collection. T/F

True

A deceptive ad for a product involving wrongful charges to consumers may result in an award of damages of a defendant's unjust gains and consumers' losses. T/F

True

An eligible employee may take unpaid leave under the Family and Medical Leave Act for family or medical reasons, or in certain situations for military service. T/F

True

An employer can avoid liability under Title VII by showing that the employer's standards for hiring and promoting have a substantial, demonstrable relationship to realistic qualifications for the job at issue. T/F

True

Because checks serve as a substitute for cash, they can facilitate financial record keeping. T/F

True

Directors and officers whose failure to exercise due care results in harm to the corporation or the shareholders can be held liable for negligence unless the business judgment rule applies. T/F

True

Establishing the relevant product market is a key issue in monopolization cases because the way a market is defined can determine whether a firm has monopoly power. T/F

True

If the legitimate benefits outweigh the anticompetitive effects of a resale price maintenance agreement, the agreement may be held lawful. T/F

True

Improper filing of a financing statement can render a security interest unperfected. T/F

True

In many instances, agency law governs the relationships among partners. T/F

True

The power to control the market price of a product is market power. T/F

True

In a Chapter 13 proceeding, the debtor retains possession of his or her assets. T/F

true

The primary document needed to incorporate a business is the articles of incorporation because the articles serve as a primary source of authority for the firm's organization and functions. T/F

True

To make informed decisions and supervise corporate officers and employees, the directors need an unrestricted right to inspect corporate books and records. T/F

True

Under the principles of agency law, any sale of goods by a salesperson in a store to a customer can be binding on the owner of the store. T/F

True

When an agent, acting within the scope of his or her authority, contracts with a third party, a disclosed principal is liable to the third party. T/F

True

With respect to tainted foods, the focus of federal regulators has shifted from responding to incidents of contamination to preventing them. T/F

True

Elmore pays Fidelity Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service. This is: A. a cashier's check. B. an overdraft. C. a stop-payment order. D. a stale check.

A. a cashier's check.

An employer cannot discharge a worker who, in good faith, refuses to work in a high-risk area if bodily harm or death might result. T/F

True

As in a partnership, a limited liability company may pay no taxes—profits can be passed through to the members, who pay personal taxes on the profits. T/F

True

Because the speed of check-processing time is increasing, to avoid overdrafts, an account-holder needs to verify that funds are available to cover a check when it is written. T/F

True

Business as we know it could not exist without secured transactions because otherwise sellers and lenders would be less likely to sell and lend on credit. T/F

True

Choosing a business organizational form that limits its owners' liability may lead to greater profits for the firm. T/F

True

Consumers benefit when producers work to develop better products that can be sold at lower prices to beat the competition. T/F

True

Creditors that use information from credit-reporting agencies cannot be held liable for violations of the Fair Credit Reporting Act. T/F

True

Most private, small-business, noninvestment company offers of securities are exempt from the registration requirements. T/F

True

Business Sales Inc.'s debt to Cartage Company is past due. Cartage brings a legal action against Business Sales to collect. To ensure that a judgment in the creditor's favor will be collectible, Cartage asks the court to order the seizure of the debtor's property. This is a request for: A. a writ of attachment. B. an artisan's lien. C. a writ of execution. D. a mechanic's lien.

A. a writ of attachment.

Refresh Inc.'s debt to Spring Water Company is past due. Spring brings a legal action against Refresh to collect the debt. Spring asks the court to order Tempo Bank, in which Refresh has an account, to pay a portion of the funds to Spring. This is a request for: A. an order of garnishment. B. an order that would violate most state laws. C. a writ of execution. D. an artisan's lien.

A. an order of garnishment.

Kay and Leo form Metro Delivery Inc. Responsibility for all policymaking decisions necessary to the management of corporate affairs rests with Metro's: A. board of directors. B. incorporators C. shareholders D. officers

A. board of directors.

Salsa Inc. complains to the Federal Trade Commission (FTC) about an ad broadcast by Taco Sauce Company, Salsa's competitor. The FTC investigates and concludes that the ad is deceptive. The FTC's next step is to: A. draft a formal complaint. B. issue a cease-and-desist order. C. conduct negotiations between the competitors. D. order Salsa to broadcast similarly deceptive counteradvertising.

A. draft a formal complaint.

Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm's debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to: A. government prosecution and a private investor's suit. B. only a private investor's suit. C. negative publicity but no criminal prosecution or civil suit. D. only government prosecution.

A. government prosecution and a private investor's suit.

Nevis and Olsen want to do business as a corporation—Pastries & Pies Inc. The procedure for forming this firm is prescribed by: A. city or county codes. B. federal administrative rules. C. state law. D. none of the choices.

C. state law.

Devon takes temporary family leave from her job at Equipment Sales Company to care for a newborn baby. With respect to Devon's health-care coverage, during the leave, under the Family and Medical Leave Act, Equipment: A. must continue it. B. may suspend it. C. may terminate it. D. must add the baby to it.

A. must continue it.

Oversight Inc.'s board of directors votes to empower corporate officers to make decisions regarding ordinary, daily corporate affairs within well-defined guidelines. With respect to these affairs, Oversight's board: A. retains its responsibility. B. shares the responsibility. C. was never responsible. D. is relieved of its responsibility.

A. retains its responsibility.

Direct Sales Corporation sells products to consumers over the phone, through the mail, and online. Under the Federal Trade Commission's Mail or Telephone Order Merchandise Rule, the firm may be liable for failing to: A. ship orders within the time promised in its ads. B. provide a cooling-off period of three days before shipping. C. all of the choices. D. notify consumers when orders are shipped.

A. ship orders within the time promised in its ads.

Ray is a delivery driver for Sicilian Pasta Company. Ray does exactly what the company tells him. Ray is: A. a principal. B. an employee. C. an independent contractor. D. an employer.

B. an employee.

Bread Company hires Craig to sell the company's products in a certain area. Bread agrees to pay Craig a salary, plus commission, for a trial period. They also agree that he can sell using any methods and during any hours that seem appropriate. The key factor in whether Craig is Bread's employee is: A. the amount of the salary. B. the degree of the employer's control over the details of the work. C. the length of the trial period. D.

B. the degree of the employer's control over the details of the work.

Brew House Coffee Company sells coffee and related beverages. The company's ad contends that ambitious businesspersons "Drink Us & Rise Up in the Corporate World!' " The Federal Trade Commission would consider this ad: A. false and misleading. B. a deceptive half-truth. C. none of the choices. D. impermissibly vague and general.

C. none of the choices.

In states that require a minimum wage that is higher than the specified federal minimum wage, employees are entitled only to the lower federal amount. T/F

False

Ron borrows funds from Suburban Bank secured by Ron's house. Ron defaults on the debt. The bank's options include A. retaining the security interest and pursuing a judicial remedy. B. destroying the collateral and collecting the unpaid debt from Ron. C. disposing of the collateral in any commercially reasonable manner. D. repossessing the collateral and disavowing the security interest.

D. repossessing the collateral and disavowing the security interest.

A foreign corporation that has not obtained a certificate of authority to do business in a state can nevertheless maintain an action in the state's courts. T/F

False

A gratuitous agent can be liable to a principal for breach of contract, even in the absence of a contract, but not liable for the negligent performance of the deal. T/F

False

A whistleblower is an employee who publicly reveals a co-worker's unsafe or illegal activity. T/F

False

Agency relationships come about by voluntary consent and agreement of the parties—consideration is required, and the agreement must be in writing. T/F

False

An express employment contract cannot protect an employee from discharge without good cause. T/F

False

An independent contractor is, by definition, an employee. T/F

False

Crowdfunding can be exempt from the registration requirements of the Securities Act of 1933 if shares are offered directly to investors. T/F

False

Disparate-impact discrimination occurs when a protected class is adversely affected by the practice or procedure of an employer who intended that result. T/F

False

During an employee's leave under the Family and Medical Leave Act, an employer must continue to compensate the employee to avoid the potential negative effect of unpaid leave on interstate commerce. T/F

False

Federal law on menu labeling supplements but does not supersede previous state and local law on the same subject. T/F

False