History Chapter 6

At the first meeting of corporate shareholders, what business is normally conducted (choose 2 answers)? The election of the board of directors The filing of the articles of incorporation Voting on the business name The adoption of corporate bylaws

The election of the board of directors The adoption of corporate bylaws

Which of the following is required in the Articles of Organization for an LLC (choose 2 answers)? The agent's name and address The name of the business The attorney's name and address The principal place of business

The name of the business The principal place of business

Which of the following is a necessary element of the business judgment rule? Choose 2 answer choices. The person acted in good faith. The person acted with the care of an ordinarily prudent person. The person acted with extraordinary skill and care. The outcome of the action did not cause financial harm to the corporation.

The person acted in good faith. The person acted with the care of an ordinarily prudent person.

Which of the following is a requirement for the formation of a limited liability company (LLC)? at least three members an initial stock offering articles (or certificate) of organization an operating agreement

an initial stock offering

Kelly lives in Arkansas and works in the data division of Acxiom Corporation. Acxiom has its headquarters in Conway, Arkansas. Acxiom is incorporated in Delaware, however, because of the corporate-friendly laws in that state. Kelly works in a(n): alien corporation because Acxiom is incorporated in a different state than the division where Kelly works. domestic corporation, because Acxiom's headquarters is in the same state where Kelly works. close corporation because Kelly works in a division of Acxiom located close to where she lives. foreign corporation because Acxiom is incorporated in a different state than the division where Kelly works.

foreign corporation because Acxiom is incorporated in a different state than the division where Kelly works.

Any partner: is entitled to compensation for their time, skill, and effort. may act as an agent who binds the partnership. may encumber the property of the partnership to satisfy personal debt. may create a business in direct competition with the partnership.

may act as an agent who binds the partnership.

Which of the following are rights of common shareholders? Choose 3 answers. priority for having debts paid from the liquidating company's assets opportunity to inspect corporate books and records voting on matters such as election of directors and proposals for mergers or liquidation transferable ownership

opportunity to inspect corporate books and records voting on matters such as election of directors and proposals for mergers or liquidation transferable ownership

Limited liability means: owners are only liable to the extent of their capital contribution to the business. the business cannot be held liable for its own debts. owners are personally liable for the debts of the business, but only for the decisions they make. owners are held personally liable for the debts of the business.

owners are only liable to the extent of their capital contribution to the business.

In ordinary circumstances, when the corporate veil has not been pierced, a shareholder may be liable for: unpaid amounts on the shares held by that shareholder. a portion of the settlement in a class-action lawsuit. a portion of corporate fines for environmental violations. the actions of the board of directors.

unpaid amounts on the shares held by that shareholder.

What is true of the dissolution of a limited liability company (LLC)? Choose 2 answers. An LLC may only be dissolved by court order. A court may order the dissolution of an LLC under certain circumstances, such as the members engaging in illegal conduct. Members of an LLC may stipulate in their operating agreement that certain events will cause dissolution. When a member dissociates, the LLC is automatically dissolved.

A court may order the dissolution of an LLC under certain circumstances, such as the members engaging in illegal conduct. Members of an LLC may stipulate in their operating agreement that certain events will cause dissolution.

What tax options are available to a limited liability company (LLC)? Choose 2 answers. An LLC with two or more members can choose to be taxed as a partnership or a corporation. An LLC with only one member can choose to be taxed as a corporation or a sole proprietor. An LLC with two or more members may only be taxed as a corporation. An LLC with only one member may be taxed as a partnership or a sole proprietorship.

An LLC with two or more members can choose to be taxed as a partnership or a corporation. An LLC with only one member can choose to be taxed as a corporation or a sole proprietor.

Which of the following is a requirement for the initial formation of a corporation? a board of directors a minute book an initial stock offering Articles of Incorporation

Articles of Incorporation

A member-managed LLC means: partners vote on financial decisions. the members elect a board of directors who make business decisions. shareholders vote on financial decisions. all members participate, and decisions are made by majority vote.

all members participate, and decisions are made by majority vote.

Tala operates Sunshine Event Planning as a sole proprietorship. Lately, Tala has become dissatisfied with her employee, Leon. Leon continually refuses to follow directions, calls in late to work, and generally is not performing up to Tala's standards. Before Tala can fire Leon, she must obtain approval from: the partners of Sunshine Event Planning. the shareholders of Sunshine Event Planning. no one. the Board of Directors of Sunshine Event Planning.

no one.

What type of corporation is formed for the purpose of doing a public service instead of making money? privately held public publicly held nonprofit

nonprofit

A foreign corporation is: one that was incorporated in two or more different states. one that was incorporated outside of the United States. one that it privately held. one that was incorporated in a different state.

one that was incorporated in a different state.

When a new partner joins a previously existing partnership, the new partner is personally liable for: all the debts of the partnership, whenever incurred. only the debts she agrees to take on upon joining the partnership. any of the debts of the partnership up to $10,000. only obligations after becoming a partner.

only obligations after becoming a partner.

Which of the following documents spells out the rights and duties of the members of a limited liability company (LLC)? charter certificate of organization operating agreement bylaws

operating agreement

Pro Flowers LLC has been in business for five years. When one of its members dies, the other members of the LLC agree to dissolve the LLC. They proceed to wind up the business, collecting and liquidating all the assets of the LLC. Once that is done, the proceeds will be distributed: first to creditors, then members' capital contributions will be returned, and any remaining amounts are then distributed to members in equal shares or according to their operating agreement. first to members in the amount of their capital contributions, then to creditors, and any remaining amounts are then distributed to members in equal shares or according to their operating agreement. first to creditors, and then members' capital contributions will be returned. first to creditors, and then the remaining amount will be divided equally among the members.

first to creditors, and then members' capital contributions will be returned.

Partners have which of the following duties? Capital contribution Record keeping Fiduciary duties Litigating on behalf of the partnership

Capital contribution Record keeping Fiduciary duties

A partnership in which the liability is shared between all of the partners together or one or more individually is called: joint and several liability. dissociation. joint liability. indemnification.

joint and several liability

Which of the following is a duty of both corporate directors and corporate officers? purchasing stock in the company working at least forty hours per week for the corporation making a full disclosure of potential conflicts of interest limiting political endorsements to only candidates that the corporation supports

making a full disclosure of potential conflicts of interest

Jasper, Saul, and Kenyon plan to open a new business providing sky-diving lessons and selling sky-diving equipment. Each of them plans to contribute the same amount of money to get the business started, and each will work for the business. Jasper is concerned about the possibility of being liable for the acts of Saul and Kenyon. Jasper also wants to make sure he does not pay more taxes than required. After reviewing the types of business entities available, Jasper suggests to Saul and Kenyon that they organize their new business as a(n): corporation. close corporation. partnership. LLC.

LLC.

Most limited liability company (LLC) statutes provide that unless the articles of organization specify otherwise, an LLC is assumed to be managed by: a board of nine managers. its members. a board of six members and six non-member managers. one manager.

its members.

Owners of the following business associations have limited liability protection (choose 2 answers): limited liability companies. general partnerships. sole proprietorships. limited liability partnerships.

limited liability companies. limited liability partnerships.

In order to capitalize a sole proprietorship, an owner is likely to: sell membership shares. sell stock. pay out of their own pocket or undertake personal debt. take out a bank loan without a personal guarantee.

pay out of their own pocket or undertake personal debt.

Lillian applies for a job as the chief financial officer (CFO) of Delco Corporation. Lillian is excited about the opportunity and feels that she has a pretty good chance of getting the position. Just to make sure, Lillian decides to explore the backgrounds of the decision-makers at Delco. If Lillian knows their interests, she thinks that might increase her chances of making a good impression in the final interview. The decision-makers who will decide whether or not Lillian gets the CFO position at Delco Corporation include: the shareholders of Delco Corporation. the chief executive officer only. the board of directors. the chief executive officer, secretary, and treasurer of Delco Corporation.

the board of directors.

Bart, Sam, and Greg create Big Barns Sales LLC, a company that builds pre-constructed barns. They file the certificate of organization with the secretary of state and create an operating agreement for the LLC. The operating agreement, however, does not address the method by which the LLC will be managed. Because management of the LLC is not addressed in the operating agreement, it is assumed the LLC will be: manager-managed, and the members will designate a person or persons to manage the LLC, which may include nonmembers. manager-managed; the members will designate a person or persons to manage the LLC, and none of the managers can be members. member-managed; all members will vote on decisions of the LLC, and the majority vote controls. member-managed, and the member with the largest capital investment will control the decisions of the LLC.

member-managed; all members will vote on decisions of the LLC, and the majority vote controls.

Which of the following rights may a member of a limited liability company (LLC) transfer to a non-member? inspecting the records of the LLC voting on matters of business management sharing the company's financial profits participating in management

sharing the company's financial profits

What documents spell out the powers of a corporation? Choose 2 answers. certificate of corporate power the bylaws de facto documentation the charter (also called the articles of incorporation)

the bylaws the charter (also called the articles of incorporation)

Which of the following are qualities of a non-profit corporation (choose 2 answers)? It does not provide dividends to shareholders. Its goal is to not earn a profit. It provides minimal dividends to company shareholders. Its goal is to earn a profit.

It does not provide dividends to shareholders. Its goal is to earn a profit.

Johnson lives near Dollywood, a popular theme park in Tennessee. Johnson decides to begin a new money-making venture selling screen printed t-shirts from a booth just down the road from the theme park, to take advantage of the traffic that flows by on its way to the park. Johnson's t-shirts, however, will not be Dollywood-themed t-shirts; they will be Johnson's own creations. Johnson's daughter Susan helps him in his new venture by manning the booth from time to time, but Johnson has total control over everything about the business—from ordering the t-shirts, paying the bills, pricing the t-shirts, paying the taxes on his sales, and receiving all the profits from the venture. Even though Johnson put no thought into what kind of business venture he was creating when he started his business, Johnson has effectively created a: corporation. franchise. sole proprietorship. limited liability company.

sole proprietorship.

Officers and directors owe which of the following duties to the corporation? Choose 2 answer choices. Duty of Loyalty Duty of Good Decisions Duty of Loyalty Duty of Compensation

Duty of Loyalty Duty of Loyalty

Which of the following defines the "implied powers" of a corporation? The power granted to a corporation by the corporate bylaws Any power arising out of a formally adopted resolution of the corporation The right to perform all acts reasonably necessary to accomplish a corporate purpose The power granted to a corporation by the U.S. Constitution

The right to perform all acts reasonably necessary to accomplish a corporate purpose

Where should Articles of Incorporation be filed? Articles of Incorporation are not filed. With the state With the federal government With the county recorder's office

With the state

A corporation that is formed in one state but does business in another state is referred to in the second state as: a foreign corporation. an alien corporation. a domestic corporation. a distant corporation.

a foreign corporation

In a distributorship: a franchisee operates under a franchisor's trade name. management rights belong to the FTC. a manufacturer licenses a dealer to sell its product. a franchisor transmits to the franchisee the essential ingredients to make a particular product.

a manufacturer licenses a dealer to sell its product.

Ellie, Josie, and Dylan are partners in a car dealership. Ellie gives notice to Josie and Dylan that she wants to withdraw from the partnership, and Josie and Dylan decide to continue the partnership without her. Shortly after Ellie leaves the partnership, she has lunch with an old friend, Justin. Justin has been looking for a new car and asks about the price of a particular car he saw on the website of the dealership, because he does not know that Ellie has left the partnership. Instead of telling Justin that she has left the partnership, Ellie quotes Dylan a price for the car, and Dylan accepts. When Dylan goes to the car dealership to complete the deal: the dealership must honor the deal unless it has provided Dylan notice of Ellie's dissociation. the dealership must honor the deal and reinstate Ellie as a partner. the dealership is not required to honor the deal whether or not it has provided Dylan notice of Ellie's dissociation. the dealership is not required to honor the deal because Ellie is no longer a partner.

the dealership is not required to honor the deal whether or not it has provided Dylan notice of Ellie's dissociation.

To meet the standard for the duty of care, a person must: act in good faith and without a mistake. be faithful to the corporation. act in good faith and with the judgment of an ordinarily prudent person. act in good faith and with the judgment of a highly skilled person.

act in good faith and with the judgment of an ordinarily prudent person.

Ben and Jerry are partners in an ice cream shop. They both work in the ice cream shop and share profits and expenses equally. Jerry thinks that expanding their ice cream shop to include a soda fountain would attract more customers. Without getting Ben's approval on the deal, Jerry signs a contract with the construction company to begin building the soda fountain. When Ben finds out, he is furious and says that he will not be responsible for payment under the contract. The construction company can enforce the contract against: neither Ben nor Jerry. Jerry only. both Ben and Jerry. Ben only.

both Ben and Jerry.

In a manager-managed LLC, the designated manager may (choose 2 answers): be from within the members of the company. only be from within members of the company. be from outside the members of the company. only be from outside the members of the company.

be from within the members of the company. be from outside the members of the company.

What is true of the liability for loss or injury caused by the wrongful acts or omissions of the members of limited liability companies (LLCs)? The LLC as an entity cannot be held liable, but members themselves are personally liable. The LLC as an entity cannot be held liable, and members themselves are not personally liable. The LLC as an entity can be held liable, but members themselves are not personally liable. The LLC as an entity can be held liable, and members themselves are also personally liable.

The LLC as an entity can be held liable, but members themselves are not personally liable

If an action is permitted expressly by the corporate bylaws, but is prohibited by state law, a corporation: must amend their articles of incorporation. does not have the power to act. has the power to act. must challenge the state law.

does not have the power to act.

Kaleb is the CEO of Sports City, a sporting goods store. Kaleb wants to increase the sales of Sports City. Kaleb researches the market and discovers that boat sales are soaring, so Kaleb decides to add a line of boats to the inventory of Sports City. Kaleb finds what he believes is a great deal on fishing boats with Fisherman's Boat Supply and enters into a contract for $90,000 worth of fishing boats. During the first year after the fishing boats are delivered to Sports City, only one boat sells. Sports City suffers an $85,000 loss on the deal. If the board of directors tries to hold Kaleb personally liable for the loss: they will be successful, because Kaleb violated his duty of care to the company. they will not be successful, because as CEO, Kaleb has the ultimate authority to make any decision he chooses about the company and cannot be held responsible even for a careless decision. they will not be successful, because Kaleb will be protected by the business judgment rule. they will be successful, because Kaleb violated his duty of loyalty to the company.

they will not be successful, because Kaleb will be protected by the business judgment rule.

Anita is a member of Three Roses Nursery LLC, and is also one of the managers of the LLC. This means that Anita and her fellow member-managers vote on decisions that need to be made for the company, and the majority vote controls on those decisions. One day, the member-managers discuss a possible new contract with a potential supplier, Heartland Seedlings Co. Anita is a part-owner in Heartland Seedlings, and she would benefit greatly if Three Roses enters into the contract. The contract would cost Three Roses more money than their existing contract, but Anita pushes the other member-managers to agree to the contract anyway. By pushing the other member-managers to agree to the more expensive contract, Anita has: violated the duty of loyalty. not violated any duties to the company. violated the duty of candor. violated the duty of confidentiality.

violated the duty of loyalty.

Which of the following are TWO disadvantages of a sole proprietorship? ease of formation personal liability for debts limited capital ease of tax filing

personal liability for debts limited capital

Common shareholders have the right to vote on: price of stock. compensation for the officers. when to pay dividends. proposals for fundamental changes affecting the company such as mergers or liquidation.

proposals for fundamental changes affecting the company such as mergers or liquidation.

Genna and four others are establishing a business to create monogrammed items of personal clothing to sell to the general public. Genna is concerned about entering into business with others and possibly being liable for their actions, so she convinces the others that they should incorporate. After doing some basic research on how to incorporate a business, Genna starts preparing the articles of incorporation. At a minimum, Genna must make sure that the articles of incorporation include: the name of the corporation and the name and address of each incorporator. the name of the corporation, the number of shares of stock the corporation is authorized to issue, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator. the name of the corporation, the number of shares of stock the corporation is authorized to issue, and the name and address of each incorporator. the name of the corporation, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator.

the name of the corporation, the number of shares of stock the corporation is authorized to issue, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator.

Jerry Hall and Lawrence Vaught practice law in the same building. They share equally in the overhead expenses, such as rent and utilities, required to keep the business running. Both Jerry and Lawrence handle their own cases, consult and accept their own clients, and purchase their own advertising. Jerry and Lawrence do occasionally handle a case together, and they have stationery that says "Hall and Vaught" on the letterhead. They each have their own stationery as well. Jerry and Lawrence keep their finances separate, except when they handle a case together; then, they split the proceeds equally. When a client of Jerry's becomes dissatisfied and sues Jerry for malpractice, she sues Lawrence as well. In deciding whether or not a partnership exists here, the court will look at: whether Jerry and Lawrence list themselves as partners on their letterhead. whether Jerry and Lawrence share profits and losses in the business. whether Jerry and Lawrence have signed a partnership agreement. whether Jerry and Lawrence share profits and losses, whether they own the business jointly, and whether they have an equal right to be involved in the management of the business.

whether Jerry and Lawrence share profits and losses, whether they own the business jointly, and whether they have an equal right to be involved in the management of the business.

Alma owns fifty shares of common stock in Alpha Corporation. Alma also owns eighty shares of preferred stock in the same corporation. Alpha Corporation has an upcoming vote for a new director. In the election for the new board member of Alpha, Alma will be able to cast: 130 votes. 50 votes. no votes. 80 votes.

50 votes.

Which statement is true about creating a sole proprietorship? The owner of a sole proprietorship must file an official record of the business name with the secretary of state's office. There is a waiting period of 30 days between opening the business and the time a sole proprietorship becomes official. The members of a sole proprietorship must write and sign an operating agreement. No documentation is required to create a sole proprietorship.

No documentation is required to create a sole proprietorship.

Which of the following is a disadvantage of operating as a partnership? Partners may suffer financial loss if the partnership is not profitable. A partnership may be formed for only one year at a time and the registration must be renewed annually. Partnerships are taxed at the same rate as corporations. A partnership may not own real or personal property.

Partners may suffer financial loss if the partnership is not profitable.

Which of the following are advantages of operating as a partnership? Choose 2 answers. Any partner may add a new partner at any time to help decrease the workload and liability and to bring in more capital. Partnerships are not taxed. The partners are not personally liable for business debts if the partnership is registered with the state. Forming a partnership is simple and relatively inexpensive.

Partnerships are not taxed. Forming a partnership is simple and relatively inexpensive.

The formation of a partnership without a partnership agreement requires which of the following (choose 2 answers)? The intent to form a partnership Sharing of management duties Sharing of profits and losses Five or more partners

Sharing of management duties Sharing of profits and losses

In which of the following would the business judgment rule not help a manager escape liability? Choose 2 answer choices. If they conducted a reasonable inquiry, but the activity still resulted in a poor outcome When they acted as an ordinarily prudent person in good faith would act When they committed an illegal act When they did not act in the best interests of the corporation

When they committed an illegal act When they did not act in the best interests of the corporation

A written agreement outlining the roles of partners, their rights, and their duties are called: Articles of Incorporation. Articles of Organization. Operating agreements. a partnership agreement.

a partnership agreement.

What are the three ways in which a partnership can be dissolved? (Choose 3 answers.) by an act of the partners by operation of law by failing to make a profit by a fixed term in the partnership agreement.

by an act of the partners by operation of law by a fixed term in the partnership agreement.

Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)? Choose 2 answers. how membership interests may be transferred whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC a record of the company's assets and debts the advertising plan for the company

how membership interests may be transferred whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC

The simplest form of business to establish is a: sole proprietorship. partnership. limited liability company. corporation.

sole proprietorship.

The legal effects of dissociation of a member of a limited liability company (LLC) include: (Choose 2 answers.) the dissociated member loses the right to participate in management. the dissociated member's duty of loyalty to the LLC terminates. the LLC must purchase the dissociated member's share within 30 days. the LLC must wrap up business and dissolve within 180 days.

the dissociated member loses the right to participate in management. the dissociated member's duty of loyalty to the LLC terminates.

A sole proprietorship differs from a limited liability company (LLC) in: ability to earn a profit. the documentation required for formation. how stock is sold. the minimum number of owners.

the documentation required for formation.

Which of the following provisions are typically in a charter/Article of Incorporation for a corporation? Choose 2 answers. the trade secrets of the corporation the intended business purpose of the corporation the name and address of the corporation's agent the advertising plan for the corporation

the intended business purpose of the corporation the name and address of the corporation's agent

The formation of LLCs is governed by: the laws of the state in which the LLC is created. the ULLCA. federal statute. private agreements.

the laws of the state in which the LLC is created.

A sole proprietorship differs from a partnership in: how stock is sold. documentation required for formation. the number of owners. liability for debt.

the number of owners.

Who is liable for contracts entered into on behalf of the corporation before the corporation is formed? the promoter the Chief Executive Officer no one, because that cannot happen the corporation

the promoter

Lola, Jacy, and Tate plan to create a company to manufacture bicycles. After reviewing the pros and cons of the various forms of business enterprises, they decide to create a limited liability company. To create a limited liability company: they must file a certificate of organization with the secretary of state and should create an operating agreement, although an operating agreement is not required. they must file an operating agreement with the secretary of state and should create a certificate of organization, although a certificate of organization is not required. they must file a certificate of organization with the county clerk and should create an operating agreement, although an operating agreement is not required. they must file a certificate of organization and an operating agreement with the secretary of state.

they must file a certificate of organization with the secretary of state and should create an operating agreement, although an operating agreement is not required.

An operating agreement for a limited liability company: must be in writing and signed by all the officers of the company. is required for the operation of a limited liability company. typically includes provisions about choosing the LLC's management. may not specify how profits are divided.

typically includes provisions about choosing the LLC's management.