law332 exam2

Julian is a shareholder in Big Bang Corporation. Big Bang has had an excellent year and declares $5,000 in dividends to its shareholders. Julian is elated, because he can really use that $5,000. When Julian receives his dividend check, it will be in the amount of:

$5,000 minus taxes, because even though the corporation pays taxes on its profits, shareholders must also pay taxes on dividends.

What is true of the dissolution of a limited liability company (LLC)? Choose 2 answers.

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.

Which of the following are considered "persons" who may be a limited partner? (Choose 3 answers.)

A natural person A trust A corporation

Which of the following requires a filing with the state in order to be created? (Choose 2 answers.)

An LLC A corporation

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.

Which of the following should be approved by shareholders? Choose 2 answers.

An acquisition of the company by another company A dissolution of the corporation

What is true of the tax liability of C corporations?

C corporations pay taxes on profits at the corporate level.

Partners have which of the following duties? Choose 3 answers.

Fiduciary duties Record keeping Capital contribution

Which of the following are qualities of a non-profit corporation? (Choose 2 answers.)

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

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):

LLC

The management responsibilities of the board of directors of a corporation include: (Choose 3 answers.)

Making personnel decisions on the executive level and setting compensation for officers. Making financial decisions about when to declare dividends. Authorizing corporate policy decisions such as pursuing new product lines.

Which statement is true about creating 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.

Which of the following are advantages of operating as a partnership? Choose 2 answers.

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

The owner of a sole proprietorship pays the following taxes on business income profits: (Choose three).

Personal income Medicare Social Security

Which of the following are essential elements of a partnership? Choose 2 answers.

Profits and losses are shared among the members. All members have equal right to be involved in the management of the business.

Which type of corporation is taxed like a partnership, with shareholders paying personal income tax on business income?

S corporation

The formation of a partnership without a partnership agreement requires which of the following? (Choose 2 answers.)

Sharing of management duties Sharing of profits and losses

Which of the following are advantages of operating as a sole proprietorship? Choose 2 answers.

Sole proprietorships are not taxed. Forming a sole proprietorship is simple and relatively inexpensive.

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 can be held liable, but members themselves are not personally liable.

What is the role of directors in a corporation? Choose 2 answers.

The board of directors selects and removes the corporate officers. Directors make policy decisions necessary for the management of the company.

When the owner of a sole proprietorship dies, what happens?

The business is dissolved.

In which of these situations might a court pierce the corporate veil? Choose 2 answers.

The corporation does not have sufficient capital to operate and meet its debts. Personal and corporate money is mixed together in one account.

At the first meeting of corporate shareholders, what business is normally conducted? (Choose 2 answers.)

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

What happens when a limited partnership fails to substantially comply with all the requirements of the state statute regarding limited partnerships?

The limited partnership may lose its limited partnership status.

Under the ULLCA, to whom do the managers of an LLC owe a fiduciary duty? (Choose two).

The members of the LLC. The LLC itself.

Which of the following is required in the Articles of Organization for an LLC? (Choose 2 answers.)

The name of the business The principal place of business

Which of the following is a disadvantage of operating as a sole proprietorship?

The owner of a sole proprietorship is personally liable for all business debts.

Which of the following is a necessary element of the business judgment rule? Choose 2 answer choices.

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

Which of the following defines the "implied powers" of a corporation?

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

A corporate officer, as an agent of the corporation, has a duty of loyalty to make decisions that will benefit: (Choose 2 answers.)

The stockholders The corporation itself

How does the governance of a closely held corporation compare to the statutory model of corporate governance?

They are very different, with shareholders having more influence in a closely held corporation than in the statutory model.

Which of the following actions show a failure to uphold the duty of loyalty expected of corporate directors? Choose 2 answers.

Using information that is not public knowledge to make a profit on purchases or sales of the company's stock Running a small side business that competes with the corporation

In which of the following would the business judgment rule not help a manager escape liability? Choose 2 answer choices.

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

You are thinking about buying a restaurant with some of your buddies from college. One of the first things you need to discuss is what kind of business entity you want to create. You want to make sure that you are liable for only what you do, not what any of your buddies do. However, you're also concerned about getting the best tax deal. Do you think there is a way to organize your business so that you are not liable for your buddies' actions or debts without risking paying more taxes?

Yes, you could organize your business as a limited liability company.

You have a brilliant idea for a new company. For children's birthday parties, you plan to provide a traveling children's show, complete with petting zoo and clowns, and take it wherever the party occurs. Two friends agree to help you with your venture, so you decide you probably need to incorporate, just so you look "official." Do you think there might be any drawbacks to incorporating?

Yes, you may have to pay more taxes.

You plan to open a tattoo parlor, and you are trying to decide the best form of business entity to use. You decide on a sole proprietorship (a solely-owned business), because you want all the profits from the business and you don't want anyone telling you how to run your business. Do you think there might be any disadvantages to creating your tattoo parlor as a sole proprietorship?

Yes. As a sole proprietor, you can be held personally liable for all the business's debts, and your options for raising capital will be limited.

You and your buddy want to start a new landscaping business. You equally invest in the equipment you need to get started. You will both be equally responsible for the work and will share the profits equally. After investigating the possible forms of business entities available, you decide a partnership would be the best for your landscaping business. What do you think you might need to do to form a partnership?

You and your buddy just need to agree to be partners.

Which of the following is a requirement for the initial formation of a corporation?

a charter

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.

A written agreement outlining the roles of partners, their rights, and their duties are called:

a partnership agreement.

At what point in dissolution does a partner's liability cease?

after the winding up is complete and the partnership is dissolved

A member-managed LLC means:

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

For tax purposes, sole proprietorships:

are pass-through entities.

Which of the following is a requirement for the formation of a limited liability company (LLC)?

articles (or certificate) of organization

The Board of Directors may conduct business: (Choose 2 answer choices)

at regular meetings. at special meetings.

In a manager-managed LLC, the designated manager may (choose 2 answers):

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

Roy owns an engine repair shop, Roy's Custom Repair and is a sole proprietor. Roy's customer Floyd is in the shop one day and trips over a tool lying on the ground. Floyd hits his head on the concrete floor and sustains massive injuries. Floyd sues Roy's Custom Repair for his injuries. If Floyd's lawsuit is successful, Floyd can recover from:

both Roy's Custom Repair and Roy personally.

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:

both ben and jerry

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 a court decree

Ellie, Josie, and Dylan are partners in a car dealership. Ellie gives notice to Josie and Dylan that she wants to withdraw from the business. As a result of Ellie leaving the partnership, Josie and Dylan:

can either continue the partnership without Ellie or agree to dissolve the partnership.

Which of the following actions will usually dissolve a partnership?

completion of the purpose of the partnership

If an action is permitted expressly by the corporate bylaws, but is prohibited by state law, a corporation:

does not have the power to act.

What is the combination of factors that sets sole proprietorships apart from all other business entities?

ease of formation, along with receiving all of the profit

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.

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):

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

Bly and Ahmik are partners in a sandwich shop. They have been struggling for the last couple of years and, finally, decide to close the sandwich shop and dissolve the partnership. During the winding-up process, Ahmik spends most of his time pursuing his next venture, so Bly is handling most of the work involved in collecting and preserving partnership assets and paying the debts of the partnership. If Bly requests payment for his services in winding up the partnership:

he is entitled to payment for those services.

A sole proprietorship differs from a corporation in:

how stock is sold

Agreements to form a partnership may be: (Choose three)

implied by conduct. written oral

A shareholder has the right to inspect the corporate books, if done:

in good faith and for a proper purpose.

Myra owns a tanning salon called Bronze Beauties as a sole proprietorship. Myra has six employees who work at the salon. Myra contracts COVID-19 and, after battling the disease for six weeks, she dies, leaving behind a spouse and three children. Upon Myra's death, the Bronze Beauties tanning salon:

is automatically dissolved

Most limited liability company (LLC) statutes provide that unless the articles of organization specify otherwise, an LLC is assumed to be managed by:

its members

Owners of the following business associations have limited liability protection (choose 2 answers):

limited liability companies. limited liability partnerships.

A partnership in which the liability of all the partners is limited to the amount of their capital investment in the firm is called a:

limited liability limited partnership.

Which of the following is a duty of both corporate directors and corporate officers?

making a full disclosure of potential conflicts of interest

Any partner:

may act as an agent who binds the partnership.

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:

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

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:

no one

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

nonprofit

Which of the following is required to create a sole proprietorship?

nothing

In terms of personal liability of the owner, a sole proprietorship:

offers no protection.

A foreign corporation is:

one that was incorporated in a different state.

Which of the following documents spells out the rights and duties of the members of a limited liability company (LLC)?

operating agreement

Limited liability means:

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

In order to capitalize a sole proprietorship, an owner is likely to:

pay out of their own pocket or undertake personal debt.

After dissolution, partners still have authority to do which of the following actions on behalf of the partnership? Choose 2 answers.

pay the debts of the partnership complete transactions that were started before dissolution

Which of the following are TWO disadvantages of a sole proprietorship? (Choose 2 answers.)

personal liability for debts limited capital

Mason is the CEO and sole shareholder of Mason Products, Inc., a corporation that manufactures and sells bird calls. Mason regularly uses the corporate credit card to purchase personal items, including furniture and clothes, and even makes monthly payments on his Corvette using the corporate credit card. When Mason Products becomes insolvent, its creditors file suit against Mason personally to seek payment for corporate debts. In this situation, the court is likely to:

pierce the corporate veil and hold Mason personally responsible.

Mork and Mindy create a for-profit corporation, Mork's House, to provide shelter to homeless and abused women and children. Mork and Mindy are shareholders of the corporation. Zada is also a shareholder in the corporation, along with five others. Douglas manages the day-to-day operations of the corporation. The bylaws of the corporation provide that the corporation is established for the sole purpose of providing shelter, food, and care for homeless and abused women and children and for no other purpose. When the refrigerator in Mork's House stops working, Douglas purchases a new refrigerator from Home Depot and charges it to the corporation. If Zada challenges the purchase as going beyond the powers of the corporation:

she will lose, because purchasing the refrigerator falls under the implied powers of the corporation.

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:

sole proprietorship.

The simplest form of business to establish is a:

sole proprietorship.

The board of directors manages:

the business and affairs of the corporation.

What principle protects corporate directors and officers from liability for bad decisions if they are made as honest mistakes rather than in negligence?

the business judgment rule

What documents spell out the powers of a corporation? Choose 2 answers.

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

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 legal effects of dissociation of a member of a limited liability company (LLC) include: (Choose 2 answers.)

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

A general partnership differs from a limited partnership in: (Choose 2 answers.)

the documents required for creation. a partner's management rights.

Which of the following provisions are typically in a charter/articles of incorporation for a corporation? Choose 2 answers.

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.

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, 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.

Who is liable for contracts entered into on behalf of the corporation before the corporation is formed?

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.

An operating agreement for a limited liability company:

typically includes provisions about choosing the LLC's management.

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.

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.

A sole proprietorship has flexibility in decisions regarding: (Choose 2 answers.)

when to schedule vacation. pricing of services or goods sold.

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 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.

Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)? Choose 2 answers.

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

Where should Articles of Incorporation be filed?

with the state

You and three of your friends have stock in a corporation and are interested in voting one of your friends in as a new director for the corporation. There are three director positions open, but your group only owns a minority of the shares of stock in the corporation. Do you think there is anything you and your friends can do to ensure that your candidate for the board of directors wins?

yes, if the bylaws of the corporation allow you to pool your votes and vote them all for a single candidate