Mid-Term Exam

The most commonly accepted reason that REITs are popular with their investors is that because they are required by law to distribute _____ of their taxable income, they tend to pay high dividends to their investors.

90%

An LLC may be _________________ dissolved by the state for failure to pay fees, taxes, etc.

ADMINISTRATIVELY

List three activities that might take place at a corporation's first meeting.

APPOINTING OFFICERS; ELECTION OF DIRECTORS; AUTHORIZATION TO ISSUE STOCK

The name of the document that creates a corporation is __________________________.

Articles of incorporation

Corporations are governed by their ____________________, which create the corporation and by their _____________, which provide rules for the internal governance of the corporation.

Articles of incorporation; Bylaws

The name of the document that creates an LLC is the ____________________.

Articles of organization

Identify which of the following provisions would be included in a corporation's articles and which would likely be included in the corporation's bylaws: a. Statement that the corporation's stock has no par value. b. Statement that the corporation's annual meeting will be held on May 1. c. Statement that the corporation will have seven directors. d. Statement that the corporation's purpose is to engage in any lawful acts in the state. e. Statement regarding the duties of the corporation's secretary.

Articles; Bylaws; Bylaws; Articles; Bylaws

Which of the following are likely fictitious business names, such that a fictitious business name statement would need to be filed: a. Jack King's Burgers b. JK Burgers c. Jack King & Associates Restaurant Services Jack's Burgers

B, C, D

Corporations are managed by their _______________ and owned by their ___________.

BOARD OF DIRECTORS; SHAREHOLDERS

A ___________________ gives the corporation the ability to engage in any lawful act in the state. Thus, if the corporation changes or expands its business, it will not have to amend its articles.

Broad purpose clause

The name of the document that governs a corporation's internal affairs is called the ______________.

Bylaws

The name of the document that creates a corporation is: a. The articles of certification b. Bylaws c. The articles of incorporation d. The certificate of good standing

C

A corporation that is not an "S" corporation is usually called a ____________ corporation.

C-Corporation

A corporation is governed by: a. The document that creates it b. Its bylaws c. State statutes d. All of the above e. None of the above

D

Identify which of the following rights a corporation enjoys as a "person": a. The right to be free from defamation b. The right of free speech c. The right to claim the attorney-client privilege d. All of the above

D

A limited partner who is refused access to review the books and records of the limited partnership may bring a ____________ action against the limited partnership.

Direct action

Corporations are managed by their _________________.

Directors

Under the older UPA, nearly every departure from a general partnership causes a ______________ of the partnership.

Dissolution

A corporation that is formed in Kansas is called a _________________ corporation in Kansas.

Domestic

Which of the following activities and powers a corporation possesses: a. Making a political donation b. Suing an individual for a debt owed to the corporation c. Purchasing a patent d. Becoming a member of a partnership e. All of the above

E

"Kathleen's Cakes" as a name for a sole proprietorship would not necessitate the filing of a fictitious business name statement.

False

A corporation is as easy and inexpensive to form as a general partnership.

False

A corporation's bylaws are filed with the secretary of state.

False

A general partnership requires a written partnership agreement.

False

A manager of an LLC must be a member of that LLC.

False

A name such as "Apex Supplies" is an acceptable corporate name in most jurisdictions.

False

A partner may transfer or assign her right to vote or manage the partnership to her sister.

False

A transfer of partnership profits automatically carries with it the right to the new transferee to be a full partner.

False

ABC Consulting, LP is a limited partnership doing business in California. It would like to open a bank account in Arizona. ABC will be required to apply to conduct business in Arizona in order to open a bank account there.

False

All business enterprises in the United States have continuity of existence.

False

Amy and Christine must have a written partnership agreement to form a general partnership.

False

An LLC is governed by its articles of incorporation.

False

Articles are more difficult to amend than bylaws.

False

Because shareholders own their corporation, they also manage it.

False

Bylaws must be filed with the secretary of state.

False

Contracts related to corporate leases, supplies, etc., may only be entered into after a corporation is formed.

False

Forming a general partnership requires the filing of a partnership certificate with the secretary of state and appointing an agent for service of process.

False

Forming a limited partnership is as easy as forming a general partnership.

False

If a corporation's articles of incorporation conflict with state statutes, the articles will govern.

False

If a general partnership liquidates, its assets are distributed first to its owner/partners who then will pay any creditors.

False

If a partnership divides profits with Partner A receiving 75% and Partner B receiving 25%, then losses must be allocated in the same manner.

False

In a general partnership, each partner must contribute the same amount of money.

False

Like LLPs, LLCs are a form or variety of partnership.

False

Limited partnerships must have at least two general partners.

False

Name registrations are identical to name reservations.

False

Of all business entities, the LLC is the most expensive and complex to form and maintain.

False

Par value is equivalent to the actual market value of corporate stock.

False

Participants in an LLC have full protection from liability arising from the acts of other participants only if they refrain from managing the entity.

False

Partnership laws are identical in each state.

False

Sole proprietors need never obtain any licenses or make any business filings.

False

Sole proprietorships are subject to extensive state and federal regulation.

False

The most popular form of doing business in the United States is the corporation.

False

The term "par value" is synonymous with the actual market value of stock.

False

There may be a one-person LLP.

False

A ____________ identifies the owner of a business by full name and address. In the event a creditor or other party needs to sue the sole proprietor, it is then easy to identify the potential defendant and serve him or her.

Fictitious name statement

A limited partnership formed in Oregon and doing business in Idaho is referred to as a _________ limited partnership in Idaho.

Foreign

If that corporation does business in Nebraska, it is called a _____________ corporation in Nebraska.

Foreign

After a corporation is formed and is considering doing business in other states, it should file an application for ____________________.

Foreign qualification

After it is incorporated, ABC Inc. might file a[n] ______________________ with other jurisdictions to ensure its name is available to use in the future in those states if ABC desires to conduct business in those states.

Foreign qualification registration

Some states have numerous sets of statutes/codes for their business entities. A ______________ code provides more uniformity in state law.

Hub and spoke

The first meeting of a corporation is generally called the ____________ meeting.

Initial meeting

Under the RULPA, any person may apply to a court to dissolve a limited partnership when it is no longer reasonably practicable to conduct business in conformance with the partnership agreement. Thus, one of the partners should apply for a ________ dissolution.

Judicial

Unlimited ____________ means that a creditor of a sole proprietor is not limited to attacking or obtaining money owed to him or her from the sole proprietor's business assets or account.

Liability

Under the doctrine of _______________, partnership funds must first be exhausted before partners' individual assets may be pursued.

MARSHALLING OF ASSETS

Nearly every state has modeled its corporations statutes on the ____________________, originally drafted by the ABA.

MODEL BUSINESS CORPORATION ACT

Nelson Construction LLC has 100 members. The entity may be __________-managed or ____________-managed

Member; Manager

The participants in an LLC are called _______________.

Members

A _________________ is used for a corporation while its incorporation papers are being prepared. It usually lasts for a fairly short period - often 30 to 120 days.

Name reservation

Before it is formed, ABC Inc. might file a[n] ________________________ with its state of incorporation t ensure its desired name is available for use in that state.

Name reservation

A corporation that is formed for a scientific, educational, social, or religious purpose is called a ______________ corporation.

Nonprofit

An LLC is governed by the document that creates it as well as the ____________ agreement entered into among its participants.

Operating agreement

The name of the document that governs the internal affairs and operation of an LLC is the ______________________.

Operating agreement

Single or _____________ taxation means that the business entity itself does not pay tax. The purpose of an S corporation is to provide relief against the _______________ to which corporations are subject.

PASS-THROUGH; DOUBLE-TAXATION

ABC Inc. has created or acquired LMN Corp. ABC is called the ____________ corporation, and LMN is called a _____________ corporation.

Parent; Subsidiary

A partnership that is formed without a definite term for its ending or termination is called a[n] ______________ partnership.

Perpetual

_______________ give shareholders the right to buy their pro rata share of newly issued stock before it is offered to nonshareholders.

Pre-emptive rights

A document states, "I agree to purchase 500 shares of the stock of ABC Inc. at $15 per share when the corporation is formed." What is the name of this document?

Pre-incorporation share subscription

The people involved in planning and organizing a corporation are called ____________________.

Promoters

A corporation such as Ford Motor Company that sells its shares to the public is usually called a _______________________ corporation.

Publicly held

The minimum number of shareholders or directors required to take action is called a ______________.

Quorum

A ____________ passes all of its income through to its shareholders who then declare and pay tax on their share of the corporate income according to their individual tax "brackets."

S-Corporation

List the three elements that make up the corporate "kit" or supplies.

Seal, minutebook, stock certificate

In most states, the department that is responsible for forming corporations, accepting annual reports, etc., is called the ________________________.

Secretary of state

The entity responsible in most states to accept papers dealing with the formation, operation, and dissolution of business entities is the ________________.

Secretary of state

An agent for ___________________ accepts litigation notices on behalf of the entity.

Service of process

Limited partners have been called _________ partners because they do not manage or control the business of the limited partnership. They contribute their money to the entity.

Silent partners

A __________________ provides public notice of which partners have authority to act for the partnership. Creditors, banks, or others dealing with the partnership then have the security of knowing whether a partner with whom they are dealing has the authority to engage in the transaction.

Statement of authority

The owners of a corporation are called ___________________.

Stockholders

There are three groups of people involved in a corporation: The _______________ own the corporation; the ______________ manage the corporation; and ____________ are appointed to manage the daily business affairs of the corporation.

Stockholders; Directors; Officers

REITs usually trade on the national stock exchanges, and thus an investor's interest in a REIT is as readily ____________ as a share of stock.

Transferable

A corporation may be formed in any state.

True

A corporation may convert to the LLC form.

True

A corporation may enter into an agreement before it is formed by which it will agree to sell stock to an individual upon its formation.

True

A corporation may hold its first meeting in person or "on paper" (with a document prepared to reflect any action taken).

True

A corporation may sell its real estate to another.

True

A corporation may, if it wishes, grant preemptive rights in the document that creates a corporation.

True

A general partner in a limited partnership has all of the rights and liabilities of a general partner in a general partnership.

True

A general partnership may have an unlimited number of partners.

True

A joint venture is a form of partnership and is governed by partnership principles.

True

A limited partnership formed in Ohio may apply to conduct business in other states.

True

A member in an LLC may freely transfer his right to profits.

True

A partner may transfer or assign her rights to profits to her sister.

True

A person may offer to purchase shares in a corporation even before the corporation is formed.

True

All states recognize a one-person limited liability company.

True

All states recognize limited liability companies.

True

An LLC may dissolve according to the terms of its agreement or upon unanimous approval.

True

Any partner's interest in a limited partnership may be seized by a creditor who is owed money by that partner.

True

Corporations can deduct a variety of expenses, including interest paid on loans and salaries paid to employees.

True

Generally, a limited partner may easily leave a limited partnership.

True

Generally, a sole proprietorship terminates with the death of the sole proprietor.

True

Generally, it is easier for a general partnership to raise money than for a sole proprietorship to do so.

True

Generally, it is fairly easy for limited partners to withdraw from a limited partnership.

True

Generally, managers of an LLC have the same fiduciary duties to the LLC and to the LLC members that general partners have.

True

Generally, partners are free to manage their partnership business in any manner they desire.

True

Generally, stock in a corporation is easily transferred.

True

Generally, when forming a corporation, the state in which the corporation intends to do business should be the primary candidate for the state in which to incorporate.

True

If a corporation is formed in Georgia and does business in Florida, it will be governed by the law of both states.

True

In general partnerships, unless provided otherwise, it is presumed that each partner has equal authority to manage the partnership business.

True

In most states, in lieu of holding an in-person first meeting of the corporation, the corporation can take action "on paper," and a document will be prepared that reflects the matters agreed-upon.

True

In some states, liability is "partial shield" and in some states liability is "full shield" for limited liability companies.

True

It is easy to determine the agent for service of process for a corporation. One merely contacts the secretary of state or uses the secretary of state's website to determine this information.

True

Like sole proprietors, corporations may operate under an assumed name.

True

Limited partnerships offer protection against unlimited liability.

True

Most real estate investment trusts are traded on the national stock exchanges.

True

Most states permit corporations to use a general or broad purpose clause in the document that creates a corporation.

True

Most states require corporations to file an annual report with the state.

True

Professionals, such as doctors and lawyers, may incorporate their practices.

True

Sole proprietors pay tax on all money earned by their sole proprietorship business, even if money is not distributed to them but is retained for future business needs.

True

The certificate of limited partnership should be amended when a new general partner is admitted to the limited partnership.

True

The functions and duties of a general partner in a limited partnership are identical to the functions and duties of a general partner in a general partnership.

True

The taxation of an LLC is identical to that of an LLP.

True

There may be a one-person LLC.

True

Under the older UPA, when a partner dies or leaves a general partnership, there is a dissolution of the partnership entity.

True

When a sole proprietor dies and his or her heir takes over the business, a new sole proprietorship is created.

True

Generally, an LLC that has been dissolved by the state may be reinstated by the secretary of state within ____ years upon compliance with the fee requirement.

Two

______________________ liability means that each partner is 100% liable for each and every partnership obligation. For example, the creditor can elect to pursue only Adam for the debt and recover all money owed from Adam. Adam must then pursue his partners to ensure they contribute and reimburse Adam. (In this case, the reimbursement or contribution would be one-third for each partner because the partners did not agree on the division of profits and losses.)

Unlimited personal liability