BA 200 Ch 18 Forms of Doing Business

A director who usurps a corporate opportunity: a. will owe his/her corporation the profits from the opportunity. b. will not owe the profits to the corporation so long as the venture was disclosed in advance. c. has violated the business judgment rule. d. none of the above

A

A joint venture: a. is a partnership limited in scope. b. is a limited liability company. c. must be incorporated to be recognized. d. none of the above

A

A limited liability partnership (LLP): a. is a statutory creature. b. is the same as a limited partnership. c. is the same as a LLC. d. all of the above

A

A limited partnership: a. requires at least one general partner. b. can be created by implication. c. must be run by the limited partners. d. all of the above

A

Transfer of a partner's interest: a. is void. b. results in dissolution of the partnership. c. relieves the partner of liability. d. makes the transferee a partner. e. none of the above

B

When shareholders get to vote on executive compensation it is referred to as what? a. Pay-to-play b. Say-on-pay c. Day-of-pay d. Play-on-payday

B

Hank Greenberg was the head of: a. the SEC. b. Citigroup. c. AIG. d. BP.

C

Which of the following cannot be used to pierce the corporate veil? a. inadequate capitalization b. alter ego theory c. formation of the corporation to avoid personal liability d. All of the above theories can be used.

C

Pooling agreements are: a. illegal as against public policy. b. the same as voting trusts. c. valid if filed with the corporation's secretary. d. none of the above

D

The corporate veil can be pierced when: a. there is only one shareholder in the corporation. b. the corporation was formed to avoid personal liability. c. the corporation has only preferred stock. d. none of the above

D

Which of the following is not a method for forming a partnership? a. by agreement b. by estoppel c. by implication d. by transfer

D

Stock transfer restrictions are void. T F

F

Subchapter S or S Corporation shareholders have personal liability for corporate debts. T F

F

A copy of the voting trust must be on file in the corporate records. T F

T

A Subchapter S or S Corporation is: a. a special class of close corporation under the MBCA. b. an IRS tax treatment option for corporations owned by a limited number of shareholders. c. a not-for-profit corporation. d. none of the above

B

A corporation is said to have double taxation. What is meant by this statement? a. The corporation pays double the tax rate of individuals. b. The corporation pays taxes on its income and its shareholders pay taxes on their dividends from the corporation. c. both a and b d. none of the above

B

A partnership by estoppel: a. is the same as a partnership by implication. b. results when third parties are led to believe a partnership exists. c. is the same as a joint venture. d. none of the above

B

"Say-to-pay" gets its name from stakeholders getting to vote on executive compensation. T F

F

The income of the sole proprietor's business is reported as a separate entity's income. T F

F

Under Sarbanes-Oxley, the majority of members of the audit committee must be independent directors. T F

F

Watered shares are shares for which the purchaser did pay more than par but less than full market value. T F

F

A corporation is only a domestic corporation in its state of incorporation. T F

T

A merger requires a board resolution and shareholder approval. T F

T

A partnership by estoppel arises when actions lead a third party to believe a partnership exists. T F

T

Owners of limited liability companies enjoy pass-through treatment of income and losses. T F

T

Partners are mutual principals and agents. T F

T

Partners' personal assets can be reached by partnership creditors. T F

T

Piercing the corporate veil has been used for purposes of imposing CERCLA liability. T F

T

Sharing of profits is prima facie evidence that a partnership exists. T F

T

The articles of incorporation must include the capital stock structure of the corporation. T F

T

Evidence of sharing profits is prima facie evidence of partnership existence unless the profits are: a. wages or rent. b. not shared equally. c. income. d. all of the above

A

In which of the following forms of doing business does the death of one of the owners cause dissolution? a. partnership b. S Corporation c. C Corporation d. closely-held corporation e. nonprofit corporation

A

Transfer restrictions: a. must be noted on the stock to be valid. b. are generally valid only in family-owned corporations. c. cannot be used to satisfy SEC restrictions. d. none of the above

A

Unanimous consent of the partners is required for: a. confession of a judgment. b. borrowing money in a trading partnership. c. signing checks. d. none of the above

A

Under Sarbanes-Oxley, which of the following is true? a. Companies must have a separate code of ethics for financial reporting. b. Boards of directors are not subject to the act's provisions. c. The act does not cover publicly traded companies. d. both b and c

A

Which is the proper order for distribution of assets upon dissolution of a limited partnership? a. outside creditors; distributions owed to partners; capital contributions; remainder split according to distribution agreement b. outside creditors; limited partners' profits; limited partners' capital; general partners' advances; general partners' profit; general partners' capital c. limited partners' capital; outside creditors; limited partners' advances; general partners' capital and profits d. none of the above

A

Which of the following is a requirement under Sarbanes-Oxley? a. The majority of the board of directors must be independent. b. No inside officers can serve on the board of directors. c. Lawyers must blow the whistle on their corporate clients engaged in fraud. d. all of the above

A

Grace Owen formed a corporation with three of her friends for purposes of operating a catering company. Grace used her own checking account to deposit the client payments and to make distributions of the corporation's profits to her three friends, who together owned 50% of the shares, with Grace owning the remainder of the shares. Grace promised her friends "no meetings, no formalities, we'll just run the catering business." Several wedding guests at a reception Grace's company catered became ill. Grace had not purchased insurance. The guests brought suit to recover their medical bills and other damages from Grace and her three friends. Grace says she has no personal liability for the bad food that resulted in their illness. a. Grace is correct; their suit should be against the corporation. b. Grace is incorrect because of the veil and alter ego theory. c. Grace is liable, but her friends are not. d. none of the above

B

In a novation by the board of a pre-incorporation contract involving the corporation, the promoter, and a third party: a. the corporation is released from liability. b. the promoter is released from liability. c. the promoter is made secondarily liable. d. none of the above

B

Jim Braun has been a partner in a real estate investment partnership with Alicia Kaynes for 10 years. When the real estate market took a downward turn, one of their investments in a strip mall became a cash drain. Jim refused to contribute any more cash and withdrew from the partnership. Alicia was left to manage the property. Before she could sell it, Alicia had put in $125,000 into the strip mall property. Following the sale, Alicia demanded one-half of the $125,000 from Jim. Jim said he is not liable because he left the partnership. a. Jim is correct; he withdrew and his liability ended. b. Alicia is correct; Jim owes her his share of what she paid. c. Neither is correct; how much Jim owes depends on when he withdrew. d. none of the above

B

Limited partners have liability: a. for the full amount of partnership debts. b. only for the amount of their contribution. c. for the negligent acts of the general partner. d. none of the above

B

Owners of a limited liability company: a. have unlimited liability for contracts entered into by the LLC. b. can transfer their membership as a personal property interest. c. cannot assume any management responsibilities. d. all of the above

B

Partners' personal assets: a. cannot be reached by partnership creditors. b. cannot be reached by partnership creditors unless partnership assets are exhausted. c. can only be reached by personal creditors. d. none of the above

B

Partnership property: a. is always personal property. b. is owned by the partners as tenants in partnership. c. can be pledged to a partner's personal creditor. d. all of the above

B

The assignment of limited partnership interests: a. is prohibited by the ULPA. b. may be a sale of securities subject to federal regulation. c. is liberally permitted under the Internal Revenue Code. d. none of the above

B

Which of the following activities will cause a limited partner to lose his limited liability status? a. being employed by the general partner as an employee b. managing the firm with the general partner c. consulting with or advising the general partner d. All of the above will result in the loss of limited liability status.

B

Which of the following is true of a sole proprietorship? a. A separate tax return must be filed. b. It is not a business entity. c. There is no personal liability for the owner. d. none of the above

B

A corporate dissolution: a. cannot result from an agreement. b. results when a corporation does not hold an annual meeting. c. can begin with a board resolution. d. none of the above

C

A shareholder proxy is: a. good until revoked. b. not subject to any securities laws. c. a transfer of a right to vote. d. none of the above

C

Dissolution: a. is the same as termination. b. can result from a limited partner leaving the partnership. c. can result from the death of a partner. d. all of the above

C

For income tax purposes, a partnership: a. files a return and pays taxes. b. is an entity. c. has no taxes. d. none of the above

C

In a ratification by the board of a pre-incorporation contract involving the corporation, the promoter, and a third party: a. the corporation is released from liability. b. the promoter is released from liability. c. the promoter is made secondarily liable. d. none of the above

C

The business judgment rule holds directors liable for: a. errors in business judgment. b. their mistakes. c. failure to obtain necessary information for making decisions. d. none of the above

C

Watered shares result: a. when a purchaser does not pay full market value for the shares. b. when a purchaser does pay more than par value for the shares. c. in personal liability for the shareholders. d. none of the above

C

Which of the following forms of business structure provides limited liability for the personal assets of the owners? a. sole proprietorship b. general partnership c. LLC d. partnership by implication e. All of the above provide limited liability.

C

Which of the following is not required for the articles of incorporation? a. names of incorporators b. capital stock structure c. names of board members d. All of the above are required.

C

A limited liability company: a. can be created informally. b. does not have the pass-through feature of income and losses. c. is exclusive to the United States. d. none of the above

D

A partner's interest: a. is the same as the partnership property. b. cannot be attached by creditors. c. cannot be transferred. d. none of the above.

D

A, B, and C are partners in a real estate firm. B has just died. B's widow: a. owns one-third of all the partnership land. b. is a tenant in partnership with A and C. c. can force the sale of the partnership property. d. none of the above

D

In 2009, the CEO with the highest compensation was: a. Lawrence Ellison b. Mark Hurd c. John Donahoe d. None of these

D

Limited partners: a. can use their name in the partnership name. b. can contribute management services to the partnership. c. cannot advise the general partner. d. none of the above

D

The CEO of Citigroup announced a $8 billion write-down for the company because of bad loans. This announcement followed a previous announcement of a $5 billion write-down three quarters earlier. The board asked him to step down. a. The board does not have the authority to remove a CEO. b. The shareholders must approve the removal of a CEO. c. The CEO is elected by the shareholders. d. none of the above

D

The directors of Kmart, Inc. voted several years ago to approve a new marketing plan that involved endorsements by Martha Stewart of Kmart home products such as linens, paint and decorations. Marketing studies have shown that Martha Stewart was not the right match for endorsements for Kmart's customer base. Kmart is now in Chapter 11 bankruptcy. Its shareholders believe the Martha Stewart decision was the cause of the company's demise. a. The shareholders have a cause of action against the directors for violation of the business judgment rule. b. The shareholders have a cause of action against the directors for violation of the corporate opportunity doctrine. c. The shareholders can have the court order the directors removed for cause. d. The directors of Kmart are protected under the business judgment rule. e. none of the above

D

What conduct will cost a limited partner his/her limited liability status? a. engaging in the management of the business b. allowing his/her name to be used in the business name c. failure to file the limited partnership agreement d. All of the above will result in a loss of limited liability status.

D

Which of the following forms of business organizations does not have the pass-through feature of income and losses? a. partnership b. limited partnership c. S corporation d. corporation

D

Which of the following forms of business structure has the easiest means of transfer of ownership interests? a. LLCs b. LLPs c. Subchapter S corporations d. C corporations

D

Which of the following is not required for the certificate of limited partnership (under RULPA)? a. names of the limited partners b. capital contributions of the partners c. the profit-sharing arrangement d. None of the above are required.

D

Which of the following shareholders would qualify for access to the corporate books and records? a. a shareholder who owns 5 percent of any class of stock b. a shareholder who owns 5 percent of all the outstanding stock of a corporation c. a shareholder who has owned stock for six months d. All of the above shareholders qualify.

D

A LLP can be created by implication. T F

F

A limited liability company can be created informally. T F

F

A limited partnership can exist by implication. T F

F

A partner's interest in a partnership is not transferable. T F

F

A partnership can only be formed voluntarily. T F

F

A partnership must file a separate tax return and pay taxes on its income. T F

F

A tenancy in partnership does not carry rights of survivorship. T F

F

AIG was not involved in the subprime mortgage debacle. T F

F

An S corporation is created as an LLC. T F

F

An assignment of a limited partner's interest terminated the limited partnership. T F

F

Boards cannot rely on outside experts in decision making. T F

F

Close corporations are generally publicly traded. T F

F

Directors are personally liable for errors in business judgment. T F

F

Dissolution of a partnership is termination of a partnership. T F

F

Hank Greenberg prosecuted AIG for fraudulent activities when he was Commissioner of the SEC. T F

F

If members of a limited liability company exercise management authority, they lose their limited liability. T F

F

In 2009, the highest paid CEO was paid slightly more than $80 million in compensation. T F

F

Incorporators are not liable for contracts entered into before incorporation. T F

F

It is fraud to form a corporation to avoid personal liability. T F

F

Lawyers for corporations are not required to reveal investigations of misconduct in the corporation to the CEO. T F

F

Lawyers for corporations are required to report misconduct by the corporation to the SEC after they have exhausted all means for an internal correction. T F

F

Limited liability companies are peculiar to the United States. T F

F

Limited partners can take a management role and remain limited partners. T F

F

Limited partners who act as guarantors for partnership notes lose their limited partner status. T F

F

Limited partners' profits and losses are allocated equally. T F

F

Limited partnership interests are generally not transferable. T F

F

Members of limited liability companies have no right to vote on who should manage their companies. T F

F

Novation and ratification have the same effect on promoters' pre-incorporation contracts. T F

F

Oil company executives are the highest paid CEOs annually. T F

F

Parent corporations can never be held liable for the environmental clean-up costs of subsidiaries. T F

F

Partners are not liable for each others' torts committed in the scope of business. T F

F

Partners are only jointly liable for torts of other partners committed in the scope of the partnership business. T F

F

Partners by implication cannot share profits. T F

F

Pooling agreements are the same as voting trusts. T F

F

Shareholders generally elect the officers of the corporation. T F

F

A proxy is valid only for 11 months. T F

T

All owners in an LLP have limited liability. T F

T

An inadequately capitalized corporation can have its corporate veil pierced. T F

T

Any shareholder can demand access to the corporate books and records. T F

T

Appraisal rights are given only to dissenting shareholders. T F

T

Bylaws provide the requirements for meetings and voting. T F

T

Close corporations have less formality in their operational requirements. T F

T

Corporations pay double taxes, on income and shareholders on dividends. T F

T

Enron's off-the-book financings consisted mostly of LLCs and LLPs. T F

T

In a limited partnership, there must be a least one general partner. T F

T

LLCs have existed in Europe and South America prior to their existence in the U.S. T F

T

Limited liability companies, limited liability partnerships, limited partnerships, general partnerships, sole proprietorships and S corporations all have flow-through income and loss provisions for tax purposes. T F

T

Limited liability partnerships are favored by accounting firms because they limit the liability of partners for the acts of the other partners. T F

T

Limited partners can consult and advise with the general partner and still retain limited liability. T F

T

Limited partners have liability limited to the amount of their contribution to the partnership. T F

T

Limited partnerships are taxed the same way as general partnerships. T F

T

New members are admitted to an LLC only with approval by a majority of existing members.

T

Only the general partner in a limited partnership has personal liability. T F

T

The corporate opportunity doctrine requires directors to first present related business opportunities to the corporation. T F

T

The corporate veil can be pierced for inadequate capitalization. T F

T

The corporate veil liability theory has been applied in situations that involve environmental clean-up issues. T F

T

The sale of the goodwill of a partnership requires unanimous consent. T F

T

The sole proprietor's personal assets are subject to business creditor attachment. T F

T

The statutory agent is the party who will be served with lawsuits against the corporation. T F

T

There are no formal requirements for forming a sole proprietorship. T F

T

Under Sarbanes-Oxley, codes of ethics must cover financial reporting standards. T F

T

Under Sarbanes-Oxley, current employees are not considered independent for purposes of board structure. T F

T

Under Sarbanes-Oxley, loans to corporate officers are prohibited. T F

T

Upon termination of both limited and general partnerships, outside creditors have first priority in terms of asset distribution. T F

T