BUL 3310 Exam 4

May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment? $50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that. $300,000: As a limited partner May has joint and several liability for the debts of the partnership so she could be personally liable for the full amount. $100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. 0: May is a limited partner so has no liability for the debts of the partnership under any circumstances.

$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.

Subchapter S corporations are limited to _________shareholders. 100 10 35 There is no limit to the number of shareholders in a Subchapter S corporation.

100

The AMJ Partnership has 3 partners: Amy, who made a 60,000 capital contribution; May, who made a 20,000 capital contribution; and June, whose capital contribution was 10,000. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed? 60,000 to Amy; 20,000 to May; 10,00 to June The partners will have to determine the distribution by a 23 partnership vote. 45,000 to Amy; 30,000 to May; 15,000 to June 30,000 each to Amy, May and June

30,000 each to Amy, May and June

Which of the following is NOT one of the recognized disadvantages of doing business as a corporation? A corporation can be in existence for a maximum of 99 years. A corporation must comply with a great number of state and federal regulations. Corporate profits are subject to double taxation. A corporation must qualify to do business in each state in which it engages in business activities.

A corporation can be in existence for a maximum of 99 years.

Which of the following parties could claim an artisan's lien? (select all the correct answers) An artisan's creditor. A jeweler who repaired a watch. A common carrier of goods. The owner of a storage facility.

A jeweler who repaired a watch. A common carrier of goods. The owner of a storage facility.

All of the following are considered advantages to a Limited Liability Partnership, except: A limited liability partner is always insulated from personal liability of he or she commits malpractice. Partnership proceeds may "pass through" the partnership for income tax purposes. The limited liability partnership can function much like a general partnership, without the same risks of personal liability as a general partnership. A limited liability partner can avoid personal liability for partnership debts.

A limited liability partner is always insulated from personal liability of he or she commits malpractice.

The "weighted average method" refers to A way of resolving antitrust issues when competitor corporations merge. A way of distributing dividends in closely held corporations A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger. a way of voting for directors that protects the rights of minority shareholders.

A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger.

John was a limited partner in Commercial Properties Limited. When the general partner became ill, John took over all the management duties of Commercial Properties. Ace Office Equipment, a supplier of Commercial Properties, is suing Commercial Properties over several months of unpaid bills. Under modern laws governing the operation of limited partnerships, which of the following statements best describes John's personal liability for Commercial's debt to Ace Office Equipment? Ace can hold John personally liable for Commercial's debt because he assumed management of Commercial. Under no circumstances can John be liable beyond his capital contribution. Ace can hold John personally liable for Commercial's debt because he is a limited partner in the business. Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.

Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.

Subchapter S corporation will avoid double taxation only if which of the following applies? (select all the correct answers) All the shareholders agree to be taxed as in a partnership. The corporation has no retained earnings. The corporation files Articles of Partnership in the state where it has its principal place of business. The corporations bylaws require all the revenue to be distributed to the shareholders at the end of each tax year.

All the shareholders agree to be taxed as in a partnership.

Mel, who owns a car repair shop, replaced the clutch in Ellen's car. Until Ellen pays for the repairs, Mel has a ______lien on the car. Artisan's Mechanic's Judicial Guarantor's

Artisan's

A security interest in personal property in favor of one who has performed services on the personal property is an ________. Color of title. Mechanic's lien. Artisan's lien. Security Deposit.

Artisan's lien.

Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership as/for: (select all the correct answers) As rent As an annuity to the spouse of a deceased partner For wages As dividends to the participants

As rent As an annuity to the spouse of a deceased partner For wages

A Limited Partnership must have ____________. At least one general partner. An equal ratio of limited partners to general partners. Equal capital contributions from both limited and general partners. At least one limited partner who participates in management decisions.

At least one general partner.

Jason has filed suit against Luke claiming $50,000 in damages. While the claim is being litigated, Jason can ask the court for a writ to seize property belonging to Luke which could be used to satisfy a judgment. The seizure prevents Luke from selling or otherwise disposing of the property during the proceedings. The writ Jason will ask for is a writ of________________. Garnishment Attainder Attachment Execution

Attachment

Under the "pass through" principle, a business entity Assigns assets of the business to a receiver. Avoids double taxation Conducts high risk activities through a subsidiary. Delegates duties of the business to a subcontractor

Avoids double taxation

A surety will remain liable when the creditor-principal agreement is modified if the surety consents to the modification ___________________________(select all the correct answers) Before the modification takes place. After the modification takes place. Even if the creditor unintentionally provided misleading financial documents to the surety. At the time the modification takes place.

Before the modification takes place. After the modification takes place. At the time the modification takes place.

To protect instate investors, most states have statutes regulating the sale of stocks and other securities within the state. These state statutes are referred to as ________________laws. Asset protection Investment trust White knight Blue sky

Blue Sky

Which of the following statements about corporate bonds is true? (select all the correct answers) Bond holders are creditors of the corporation Bonds pay a stated rate of interest. Bond holders have the right to vote for directors Bond holders are not creditors, but debt-equity holders of corporations.

Bond holders are creditors of the corporation Bonds pay a stated rate of interest.

The capital contribution of a partner may consist in all of the following except Patent rights Real property Cash Business experience

Business experience

The legal principle that assumes that directors act with due care and in the good faith belief that their actions are in the best interests of the corporation is the ____________________rule. Business judgment Good faith and fair dealing Entire fairness Director indemnity

Business judgment

The legal principle that assumes that directors act with due care and in the good faith belief that their actions are in the best interests of the corporation is the ____________________rule. Entire fairness Business judgment Good faith and fair dealing Director indemnity

Business judgment

The agreement among the partners that spells out how the firm's assets will be valued and how the interests of a retiring or deceased partner will be bought out is a(n) ___________________ agreement. Accounting Buy and sell Marshalling Reciprocity

Buy and sell

The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order. Collection Charging Marshaling Accounting

Charging

The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order. Collection Marshaling Charging Accounting

Charging

In a _______, a creditor must have made reasonable but unsuccessful attempts to collect from the principal before the guarantor can be held liable. Absolute guaranty. Conditional guaranty. Unconditional guaranty. Satisfaction guaranty.

Conditional guaranty.

The combination of two corporations that results in the dissolution of both corporations and the emergence of a new corporation is a(n) _____________. Purchase of assets Bulk transfer Consolidation Merger

Consolidation

Bob is a co-surety with Sue on a loan that was made to Sue's business. If the business defaults on the loan and Bob is required to pay the full amount, Bob has the right of ____________ against Sue. Subrogation. Indemnification Contribution Reimbursement

Contribution

Which of the following best describes the "double taxation" on corporate profits? The IRS is twice as likely to audit returns with dividend income as it is to audit returns with income from wages only. Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income. The profits of a corporation are taxed at twice the rate of the highest individual tax rate. The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages.

Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.

Preferred stock whose unpaid dividends accrue and are paid when earnings are available is __________________ preferred stock. Convertible Participating Cumulative Non-participating

Cumulative

The kind of voting that calculates the total number of votes a shareholder may cast by multiplying the number of shares he owns by the number of directors to be elected is _________ voting. Divisible Non-cumulative Proxy Cumulative

Cumulative

DEF Corporation, which is incorporated in Maryland, is a ___________corporation in Maryland. Native Foreign Alien Domestic

Domestic

Frank is in the business of selling imported pottery. To induce a new wholesaler to sell him goods on credit, Frank and his brother Ed told the wholesaler that Ed was a partner in the business. In fact, Ed had no partnership interest and Frank was a sole proprietor. Ed now has liability to the wholesaler based on Vicarious liability Estoppel Respondeat superior The complicity theory

Estoppel

The record date on which a dividend is payable is the ___________date. Activation Ex dividend Proxy Issuance

Ex dividend

A surety has no obligation to the creditor unless the principal _______. Fulfills his or her contractual obligations. Assigns the contract. Fails to perform. Voids the contract.

Fails to perform.

A business organized as a proprietorship may have up to, but not more than, thirty-five owners. True False

False

A cash dividend is a transfer of retained earnings to capital. True False

False

A creditor must exhaust his or her judicial remedies against the principal before seeking to recover from the surety. True False

False

A disadvantage of the Limited Liability Company is that profits are taxed both as income to the corporation and as dividends to the members. True False

False

A doctor who practices as part of a professional association cannot be sued for malpractice. True False

False

A lien for the value of materials and labor used in the construction or improvement of real property is an artisan's lien. True False

False

A promoter is an agent of the corporation. True False

False

A shareholder has 120 days after dissenting from a merger to change his or her mind and keep the stock. True False

False

A shareholder's desire to discover why a dividend was not paid is not a "proper purpose" for allowing the shareholder access to the corporation's records. True False

False

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business. True False

False

An LLC must have at least two members that participate in management in order to lawfully do business. True False

False

An artisan's lien is always assignable. True False

False

Article 2A of the Uniform Commercial Code governs the sale of securities. True False

False

Bonding companies are usually uncompensated sureties. True False

False

Compared to other business entities, a general partnership requires filing complex documentation with the secretary of state's office before it is authorized to do business. True False

False

Contracts of suretyship are legally indistinguishable from contracts of indemnity. True False

False

Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business. True False

False

If a partner assigns his or her interest in a partnership to a creditor, the assignee steps into the shoes of the partner and becomes entitled to participate in the management of the business. True False

False

In a Limited Liability Company, the unanimous consent of the members is required to hire a new employee. True False

False

In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties. True False

False

In a merger, two or more existing corporations A and B combine so that a third corporation C results. True False

False

In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time. True False

False

Individual members of the LLC can never bind the LLC in a valid and enforceable contract. True False

False

Lack of capacity and discharge in bankruptcy are two common defenses that are available to a surety that may be asserted against a creditor. True False

False

Limited Liability Companies are one of the oldest forms of business organization True False

False

Limited Liability Companies are one of the oldest forms of business organization 'True False

False

Limited Partnerships offer a convenient way for professional and family-owned enterprises to do business. True False

False

Participating preferred stock allows holders to trade their preferred shares for common shares when the trading price reaches a specified target. True False

False

Partnerships are required to give notice to creditors when they dissolve, but corporations are not required to give notice of their dissolution. True False

False

Partnerships are required to use the term "Company" in their names. True False

False

Registered agents have liability on the pre-incorporation contracts of the corporation. True False

False

Shareholders are taxed on the value of the stock they receive in stock dividends True False

False

State laws regulating the sale of securities within the state are called red herring laws. True False

False

The Statute of Limitations does not apply to surety contracts. True False

False

The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not. True False

False

The partnership must pay interest each year on the capital contributions of the partners. True False

False

The person appointed by a corporation to receive service of process is the receiver. True False

False

Vic and Thom bought an antique Corvette at auction with the intent of restoring it and selling it for a profit, which they will share equally. Vic and Thom have formed a professional association. True False

False

State law requires that state chartered banks post bonds to protect the banks from losses caused by embezzlement by bank employees. The bonds posted by banks are __________bonds. Fiduciary Bank Performance Fidelity

Fidelity

When a ________ is purchased, a bonding company promises to pay an employer any loss, not to exceed a stated amount, caused by the covered employees' embezzlement. Fidelity bond. Nonperformance bond. Security agreement. Performance bond.

Fidelity bond.

Which of the following is not required for a foreign corporation to get a certificate of authority to do business? (select all the correct answers) File a copy of its Articles of Incorporation with the secretary of state. File a copy of its bylaws with the secretary of state. Apply for a certificate of authority in the foreign state. Have a registered agent and registered office for service of process.

File a copy of its bylaws with the secretary of state.

ABC Corporation, which is incorporated in Delaware, has its corporate offices and main manufacturing plant in Ohio. ABC is classified as a _______________corporation in Ohio. Domestic Alien Native Foreign

Foreign

Pearl sued Sam and was awarded a judgment against him for $50,000. Sam has a savings account with First Bank that can be seized in partial satisfaction of the judgment. The writ the court will use ordering First Bank to turn over to it the funds in Sam's account is a writ of____________. Attainder Attachment Garnishment Execution

Garnishment

Which of the following usually provides an investor the least protection from personal liability for the debts of the business? Corporation LLC Limited Partnership General Partnership

General Partnership

In which of the following business forms are profits taxed at both the entity level and the owner level? Limited Partnership LLP LLC General corporation

General corporation

Which business entity has the following characteristics: liability of the owners is limited to their investments; ownership interest is easily transferrable and there are no legal limits to the number of owners; owners elect the managers of the business who operate under duties of loyalty and due care; the entity is organized under state law and may have perpetual existence; profits are subject to double taxation? Limited partnership General corporation Limited liability corporation General partnership

General corporation

ABC Corporation has a $150,000 open line of credit with Local Bank. Alice, the president of ABC, promised Local Bank that she will be liable if ABC defaults on any or all of the draws it takes against its line of credit. Under this agreement, Alice is a __________________. Special guarantor Co-principal General guarantor Co-surety

General guarantor

A __________ is a party whose promise is not limited to a single transaction or to a single creditor. Creditor. Special guarantor. Obligee. General guarantor.

General guarantor.

Which business entity has the following characteristics: owners have unlimited personal liability for the debts of the business, and joint and several liability for the contracts and torts of the other owners; there are few formalities in creating the entity; profits are taxed only at the owner level? Limited partnership General partnership General corporation Limited liability partnership

General partnership

Any third party who promises a creditor to be liable for a principal's payment is either a surety or _________. Obligee. Guarantor. Principal Debtor Obligor.

Guarantor

Which of the following issues do not require a unanimous vote of the partners? Disposal of the good will of the business Confession of a judgment against the partnership Hiring an office manager for 40 hours a week. Admission of a new partner

Hiring an office manager for 40 hours a week.

The corporate merger that raises the greatest number of anti-trust issues is a _________merger; the corporate merger that raises the fewest number of anti-trust issues is a __________merger. Horizontal----------------Vertical Horizontal----------------Conglomerate Vertical -------------------Horizontal Vertical ---------------------Conglomerate

Horizontal----------------Conglomerate

Edgar Esquire has an insurance contract with Lawyers Insurance Company which provides that Lawyers Insurance will pay any malpractice judgment against Edgar up to $3 million. The insurance contract between Edgar and Lawyers Insurance Company is one of __________. General guarantee Indemnity Suretyship Special guarantee

Idemnity

If a partnership agreement does not say how losses will be shared, they will be shared Proportionately according to the capital contribution of each partner. Equally among those partners who have not made loans to the partnership In whatever way the profits are shared. Equally among the partners

In whatever way the profits are shared.

Which of the following abbreviations would NOT be used by a professional corporation as a required part of its name? Inc. PC LLC S.C.

LLC

In which of the following business organization do the losses as well as the profits pass through to the owners? (select all the correct answers) LLC Publicly traded corporations General corporation LP

LLC LP

Which business entity has the following characteristics: the entity is organized under state law; the owners must declare to the state whether the organization will be managed by the owners or by persons hired by the owners; owners have limited liability for the debts of the entity; both profits and losses pass through to the owners? Limited Liability Company (LLC) General Corporation General partnership Limited Liability Partnership (LLP)

Limited Liability Company (LLC)

The merger of two corporations that results in the surviving corporation expanding its products or markets is a _____________merger. Market extension Vertical Conglomerate Horizontal

Market extension

What is the equitable rule that 1 distributes assets of an insolvent partnership first to creditors of the partnership and 2 does not let partnership creditors reach the assets of individual partners until the partners' personal creditors are satisfied? Comity of assets Partnership partition Marshaling of assets Equitable distribution

Marshaling of assets

A lien for the value of material and labor expended in the construction of buildings and other improvements is a _________. Right of redemption. Mechanic's lien. Suretyship. Artisan's lien.

Mechanic's lien.

Which of the following is a quality that an LLC shares with a corporation? An LLC and a corporation are treated identically for tax purposes. Members are only personally liable for debts to the extent of the money they put into the business. Members of an LLC usually have little to no control in major business decisions. Both an LLC and a corporation require complex and costly procedures and filings before they can legally do business.

Members are only personally liable for debts to the extent of the money they put into the business.

Peter, Paul and John, who were licensed pharmacists, formed a partnership to purchase and run a small drugstore chain. Each held a 13 interest in the partnership. When Paul died his wife Ellen began receiving annuity payments equal to 13 of the partnership's net profits. The payments were to last for 3 years. Ellen is also a licensed pharmacist and perfectly capable of performing all the duties that Peter, Paul and John performed. She claims that under partnership law both her right to receive a share of net profits and her expertise in the field are prima facie evidence that she is a partner in the firm. Is Ellen correct? Yes, sharing in net profits and having the same business qualifications as the other partners together create prima facie evidence of a partnership. No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership. No, only management rights are prima facie evidence of a partnership Yes, sharing in net profits for whatever reason is prima facie evidence of a partnership.

No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership.

Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this? No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends. Yes, this is a legitimate way for closely held corporations to reduce their taxes. No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year.

No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.

Preferred stock that is entitled to receive only the stated preferred dividend and no other is _______________ preferred stock. Cumulative Non-cumulative Participating Non-participating

Non-participating

A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Non-trading Trading Professional Entrepreneurial

Non-trading

Which of the following statements about the operation of a member-managed LLC is false? Any member of the LLC may bind the LLC on a contract. Only the managing members have access to the books and records of the LLC The application must state that it is to be a member-managed LLC. Articles of organization must be filed with the state as part of the application process.

Only the managing members have access to the books and records of the LLC

Tom was the minority shareholder in a closely held corporation. Despite massive profits, no dividends were ever declared. The corporation did, however, pay extremely large salaries and bonuses to the officers of the corporation, who were also the majority shareholders. The majority shareholders of this corporation are guilty of _______________. Embezzlement Quo warranto acts Ultra vires acts Oppressive conduct

Oppressive conduct

Which of the following is the order in which partnership assets will be distributed upon termination of the partnership? Outside-creditors, partner-creditors, undistributed profits, capital contributions. Partner-creditors, outside-creditors, undistributed profits, capital contributions Capital contributions, outside-creditors, partner-creditors, undistributed profits. Outside-creditors, partner-creditors, capital contributions, undistributed profits.

Outside-creditors, partner-creditors, capital contributions, undistributed profits.

When ABC Corporation was formed, the directors authorized an issue of 1,250,000 shares at $1,000 a share. These shares are classified as _______________stock. No par value Par value Treasury Watered

Par value

All of the following could be accurate statements about a general partnership, except: Partners can share partnership profits. Partnership liabilities in a general partnership are limited to the amount of capital contribution. Partners can share in management of the partnership. The general partnership allows for quick, easy and immediate control.

Partnership liabilities in a general partnership are limited to the amount of capital contribution.

What is the provision of the tax rule that makes income taxable only for the individuals who receive it, and not for the business entity that produces it? Income averaging Pass through Dividend retention Double taxation

Pass through

A _______ provides protection against losses that may result from the failure of a contracting party to perform the contract as agreed. Foreclosure sale. Performance bond. Finance agreement. Payment schedule.

Performance bond.

Pat agreed to purchase 250 shares of Pamco Company five months before the corporation came into existence. This agreement is an _______________ Shareholders proxy Preemptive preference Shareholders trust Pre-incorporation subscription

Pre-incorporation subscription

The prerogative of existing shareholders to buy new issues of stock in the same proportion as their current holdings is their ___________ right. Buy and sell Subscription Preemptive Redemption

Preemptive

When a corporation dissolves, holders of ___________ stock have priority in the distribution of corporation assets. Participating Treasury Common Preferred

Preferred

The stock John owns in DEF Corporation has the following characteristics: the stock is entitled to a specified dividend and, if there are not sufficient earnings to pay the dividend, the dividends accrue and are paid when earnings are available. This stock is classified as Preferred non-cumulative Preferred participating Preferred cumulative Common cumulative

Preferred cumulative

Which of the following statements about the taxation of corporations is false? Most states impose license fees or franchise taxes on corporations doing business in the state. Premiums paid for employee health insurance plans are fully deductible. Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule. Salaries paid to employees are deductible expenses for the corporation.

Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.

The person who is designated to receive notices and service of process for a corporation is its Factor General agent Registered agent Special agent

Registered agent

Megan agreed to act as a surety on a personal loan First Bank made to Arthur. When Arthur defaulted on the loan, Megan paid off the loan obligation. Megan now has the right of ________against Arthur. Contribution Subrogation Reimbursement Indemnification"

Reimbursement

Which of the following statements is correct about shareholders' voting rights? (select all the correct answers) Shareholders are entitled to notice when a special meeting is called. A shareholder's vote is negated if they object to the actions of the board. A shareholder's vote will be counted only if the shareholder is personally, physically present at the meeting when the vote is take. A quorum of shareholders must be present to conduct business.

Shareholders are entitled to notice when a special meeting is called. A quorum of shareholders must be present to conduct business.

A partner who does not participate in the management of the partnership is a ________partner. Junior Silent Secret Dormant

Silent

Allison is going to create a lawn service business. Allison would like to limit her liability by creating a subchapter "S" corporation. She does not know if the state she lives in allows for a single shareholder corporation. Where should Allison look to find the answer to her question? Federal statutes US Code of Federal Regulations Local ordinances State statutes

State statutes

The document that is written evidence of an ownership interest in a corporation is a(n)______________. Proxy statement Charter Stock certificate Stock warrant

Stock certificate

Instead of giving shareholders a cash dividend, ABC Corporation gave each shareholder 2 shares of a new stock issue for each share of stock the shareholder already owned. This is an example of a _____________. Stock subscription Stock split Stock dividend Stock repurchase

Stock dividend

Mike owned 10,000 shares in Texas Equipment that had a par value of 10. As part of a financial reorganization, Texas Equipment now records Mike as having 20,000 shares with a par value of 5. This is an example of a _____________. Stock split Stock repurchase Stock dividend Ex dividend split

Stock split

The certificate issued by a corporation that gives the owner the right to buy a stated number of shares at a stated price is a __________________. Bond Preliminary prospectus Stock certificate Stock warrant

Stock warrant

A ________ promises to be liable to the creditor only in the event that the surety refuses to perform and thereby defaults. Subsurety. Debtor. Obligee. Co-surety.

Subsurety.

What is another name for a Subchapter S Corporation? Hybrid Limited Partnership Professional Corporation Limited Liability Company Tax option corporation

Tax option corporation

Partners hold title to partnership property as Tenants in common Tenants by the entireties Joint tenants Tenants in partnership

Tenants in partnership

A document that an LLC must submit to the secretary of state's office prior to doing business is ______. A Partnership Agreement. The Operating Agreement. The Articles of Organization. A Security Interest Filing.

The Articles of Organization.

What is the name of the doctrine that makes it a breach of a director's duty of loyalty to take for himself a business prospect that should have been offered to the corporation? The privileges and immunities doctrine. The responsible corporate officer doctrine The corporate opportunity doctrine The business judgment doctrine

The corporate opportunity doctrine

A director would incur personal liability if (select all the correct answers) The shares of the corporation lost more than 20 of their market value. The corporation failed to withhold taxes from the wages of employees The corporation goes bankrupt The board declared an illegal dividend

The corporation failed to withhold taxes from the wages of employees The board declared an illegal dividend

Which of the following situations would justify piercing the corporate veil? All the shares of a corporation are held by another corporation. The majority shareholder loans money to the corporation All the shares of a corporation are held by one person The corporation was formed with the intent of defrauding another party or violating a statute.

The corporation was formed with the intent of defrauding another party or violating a statute.

Which of the following is/are advantages of a general partnership? (select all the correct answers) The costs to form a partnership are minimal. All partners have equal management rights. Partners have limited liability for the debts of the partnership. General partneships do not owe any taxes.

The costs to form a partnership are minimal. All partners have equal management rights.

Which of the following best describes the role of a general partner in a limited partnership? The general partner usually has an insignificant role in the overall business decisions of the limited partnership. The general partner may participate in the business decisions of the limited partnership, but he or she will never be held personally liable for the debts of the business. The general partner manages the partnership and remains responsible for partnership liabilities. The general partner defers to the business decisions of the limited partners of the limited partnership, unless those decisions seem economically unreasonable.

The general partner manages the partnership and remains responsible for partnership liabilities.

Which of the following would a represent a breach of fiduciary duty by a general to the limited partners in a limited partnership? The general partner takes action to personally profit from the business of the partnership. The general partner enters into contracts on behalf of the partnership without first consulting the limited partners. The general partner takes action to minimize the risks and debts that are incurred by the partnership. The general partner uses certain partnership assets to secure a loan for a business venture that is not undertaken in the name of the partnership.

The general partner uses certain partnership assets to secure a loan for a business venture that is not undertaken in the name of the partnership.

A member of an LLC risk personal liability for participating in all of the following activities, except: The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC. In the name of the LLC, the member secretly loans money to a close friend. The member volunteers to assume personal responsibility for a loan payments made by the LLC. The member knowingly files a false tax return with the IRS.

The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC.

When considering whether a partner has breached his or her fiduciary duties to the partnership, courts are likely to consider all of the following, except: The partner's personal net worth. Applicable state partnership statutes. Specific language of the Partnership Agreement. Prior court decisions.

The partner's personal net worth.

In a suretyship, security for the creditor is provided by The promise of a third party to perform if the debtor does not perform. A statutory lien on the debtor's personal property. Granting the creditor an interest in the debtor's real property A pledge by the debtor of personal property.

The promise of a third party to perform if the debtor does not perform.

A corporation ceases to exist as a legal entity when The state issues a certificate of dissolution. The shareholders vote unanimously to dissolve the corporation The directors of the corporation notify corporation creditors of the dissolution. The directors vote unanimously to dissolve the corporation

The state issues a certificate of dissolution.

One method for determining a fair value of the stock of a shareholder who dissents from a proposed merger is the __________________. The 80% rule The weighted average method Promotion of justice rule The ex post facto method.

The weighted average method

Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false? Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation. They will be protected from suits for medical malpractice. They will be eligible for a tax-advantaged pension plan.

They will be protected from suits for medical malpractice.

All of the following are functions of an LLC's Operating Agreement, except: To make rules concerning the transfer of interests in the LLC. To address circumstances in which the LLC would dissolve. To set forth rules concerning voting rights for members of the LLC. To indemnify members of the LLC from liability for any unlawful acts.

To indemnify members of the LLC from liability for any unlawful acts.

A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership. Code--------------------------statutory Code--------------------------common law Trading-----------------------common law Trading-----------------------non-trading

Trading-----------------------non-trading

Stock that a corporation buys back from its shareholders is ____________. Participating Treasury Watered Recalled

Treasury

A Subchapter S corporation is taxed in the same way a partnership is taxed. True False

True

A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out. True False

True

A corporation is a person for purposes of the due process clauses of the 5th and 14th Amendments. True False

True

A corporation must qualify to do business in each state where it conducts business activities. True False

True

A director's duty of care is that of a normally prudent businessperson in the management of his or her own affairs. True False

True

A dormant partner is one who does not participate in the management of the business and whose identity is not known to third parties. True False

True

A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership. True False

True

A principal who is discharged in bankruptcy is released from his duty to reimburse the surety. True False

True

A shareholder who has not fully paid the corporation for an original issue of stock may become liable to a creditor of the corporation for the unpaid balance. True False

True

A sub-surety becomes liable to the creditor only when another surety fails to perform. True False

True

A surety who only guarantees collection is entitled to notice. True False

True

A surety's obligation is a generally promise to do what the principal agreed to do. True False

True

Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business. True False

True

Boards of directors normally have the power to purchase insurance to indemnify directors who are sued personally for corporation-related actions. True False

True

Both contractors and subcontractors are entitled to a mechanic's lien against the owner for nonpayment of their accounts. True False

True

California and New York allow only professional services firms to do business as Limited Liability Partnerships. True False

True

Courts have great discretion in deciding whether to order the dissolution of a corporation when the shareholders or directors are deadlocked. True False

True

Directors have personal liability if the corporation fails to withhold social security taxes from employee wages. True False

True

If net profits are retained in a Subchapter S corporation, income tax must be paid by shareholders on these earnings even though the earnings have not yet been received. True False

True

If the principal does not default, the surety never becomes liable to the creditor. True False

True

In a manager-managed LLC, a single person or a select group has the authority to control and make decisions for the LLC. True False

True

In most states corporations can have perpetual existence. True False

True

Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss. True False

True

Legal capacity is the ability of an organization to sue and to own property. True False

True

Limited partners may lose the full amount their capital contribution if the limited partnership incurs debts that exceed its assets. True False

True

Modification of the creditor-principal agreement generally discharges the surety. True False

True

Most states consider a shareholder attempt to oust management to be a proper purpose for allowing the shareholders access to corporation books and papers. True False

True

Once a cash dividend is declared, it becomes a debt of the corporation. True False

True

Once a corporation has been dissolved and the remaining assets of the corporation have been distributed to the shareholders, a creditor of the corporation may be able to sue the former shareholders on the corporate debt. True False

True

Partners are agents of the partnership and of the other partners individually. True False

True

Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies. True False

True

Restatement of Security treats contracts of suretyship as interchangeable with guarantor contracts. True False

True

Shareholders may dissent from both stock-for-stock mergers and cash-for-stock mergers. True False

True

State courts have the power to order that real property be sold to satisfy a mechanic's lien. True False

True

State laws regulating the sale of securities within the state are called blue sky laws. True False

True

Subchapter S corporations may have a maximum of 100 shareholders. True False

True

The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees. True False

True

The admission of a new partner automatically dissolves the partnership. True False

True

The bankruptcy of a partner will cause the dissolution of the partnership by operation of law. True False

True

The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends. True False

True

The manager of a manager-managed Limited Liability Company may be a non-member. True False

True

The surviving partner is entitled to compensation for winding up the affairs of the partnership. True False

True

The two types of guaranty agreements are general and special. True False

True

To create a Limited Liability Corporation, articles of organization must be filed with the state's Secretary of State's office. True False

True

Voluntary surrender of personal property subject to an artisan's lien generally terminates the lien. True False

True

Acts of a corporation that goes beyond the powers granted to it by the state or in its charter are _____________acts. Ultra vires Peremptory Preemptive Criminal

Ultra vires

The Articles of Incorporation for ABC Corporation specifically forbids the corporation from making personal loans to its officers or directors. Despite this, the board approved a personal loan to the President of the corporation. This action by the board is ______________. Peremptory Ultra vires A Malum prohibitum A Malum in se

Ultra vires

If a judgment for dollar damages is not paid, the judgment creditor may apply for a ______. Writ of first refusal. Writ of Habeas Corpus. Default judgment. Writ of Execution.

Writ of Execution.

Absent an agreement otherwise, the members of an LLC have a statutory right to (select all the correct answers) inspect the books and records of the LLC dissolve the LLC retain all profits approve a merger

inspect the books and records of the LLC dissolve the LLC approve a merger