BUL3310 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? -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. -$100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. -$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.
$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.
AMJ Partnership has 3 partners: Amy made a 60,000 capital contribution; May, made a 20,000 capital contribution; and June made a 10,000 capital contribution. 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 -30,000 each to Amy, May and June -45,000 to Amy; 30,000 to May; 15,000 to June -The partners will have to determine the distribution by a 23 partnership vote
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 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 ninety-nine years.
A corporation can be in existence for a maximum of ninety-nine years.
The "weighted average method" refers to -A way of voting for directors that protects the rights of minority shareholders. -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 resolving antitrust issues when competitor corporations merge.
A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger.
Phil has a partnership interest in Best Bike. He has been denied access to the books and records and he suspects that one of the partners is engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil should request an______: -Charging order -Marshalling order -Accounting -Decree of insolvency
Accounting (the financial condition of an organization at a specific point in time)
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 is a limited partner in the business. -Ace can hold John personally liable for Commercial's debt because he assumed management of Commercial. -Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties. -Under no circumstances can John be liable beyond his capital contribution.
Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.
Which of the following decisions would require a unanimous vote of the partners? -Hiring an accountant to prepare the partnership information return for federal taxes. -Buying materials from a new supplier. -Having the parking lot repaved and installing new lights. -Admitting a new partner into the partnership
Admitting a new partner into the partnership
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership -As rent -For wages -As an annuity to the spouse of a deceased partner -All of the above
All of the above
An important factor to consider in the creation of a business organization is: -Liability -Control -Taxation -All of the above are important factors to consider
All of the above are important factors to consider
Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment? -The partnership as an entity -Jay individually -Each of the other partners individually -All of the above have liability on the judgment.
All of the above have liability on the judgment
Which of the following would bring about the dissolution of the partnership? -The time the partnership is to last, as stated in the partnership agreement, has expired -All of the partners agree to end the partnership -One of the partners dies. -All of the above would bring about the dissolution of a partnership
All of the above would bring about the dissolution of a partnership
Subchapter S corporation will avoid double taxation if which of the following applies? -All the shareholders agree to be taxed as in a partnership -The corporation files Articles of Partnership in the state where it has its principal place of business -The corporation has no retained earnings -All of the above
All the shareholders agree to be taxed as in a partnership
Which of the following situations would justify piercing the corporate veil? -The majority shareholder loans money to the corporation -All the shares of a corporation are held by one person -All the shares of a corporation are held by another corporation. -The corporation was formed with the intent of defrauding another party or violating a statute.
All the shares of a corporation are held by another corporation.
The theory under which courts pierce the corporate veil of corporations whose shareholders do not treat the corporation like a separate legal identity is the ____ theory. -Alter ego -Ultra vires -Quo warranto -Promotion of justice
Alter ego
A surety will remain liable when the creditor-principal agreement is modified if the surety consents to the modification -Before the modification takes place -At the time the modification takes place -After the modification takes place -Any of the above
Any of the above
Corporate bond holders -Have an equity interest in the corporation. -Are entitled to receive dividends when dividends are declared. -Participate in the distribution of corporate assets when the corporation dissolves. -Are entitled to be paid a specified rate of interest for a set period of time.
Are entitled to be paid a specified rate of interest for a set period of time
Which of the following section of the Uniform Commercial Code governs the sale of securities? -Article 2 -Article 2A -Article 8 -Article 9
Article 8
The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the_____________. -Articles of incorporation -Articles of partnership -By laws -charter
Articles of partnership
A security interest in personal property in favor of one who has performed services on the personal property is an ________. -Mechanic's lien. -Artisan's lien. -Color of title. -Security Deposit.
Artisan's lien.
A Limited Partnership must have ____________. -At least one limited partner who participates in management decisions. -An equal ratio of limited partners to general partners. -At least one general partner. -Equal capital contributions from both limited and general partners.
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________________. -Attachment -Attainder -Execution -Garnishment
Attachment
Under the "pass through" principle, a business entity -Avoids double taxation -Assigns assets of the business to a receiver. -Delegates duties of the business to a subcontractor -Conducts high risk activities through a subsidiary.
Avoids double taxation
A shareholder who dissents from a merger is entitled to -Be paid the fair value of her stock -Revoke her dissent within 10 days of the stock appraisal -Sue the board of the surviving corporation in a derivative suit. -All of the above are shareholder rights.
Be paid the fair value of her stock
Bill is a limited partner in K&L Limited Partnership. Which of the following statements about his partnership interests is false? -Bill made a capital contribution to K&L -Bill has a right to share in K&L profits. -Bill must share in K&L losses up to his capital contribution. -Bill has a right to make management decisions for K&L.
Bill has a right to make management decisions for K&L.
In which of the following business organization do the losses as well as the profits pass through to the owners? -LP -LLC -General corporation -Both a and b
Both a and b
Which of the following statements is true about a partnership name? -The name is an asset of the partnership that may be sold or assigned -The name must include the word "company" in it. -The partnership must comply with the state's assume name provisions. -Both a and c
Both a and c
The capital contribution of a partner may consist in all of the following except -Patent rights -Cash -Business experience -Real property
Business experience
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. -Reciprocity -Marshalling -Buy and sell -Accounting
Buy and sell
The rules that govern the corporation, including the number of directors it will have, the method of electing directors, the time and place of shareholder meetings, etc., are found in the corporation's ____ . -By laws -Articles of incorporation -Charter -State incorporation code
By laws
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. -Charging -Marshaling -Accounting -Collection
Charging
The document that the state issues evidencing that a corporation has been duly formed is the corporation's ____ . -By laws -Articles of incorporation -Charter -Certificate of authority to do business
Charter
Rod and Todd have joint and several liability as sureties on a loan made to Rod's business by First Bank. Under this agreement, Todd is a ____ . -General Guarantor -Co-surety -Special Guarantor
Co-surety
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. -Unconditional guaranty. -Conditional 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 an ____ . -Merger -Consolidation -Purchase of assets -Bulk Transfer
Consolidation
Persons who contract with the owner to furnish labor or material or construct a building are known as _________. -Contractors. -Subcontractors. -Authorized agents. -Mortgagees.
Contractors
What kind of business organization is subject to the most regulation at the state and federal level? -Corporation -Partnership -Limited Partnership -Professional Association
Corporation
Which of the following best describes the "double taxation" on corporate profits? -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. -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
Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends
Minority shareholders have the best chance of electing directors in a corporation that uses the ____ method of voting. -Proxy -Cumulative -Non-cumulative -Straight
Cumulative
DEF Corporation, which is incorporated in Maryland, is a ____ corporation in Maryland. -Foreign -Domestic -Alien -Native
Domestic
A partner who does not participate in management and whose existence is not known by the public is a _____________ -Silent partner -Dormant partner -Secret partner -Phantom
Dormant partner
A surety owes a ____ to the principal for any profits obtained after the surety performs. -Duty to Account -Debt -Thank you note -ice cream
Duty to Account
Frank is a seller of 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 -The complicity theory -Vicarious liability -Estoppel -Respondeat superior
Estoppel (prevents a party from denying the legal consequences of that party's conduct)
A creditor can never be required to give the surety notice that the debtor is in default.
False
A director's duty of care under the business judgment rule is a lower standard that that of profesioal negligence.
False
A member of an LLC can never be personally liable for the debts of the LLC.
False
A surety and guarantor have always been treated as the exact same thing.
False
A suretyship provides a lien credit a legal interest in the property of the debtor to secure repayment of the loan.
False
An artisan's lien is a special lien that applies exclusively to the liens artist receive on artwork they personally performed.
False
An artisan's lien is always assignable.
False
Any money recovered in a successful derivative suit belongs to the shareholder who initiated the suit.
False
Bonding companies are usually uncompensated sureties.
False
Courts will allow creditors to pierce the corporate veil of any corporation that has only one shareholder.
False
Directors may vote on matters in which they have a personal interest.
False
Directors must be compensated for their services.
False
If you form an LLC you are required to have a written operating agreement.
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.
False
LLC combine the limited liability of the partnership and the tax advantages of corporations.
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.
False
Minority shareholders have the best chance of electing someone to the board of directors under the straight method of voting.
False
Participating preferred stock allows holders to trade their preferred shares for common shares when the trading price reaches a specified target.
False
Partners may use partnership property for both partnership and personal reasons.
False
Partnerships are required to give notice to creditors when they dissolve, but corporations are not required to give notice of their dissolution.
False
Receivers have liability on the pre-incorporation contracts of the corporation.
False
Shareholders have virtually unrestricted access to corporate books and records
False
State laws regulating the sale of securities within the state are called red herring laws.
False
The Statute of Limitations does not apply to surety contracts.
False
The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not.
False
The owner may be liable for more than the contract price even if they follow the statutory procedures.
False
The release of the principal always releases the surety.
False
The surety relationship requires good faith, but not fair dealing.
False
Vic and Thom bought an antique Corvette at an 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.
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.
False (Its owners do not have personal liability on its contracts, and the corporation has no liability for the obligations of its shareholders)
The owner of a limited liability company (LLC) has unlimited personal liability for the debts of the LLC.
False (LLC shields the owners of the LLC from all company debts)
Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.
False (No partner is entitled to payment for services rendered in the conduct of the partnership business unless an agreement to that effect has been expressed or may be implied form the conduct of the partners)
A partnership cannot have a provision for the continuation of the partnership upon the death of one of the partners.
False (The agreement may have provisions allowing for the continuation of the general partnership after the death of a general partner.)
Modernly, surety and indemnification contracts are the same thing.
False (Whereas suretyship provides security to creditors, indemnity provides security to principal debtors)
A business organized as a proprietorship may have up to, but not more than, thirty-five owners
False (can only have one owner)
A cash dividend is a transfer of retained earnings to capital.
False (debt)
Directors and shareholders may vote by proxy.
False (directors cannot)
In a consolidation, one corporation (A) assumes the assets and liabilities of another corporation (B), and corporation B ceases to exist.
False (merger)
In a limited partnership, a general partner's fiduciary duty is breached when limited partners are not permitted to participate in management.
False (not allowed to participate in management)
Both shareholders and directors may vote by proxy.
False (only shareholders)
In a manager-managed LLC, only the manager-members have access to the LLCs books.
False (rights that are guaranteed to members by statute include the right to dissolve the LLC, the right to approve a merger, and the right to access to the LLC books and records)
Bob voluntarily surrender's a watch that he repaird back to the owner. Bob had a lien on the property for the value of his labor. Bob later re-acquires the property. Bob has now revived his lien since he was able to re-acquire possession of the property.
False (voluntary surrender of the property terminates the lien)
____ is a proceeding by which a plaintiff seeks to reach the assets of the defendant that are in the hands of a third party. -Garnishment -Writ of Execution -Habeus Corpus -Burglary Attachment
Garnishment
The merger that creates the greatest number of antitrust issues is a ____ merger. -Conglomerate -Horizontal -Market extension -Vertical
Horizontal
Three major U. S. banks have launched a service to process online electronic payments, creating in the process a major competitor of PayPal's. If the banks were to buy out PayPal in the future, this would constitute a ______________________merger. -Horizontal -Vertical -Market product extension -Conglomerate
Horizontal (merger of corporations that were competitors prior to the merger) (Vertical: a merger of corporations, one corporation being the supplier of the other) (Conglomerate merger: merging of companies that have neither the relationship of competitors nor that of supplier and customer)
If a partnership agreement does not say how losses will be shared, they will be shared -Equally among the partners -Proportionately according to the capital contribution of each partner -In whatever way the profits are shared. -Equally among those partners who have not made loans to the partnership
In whatever way the profits are shared.
Which of the following statements about a joint venture is true? -It can be the plaintiff in a lawsuit without involving the individuals who form the joint venture. -It can be the defendant in a lawsuit without subjecting the individuals who form the joint venture to liability. -It is limited by statute to thirty-five members. -Individuals form it to conduct a single, or very limited, business activity.
Individuals form it to conduct a single, or very limited, business activity.
Jim and Fred had been equal partners in J and F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false? -Fred is entitled to compensation for winding up the business. -Jim's estate is entitled to an accounting -Jim's estate is entitled to participate in the winding up process. -If there are not enough assets in the partnership to pay off all the debts, Jim's estate will be liable for one half of the losses.
Jim's estate is entitled to participate in the winding up process.
Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of a ____ . -general partnership -limited partnership -Joint venture -proprietorship
Joint venture
Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? -Joint venture -Limited partnership -Professional association -General partnership
Joint venture
Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? -Joint venture -Limited partnership -Professional association -General partnership
Joint venture
States give corporations many rights, among them is the right to sue and the right to own property in the corporation's name. What do such legal rights collectively constitute for a corporation? -Goodwill -Legal capacity -Business identity -Competitive advantage
Legal capacity
States give corporations many rights, among them the right to sue and the right to own property in the corporation's name. What do such legal rights collectively constitute for a corporation? -Goodwill -Legal capacity -Business identity -Competitive advantage
Legal capacity
Which business entity has the following characteristics: owners are normally professionals engaged in selling their services; owners have both limited liability for the debts of the entity and limited liability for the contracts and torts of the other owner-professionals; the entity is organized under state law; profits are taxed only at the owner level? -General partnership -Limited partnership -Limited Liability Partnership -Limited Liability Company
Limited Liability Partnership
Which of the following statements about the limited partner in a limited partnership is false? -Limited partners may participate fully in the management of the partnership. -There must be at least one limited partner. -Limited partners must approve any changes to the partnership agreement. -Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.
Limited partners may participate fully in the management of the partnership.
Which of the following statements about the limited partner in a limited partnership is false? -Limited partners may participate fully in the management of the partnership. -There must be at least one limited partner. -Limited partners must approve any changes to the partnership agreement. -Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.
Limited partners may participate fully in the management of the partnership.
Which business entity has the following characteristics: one owner has unlimited personal liability for the debts of the business while other owners are liable only to the extent of their investments; owners lose their limited liability if they actively manage the business; the entity is organized under state law; both profits and loses pass through to the owners? -General partnership -Limited partnership -Limited Liability Partnership -Limited Liability Company
Limited partnership
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? -Equitable distribution -Comity of assets -Marshaling of assets -Partnership partition
Marshaling of assets
A lien for the value of material and labor expended in the construction of buildings and other improvements is a ____ . -Mechanic's lien -Atsy lien -UCC 9 lien -General power lien
Mechanic's lien
Stock which has no stated value when it is sold is ____ stock. -Watered -No par value -Par value -Restricted
No par value
Jim and Sid are partners in Widget Manufacturing. Jim read a letter from one of Widget's buyers asking for adequate assurances that Widget would be able to meet an upcoming contractual obligation. The demand was proper and, under Article 2, the buyer could treat the contract as breached if Widget did not respond to the demand within 3 months. Jim forgot to tell Sid about the demand and did not respond to it himself. Widget is now being sued by Buyer for 4,000 in damages for breach of contract. Sid contends that the partnership is not liable because only one partner was aware of the demand. Is Sid correct? -Yes, as an equal owner of the business Sid was entitled to equal notice. -No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence. -No, the partnership is liable under the doctrine of respondeat superior -No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.
No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership
Preferred stock that is entitled to receive only the stated preferred dividend and no other is ____ preferred stock. -Participating -Non-participating -Cumulative -Non-cumulative
Non-participating
The usual procedure for a party seeking to perfect a mechanic's lien is to file or record a ____ in the office of the county in which deeds to real estate are recorded. -Notice of lien -Fixture warrant -Writ of warrant -Lis warrant
Notice of lien
Dominant shareholders in closely held corporations who exploit their control of the corporation to benefit themselves at the expense of minority shareholders are guilty of -Ultra vires acts -Quo warranto acts -Oppressive conduct -Unfair trade practices
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. -Capital contributions, outside-creditors, partner-creditors, undistributed profits. -Partner-creditors, outside-creditors, undistributed profits, capital contributions -Outside-creditors, partner-creditors, capital contributions, undistributed profits.
Outside-creditors, partner-creditors, capital contributions, undistributed profits.
Shares that are issued with a face value are -Par value shares -No par shares -Treasury shares -Non-certified
Par value shares
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? -Double taxation -Pass through -Dividend retention -Income averaging
Pass through
A _______ provides protection against losses that may result from the failure of a contracting party to perform the contract as agreed. -Performance bond -Foreclosure sale. -Finance agreement. -Payment schedule.
Performance bond
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 -Redemption -Subscription -Preemptive
Preemptive
When a corporation dissolves, holders of ____ stock have priority in the distribution of corporation assets. -Preferred -Common -Treasury -Participating
Preferred
Why are corporations said to have a burden of "double tax"? -Profits are taxed at the corporate level as income and again at the shareholder level as dividends -Corporations are taxed at both the state and federal level. -Corporations must file federal tax returns twice a year because their taxing period runs for only six months -Corporations compute their federal tax liability by multiplying their state tax liability by two.
Profits are taxed at the corporate level as income and again at the shareholder level as dividends
Which of the following statements about the taxation of corporations is false? -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. -Most states impose license fees or franchise taxes on corporations doing business in the state.
Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.
A shareholder who cannot attend a shareholder meeting may give another person the right to vote her shares in that election. This temporary grant of authority is an ____ . -Warrant -Proxy -Assignment -Delegation
Proxy
States have the power to cancel or revoke the charters of corporations that engage in illegal activities. These forfeiture hearings are called ____ proceedings. -Divestiture -Quo warranto -Ultra vires -Appraisal
Quo warranto
The person who is designated to receive notices and service of process for a corporation is its -General agent -Special agent -Registered agent -Factor
Registered agent
A partner who does not participate in the management of the partnership is a ________partner. -Silent -Dormant -Secret -Junior
Silent
A partner who does not participate in the management of the business is a ____ partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a ____ partner. -Dormant-------------------Silent -Secret----------------------Dormant -Silent----------------------Secret -Silent-------------------Dormant
Silent----------------------Secret (a dormant partner is a partner who is both secret and silent)
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 ____. -Super Delegate Dividend -Stock Dividend -Stock Split -Stock Subscription
Stock Dividend
The document that is written evidence of an ownership interest in a corporation is an ____ -Stock warrant -Charter -Stock certificate -Proxy statement
Stock certificate
Which of the following would not be grounds for dissolving a corporation? -A quo warranto proceeding -The shareholders are deadlocked in electing a board of directors. -Oppressive conduct by a controlling shareholder. -The corporation has not made a profit or declared dividends in two years.
The corporation has not made a profit or declared dividends in two years.
Which of the following is FALSE about the name of a corporation? -The name must include words like "company" or "corporation" to indicate that the entity has limited liability. -The name cannot be deceptively similar to any other corporation incorporated in that state. -The name can never be changed once it is registered with the state. -States allow corporations to reserve a name for a limited time while the corporation is being formed.
The name can never be changed once it is registered with the state.
Which of the following statements about proprietorships is true? -Proprietorships are taxable entities apart from the owners. -A business can have up to thirty-five owners and still be a proprietorship. -A proprietorship cannot generate more than 10 million in proceeds per tax year. -The owner of a proprietorship is personally liable for all the debts of the proprietorship.
The owner of a proprietorship is personally liable for all the debts of the proprietorship.
Which of the following is not a right of a partner? -The right to participate in the management of the business. -The right to draw yearly interest on his or her capital contribution -The right to inspect the partnership books and records -The right to sue for an accounting if another partner has taken a secret profit.
The right to draw yearly interest on his or her capital contribution (Contributions to capital are not entitled to draw interest unless they are not repaid when the repayment should be made)
A corporation ceases to exist as a legal entity when -The directors vote unanimously to dissolve the corporation -The shareholders vote unanimously to dissolve the corporation -The directors of the corporation notify corporation creditors of the dissolution. -The state issues a certificate of dissolution
The state issues a certificate of dissolution
Which of the following statements about LLC's is false? -LLC's are a relatively new form of business organization. -There is an extensive body of law based on court decisions governing LLC's. -Shareholders have no personal liability for the debts of the LLC. -The LLC is not a taxable entity
There is an extensive body of law based on court decisions governing LLC's.
Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? -Doctors have no personal liability for medical malpractice suits. -Because they are also owners of the corporation, doctors have no protection from discrimination based on age. -The professional corporation can have no more than ten owner-employee doctors. -They are eligible to participate in tax advantaged pension plans.
They are eligible to participate in tax advantaged pension plans.
What is the limit of shareholders in subchapter S corporations? -Ten -Thirty-five -100 -There is no limit
Thirty-five
A partnership whose primary business purpose is the buying and selling of goods is a ________partnership. -Professional -Entrepreneurial -Trading -Non-trading
Trading
Which of the following statements about treasury stock is false? -Treasury stock can be resold only at par value. -It is stock that the corporation acquired by gift or by purchasing from shareholders. -Most states require that corporations purchase treasury shares only with accumulated profits or surpluses. -Creditors of the corporation or the state itself may block the purchase of treasury stock.
Treasury stock can be resold only at par value.
A Subchapter S corporation is taxed in the same way a partnership is taxed.
True
A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out.
True
A corporation is a person for purposes of the due process clauses of the 5th and 14th Amendments.
True
A general guarantor's promise is not limited to a single transaction.
True
A limited partnership must have at least one general partner and one limited partner.
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
A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership.
True
A partnership maybe created by an express agreement between the parties or it may be implied from their conduct.
True
A person may become a partner without making a capital contribution.
True
A promoter has a fiduciary responsibility toward the prospective corporation.
True
A shareholder who holds watered stock is potentially liable to the creditors of the corporation should the corporation become insolvent and unable to meet its obligations.
True
BOTH perforance bonds and fidelity bonds are sureties.
True
Boards of directors normally have the power to purchase insurance to indemnify directors who are sued personally for corporation-related actions.
True
Both contractors and subcontractors are entitled to a mechanic's lien against the owner for nonpayment of their accounts.
True
Co-sureties share joint and several liability to the creditor
True
Directors are fiduciaries of the corporation and may have liability in both contract and tort.
True
Directors have personal liability if the corporation fails to withhold social security taxes from employee wages.
True
If a credit gets a judgment against the creditor, and then the surety pays the creditor, the surety gets to benefit from the judgement that was obtained by the creditor.
True
If a director discovers illegal acticity he or she must report the activity or problem, and if the officers of the corporation refuse to take action, the director must resign and notify the appropriate authorities.
True
In a closely held corporation, shareholders owe each other substantially the same fiduciary duties that partners owe one another.
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
In a memeber-managed LLC all members participate in management.
True
In most states corporations can have perpetual existence.
True
In the majority of states an LLC can be both formed and managed by only one member.
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
LLC are taxed as partnerships unless the owners choose to be taxed as a corporation.
True
Legal capacity is the ability of an organization to sue and to own property.
True
Limited Partnership must have at least one general partner.
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
One partner has the ability to veto the admission of a new partner into the business.
True
One recognized advantage to a general partnership is that it allows partners to share in management and profits of the partnership.
True
Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses.
True
Premiums paid by corporations for the health insurance it provides to employees are tax-deductible expenses.
True
Relative to corporate and partnership law there is not a comparble amount of case law involving LLCs.
True
Shareholders are entitled to notice when a special meeting is called.
True
Shareholders of corporations pay taxes on the dividends distributed to them by the corporation.
True
Some states use the alter ego theory to require corporations to assume liability for contracts negotiated on their behalf by the promoters.
True
State law determines whether or not a mortgage will have priority over a mechanic's lien.
True
States have statutes of limitations limiting the time after the dissolution of a corporation when creditors of the corporation may sue former shareholders on corporate debts.
True
Subrogation means the substitution of one person in place of another.
True
Surety agreements may also be created by operation of law.
True
The agreement to purchase stock in a future corporation is a pre-incorporation subscription.
True
The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.
True
The business judgment rule protects directors who are loyal and careful from liability for business decisions that result in loss to the corporation.
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
The director's duty of loyalty continues after the director's resignation.
True
The provisions of the law AND the partnership agreement govern the operations of the partnership.
True
Under RUPA, a partnership may take title to real property as a tenancy in partnership.
True
Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships.
True
Usury laws do not apply to corporations when they borrow money.
True
When dealing with an absolute guarantor, the creditor does not have to first attempt to collect from the debtor prior to proceeding against the guarantor.
True (Under an absolute guaranty, a creditor can go directly to the guarantor to collect)
Partner A defrauded a client of the partnership. Partners B and C are jointly and severally liable with A to the client, even though they were unaware of the fraud.
True (each partner is liable for the torts of fellow partners )
Acts of a corporation that goes beyond the powers granted to it by the state or in its charter are ____ acts. -Criminal -Ultra Vires -Preemptive -Peremptory
Ultra Vires
Acts of a corporation that goes beyond the powers granted to it by the state or in its charter are _____________acts. -Criminal -Ultra vires -Preemptive -Peremptory
Ultra vires
A _________ is the voluntary relinquishment of the right to a mechanic's lien before a notice of lien is filed. -Satisfaction and accord. -Waiver. -Collection proceeding. -Confessed judgment.
Waiver
When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called ____ . -Dissolution -Winding up -Marshaling of assets -Termination
Winding up (the process of liquidating a business organization)
If a judgment for dollar damages is not paid, the judgment creditor may apply for a ____ -Writ of Execution -Writ of Mandamus -Writ of Santa -Habeas Corpus
Writ of Execution
Bob and Sue, who are both attorneys, agreed to share office space and other overhead expenses in order to save money. They did not agree to form a partnership. They do not share profits or losses and neither has a say in the management of the other's business. The sign outside their door, and on their common letterhead, reads: "Bob Smith and Sue Jones, Attorneys at Law." Using this stationary, Bob purchased office equipment from Smart Buy. Sue at no time used the equipment and did not enter into the contract with Smart Buy. Bob did not pay for the equipment and Smart Buy wants to hold Sue liable. Is Sue liable as a partner for this purchase? -Yes, allowing her name to be used with Bob's in the same letterhead created an express partnership. -Yes, allowing her name to be used with Bob's in the same letterhead created an implied partnership -Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel -No, there was no sharing of profits or losses or management rights so there was no partnership.
Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel
Absent an agreement otherwise, the members of an LLC have a statutory right to -approve a merger -dissolve the LLC -inspect the books and records of the LLC -all of the above are statutory rights
all of the above are statutory rights
