BUSI 4350 Chapter 9
Arrange the steps involved in the creation of a corporation in the order of their occurrence, with the first step on top.
1. An incorporator files articles of incorporation with the state government. 2. An organizational meeting is held to appoint the members of the board of directors. 3. The board meets to undertake the corporation's initial business, appoint officers, and adopt bylaws. 4. Stock issuance is authorized in exchange for contributions of capital, property, or services.
Arrange the management roles in decreasing order of authority. (Place the role with the most authority on top.)
1. Board of directors 2. Chief executive officer 3. Middle-level management 4. Rank-and-file employees
Regarding director elections, in 2006, what percent of firms in the S&P 500 had any form of majority vote rule?
16
During the first half of 2019, there were 3800 publicly disclosed cyber breaches exposing how many records?
4.1 billion
C corporations account for what percent of all business revenue?
63 percent
Regarding director elections, currently, what percent of firms in the S&P 500 have a majority vote rule?
90
Which of the following forces a shareholder to offer the stock to be sold to the corporation or the other shareholders before selling it to a third party?
A buy-sell agreement
A corporation that has relatively few shareholders and the stock of which does not have a readily available market is called which of the following?
A closely held corporation
The candidates for board positions are usually selected by which of the following?
A committee of the existing board
Involuntary termination of a corporation is initiated by the actions of which of the following?
A court
Which of the following is a term in the lending contract that makes the debt essentially immediately payable should the condition specified cease to be satisfied?
A debt covenant
Identify the mandatory elements in the articles of incorporation of a corporation. (Check all that apply.)
A description of the stock to be issued The corporation's name
Which of the following is the default form for a business with two or more owners that does not specifically act to create a separate entity?
A partnership
A common reason for the state to terminate a corporation is the failure to do which of the following?
Make required annual filings
Identify the characteristics of a limited liability company (LLC). (Check all that apply.)
Minor annual filings and fees are generally required. As to limited liability and the duration of existence, it closely resembles a corporation. The operating agreement is most likely to be in writing.
Which of the following is incorrect regarding the capital structure of partnerships?
New partners can be added to the partnership, but they cannot be permitted to infuse additional equity capital.
By default, management in a general partnership is which of the following?
Not centralized
Large corporations sell units of their debt to the public to do which of the following?
Obtain long-term debt capital
Identify the characteristic features of a corporation. (Check all that apply.)
Corporate powers are exercised by the board of directors on behalf of the shareholders. Ownership is separated from the management. Shareholders receive stock for their capital contribution.
Identify the issues covered by state business regulations but not federal regulations. (Check all that apply.)
Creation of business entities Capital structure
The two types of capital available for financing business activities are which of the following?
Debt and equity
Identify the true statements about generally accepted accounting principles (GAAP). (Check all that apply.)
Disclosing material information not in accordance to GAAP subjects companies to potential civil and criminal penalties. It is a set of measurement and disclosure rules concerning information about income, assets, and liabilities.
In the United States, a corporation is taxed on its income and when the income (after tax deduction) is distributed to its shareholders, the shareholders are taxed again. This is known as which of the following?
Double taxation
Which of the following exist(s) for the full life of the corporation even if its stockholders hold it only for a shorter period of time?
Equity capital
Identify a true statement about the rules of taxation for partnerships.
Every partner's allocable share of income is subject to self-employment tax.
Cybersecurity risks are now viewed as which of the following types of threat?
Existential
State legislation establishing limited liability limited partnerships (LLLPs) is generally directed at doing which of the following?
Facilitating the acquisition of limited liability for the general partners of preexisting limited partnerships
True or false: The partnership agreement formed under the Revised Uniform Partnership Act (RUPA) strictly forbids a partner from withdrawing from the partnership.
False
Partners owe each the duties of loyalty, due care, confidentiality, and sharing information. These are known as what type of duties?
Fiduciary
The directors and officers who act on behalf of a corporation share which of the following types of relationship with it?
Fiduciary
Identify the recommendations of the federal legislation passed in 2002 to limit the CEO's control over the board. (Check all that apply.)
Giving the audit committee responsibility to hire an auditing firm Including a financial expert as part of the board audit committee Setting up a board audit committee consisting exclusively of independent directors
Senior executives are which of the following types of directors?
Inside
Identify a true statement about the disclosure of political spending by corporations.
Investors have always had some interest in the amounts corporations spend on political activities.
Identify a true statement about double taxation.
It constitutes the taxes levied on the corporation's income and on the dividends paid to the shareholders.
Identify the true statements about bribery as a corrupt practice. (Check all that apply.)
It is illegal to bribe a foreign official to violate local law to obtain or maintain business. It is illegal to bribe a foreign official to violate local law to secure an improper advantage.
Which of the following is correct regarding taxation of partnership income?
It is taxed only only once, on the tax returns of the partners pursuant to the allocations specified in the partnership agreement.
Identify a true statement about a limited liability partnership (LLP).
It resembles a general partnership more closely than a limited liability company (LLC).
The closest forms of business to a United States publicly traded corporation exist in all but which of the following countries?
Kenya
Regarding the tax risks faced by corporations, there is a financial risk that tax authorities will demand which of the following after rejecting the company's determination of its tax liability?
Large cash payments
Which of the following is perhaps the most cherished characteristic of the corporate form?
Limited liability
Which of the following is a hybrid form of business entity that is created by combining certain desired characteristics of corporations and general partnerships?
Limited liability company
On termination, the process of distributing the assets of a corporation to satisfy the creditors first and the shareholders next is called which of the following?
Liquidation
Which of the following protects officers and directors and the decisions they make?
The business judgment rule
Which of the following is not a senior-level position in a corporation?
The chief partnership officer (CPO)
A cost-effective solution to proxy access would be to require management to include shareholder nominees on which of the following?
The company's ballot sent to shareholders in advance of the annual shareholders' meeting
Which of the following is correct when a corporation's debt/equity ratio is too high?
The corporation may be exposed to severe risk.
Pursuant to which of the following doctrines are the partnership and the partners liable for all torts committed by partnership employees and for the unintentional torts committed by partners so long as the commission occurs in furtherance of partnership business?
The doctrine of respondeat superior
Which of the following holds an employer liable for the acts of its employees?
The doctrine of respondeat superior
Which of the following requires a corporation's directors and officers to act in the best interests of the corporation?
The duty of loyalty
An employee of a corporation commits a crime while conducting business operations. Who is likely to be held responsible for the legal consequences that follow?
The employee and the corporation
According to the Revised Uniform Partnership Act (RUPA), a partnership is automatically dissolved upon the occurrence of which of the following?
The express withdrawal of a partner holding more than 50 percent of the partnership interests
The disadvantages of which of the following forms of business are so severe that one is usually well-advised to avoid it?
The general partnership
In a centralized management structure, which of the following is correct?
The officers of the corporation hire other employees
What is the sole source of partnership equity?
The partners themselves
When one partner pays the debts of the business, that partner is entitled to recoup an appropriate share from the other partners. This occurs through which of the following?
The right of contribution
Identify the property rights associated with stock ownership. (Check all that apply.)
The right to control through voting The right to participate in dividends The right to receive assets upon liquidation
The fundamental legal duties that corporations, their boards, and officers owe to their shareholders are defined by which of the following?
The state of incorporation
Generally, the law does not allow a partner to substitute a third party for itself without which of the following?
The unanimous consent of the other partners
Which of the following is incorrect regarding business forms recognized internationally?
There are no similarities between the forms of business recognized in the United States and the forms of business recognized internationally.
Identify the rights enjoyed by preferred stockholders of a corporation. (Check all that apply.)
They are entitled to receive arrearage before common shareholders get any dividends. They are paid annual dividends in full before any dividends are distributed to common stockholders.
Which of the following is correct regarding outside directors?
They are not employed by the company.
Identify a true statement about general partners in a limited partnership.
They are the sole managers of the entity.
Which of the following is correct regarding the limited partners in a limited partnership?
They do not participate in control
Written permission that entitles shareholders to allow another party to vote on their behalf is called which of the following?
A proxy
A limited liability partnership (LLP) is created by filing which of the following with the state?
A statement of qualification
Which of the following refers to an offer to current shareholders of a price far above current market value in order to accomplish a hostile takeover?
A tender offer
In a centralized management structure, the board of directors of a corporation does which of the following?
Appoints the officers needed to operate the business
Which of the following officially ends the corporation's existence?
Articles of dissolution
The process of creating a limited liability company (LLC) requires the owners to file which of the following with the state?
Articles of organization
Like corporations, which of the following are created by law and have a separate legal existence?
Artificial persons
Regarding the high level of executive compensation, critics point to failures on the part of which of the following?
Boards of directors
Units of debt that are sold by large corporations to the public with an objective of raising their capital are known as which of the following?
Bonds
The selection of a particular business form is often driven by which of the following?
Both the founders' preferences for certain business characteristics and market realities
Federal securities laws impose which of the following restrictions on the transfer of a publicly traded corporation's stock?
Broad
Traditional corporations are also known as which of the following?
C corporations
Identify the principle classes of stock. (Check all that apply.)
Common stock Preferred stock
Which of the following is correct regarding common stock?
Common stock provides stockholders all three property rights in proportion to their holdings.
The coverage of state and federal business regulation is best described as which of the following?
Overlapping
Which of the following are true of general partnerships? (Check all that apply.)
Partners share the risks and rewards from conducting a business. Individual partners are at substantial risk in a partnership relationship.
Identify the default forms of traditional business entities. (More than one option may be correct.)
Partnerships Sole proprietorships
Application of which of the following doctrines is likely to result in the loss of limited liability in closely held corporations?
Piercing the corporate veil
Identify a true statement about preferred stockholders.
Preferred stockholders lack the right to participate in the control of the corporation.
In a closely held corporation, which of the following is correct?
Principal shareholders are required to guarantee the corporation's debts
Which of the following has been one of the most controversial issues in recent years regarding proxy voting?
Proxy access
Equity holders' claims are referred to as which of the following types of claims?
Residual
In a corporation, the board of directors exercises all the corporate powers on behalf of which of the following?
Shareholders
Match the types of traditional business forms (in the left column) with their descriptions (in the right column).
Sole proprietorship + An individual starts a business and takes no steps to create it as a separate legally recognized entity. Partnership + Two or more persons start a business together and take no steps to create an entity structure. Corporation + Founders of a business take deliberate steps specified by state law to create an entity.
Under the Uniform Limited Partnership Act, a limited liability limited partnership (LLLP) is created by doing which of the following?
Stating that the limited partnership is an LLLP in the certificate of limited partnership
The owners of a corporation are called which of the following?
Stockholders
Which of the following are hybrid forms of business entities that function as any other corporation under state corporate law, but whose tax consequences flow through to the tax returns of the shareholders for income tax purposes?
Subchapter S corporations
If an individual carefully plans and legally minimizes her tax payments,she is considered to be engaging in which of the following?
Tax avoidance
The illegal strategy of committing fraud to minimize one's tax burden is called which of the following?
Tax evasion
In what decade did shareholder activism originate?
The 1980s
Which of the following is correct when a partnership interest is assigned to a third party?
The assignee is entitled to the distribution rights of the assigning partner.
Which of the following posits a powerful presumption that a decision made by a loyal and informed board will not be overturned unless it cannot be attributed to any rational business purpose?
The business judgment rule
True or false: Governance issues arise when the chief executive officer of a corporation exercises immense control on information that reaches the board.
True
True or false: If persons create a business together without taking any steps to establish a different form, they will automatically create a general partnership.
True
Identify the features of a partnership. (Check all that apply.)
Two or more persons carry on a business as co-owners. Every partner is an agent of the partnership. The owners' equity interest is called a partnership interest.
The publicly held corporation and the closely held corporation are which of the following?
Two very different corporate realities
Since the late 1990s, United States Department of Justice enforcement of the Foreign Corrupt Practices Act is best described as which of the following?
Vigorous
