Business Organizations Test Questions
For the purposes of federal litigation, a corporation is deemed to be a citizen of the state where it has its principal place of business as well as of the state where it is incorporated.
T
One advantage of a sole proprietorship is having the profits taxed at individual tax rates
T
S corporations may have forty shareholders
T
Short-term share options are called stock rights
T
Stock splits reduce the price per share
T
The Revised Uniform Limited Partnership Act (RULPA) governs the formation of limited partnerships
T
Which of the following business entities typically provides the most flexibility in terms of management policy? a) Sole proprietorship b) Partnership c) Limited partnership d) Corporation
A
Worst Answer When two corps merge, a) the corporations dissolve and a new corp is created. b) creditors rights are unaffected c) a plan of merger is approved by each corp's board of directors d) the stockholders of each corp approve the plan of merger
A
Shareholers can be held liable for: a) illegal acts of the corporation b) ultra vires acts of the corporation c) full payment for watered stock received d) fraud committed by the board of directors
C
Tim owns 100 shares of ABC Corporations. The corporation makes a new issue of 10,000 shares. According to his share certificate, Tim is entitled to purchase an additional 100 shares at the time of the new issue. This is an example of: a) right of first refusal b) shareholder restrictions on transfer and ownership. c) preemptive rights. d) participation rights.
C
Which of the following actions by shareholders requires more than a majority vote? a) Election of directors b) Election of directors by cumulative voting. c) Resolution to merge with another corporation d) Resolution to amend the date of the annual meeting.
C
Which of the following classes of stock is never granted voting rights? a) Common Stock b) Preferred Stock c) Treasury Stock d) Watered Stock
C
Worst Answer A joint venture a) involves efforts of two or more persons for one transaction or event only b) resembles a partnership c) has perpetual existence d) may be reduced to writing.
C
Worst Answer Most states have securities statutes known as blue sky laws. These statutes were adopted to a) prevent fraud by unscrupulous promoters selling worthless securities. b) require registration of securities brokers and dealers c) promote insider trading between stockholders d) register all securities traded in the state
C
A corporation is created: a) by agreement of the parties. b) by franchise. c) by expanding business interests. d) by statutory authorizations.
D
A domestic corporation is: a) corporation whose officers reside in the state where the corporation transacts business. b) a corporation whose principal place of business is in the forum state c) a corporation whose principal activities related to family services d) a corporation chartered in the forum state.
D
A shareholder derivative action may be initiated in response to: a) negligence by management that injures a shareholder. b) management's election to dissolve the corporation c) a strike suit filed by management that injures the corporation d) negligence by management that injures the corporation
D
An advantage of incorporation is: a) Perpetual existence b) Limited liability c) Corporations are separate taxing entities d) All of the above e) None of the above
D
Before or while the corp is being organized, a method for acquiring investment capital is through a) stock options b) stock warrants c) stock rights d) stock subscriptions
D
Brittany, a CPA, sits on the board of directors of three corporations. Brittany: a) has violated her duty of loyalty to each of the corporations. b) has violated the Sherman Act. c) has not violated her duty of loyalty if she refrains from voting on issues that concern more than one of the corporations. d) has not violated her duty of loyalty if the corporations do not complete directly with each other.
D
Daffy and Bugs for a partnership. Daffy contributes $20k to the partnership, and Bugs contributes 10k lbs of carrots having a value of $10k. At years end, there is a profit of $15k. No agreement was made between the parties for distribution of the profits. How much will each partner get? a) Daffy will receive $10k; Bugs $5k b) Daffy will receive $5k c) Daffy will receive $5k; Bugs $2.5k d) none of the above
D
Equity securites have the following rights a) right to share in the dividends b) right to vote c) right to a proportionate share of net assets upon liquidation of the corp d) all of the above
D
Offering a shareholder the right to purchase a specific number of shares of a designated class for a limited time at a certain price is known as a) stock right b) stock warrant c) stock conversion d) stock option
D
Preemptive rights are exercised a) to convert common shares to preferred stock to place the interest of the shareholder in a more favorable position. b) to give initial investors the opportunity to invest additional monies during the preincorporation stage of the corp. c) by the members of the board who are shareholders to purchase additional shares of stock before offering stock to outsiders. d) to protect shareholder's proportionate interest in the corp.
D
The articles of incorporation may provide that shares of a given class can be converted into shares of another class on some predetermined ratio. These shares are known as a) redeemable shares b) preferred shares c) outstanding shares d) convertible shares
D
The most common form of business organization is the a) closely held corporation b) limited partnership c) general partnership d) sole proprietorship
D
Under the Revised Uniform Limited Partnership Act, a limited partner may not: a) vote on partnership matters such as dissolution. b) serve as an employee of the limited partnership. c) act as a surety for the limited partnership. d) supervise employees of the limited partnership.
D
Which of the following is not among the duties of a director? a) Declare dividends b) elect officers c) Issue Stock d) Sign contracts on behalf of the corporation
D
Worst Answer A voting trust a) may control large blocks of stock b) is created by a group of shareholders transferring legal title to a trustee c) may allow the trustee to vote the shares, subject to any trust restrictions d) controls the shares and voting rights indefinitely
D
Worst Answer The court may order liquidation of a corp if the suit is initiated by the shareholders and if a) the directors are deadlocked over management issues and harm comes to the corporation. b) acts by the directors or those in control are oppressive c) corporate assets are being wasted d) the shareholders have elected new directors to correct the problems.
D
Worst Answer Under the charter option statutes, a director's liability may be limited by the corp's articles of incorporation for any act or omission except a) intentional harm to the corp or stockholders b) improper distributions of dividends or stock c) deliberate criminal violations d) unbiased mistakes or errors
D
Maria and Lilly form a partnership. If Maria sells her partnership interest to Allen, Allen will receive all of the benefits and burdens of partnership status when the sale is consummated.
F
Noncumulative preferred stock receives dividends for all years before dividends are paid to common stockholders
F
Partnerships must be formed by written agreements and in strict compliance with the partnership statutes of a particular state.
F
Self-executing statutes remove a director's liability involving money damage suits
F
Stock issued for less than par value is known as watered stock
F
Stock splits and stock dividends achieve the same result in relation to the transfer of earnings to capital?
F
Corporations cannot be found guilty of criminal acts, because corporations cannot be sentenced to prison terms.
F
Dividends are declared by stockholders
F
A de facto corporation is a) not a corporation at all because of failure to comply with statutory organizational requirements b) a corporation that has complied with all statutory organizational requirements c) a corporation that has insufficient capital d) a corporation that has limited the personal liability of the shareholders.
A
A four-lawyer firm incorporated. They did not elect to be a Chapter S corporation. At the end of the first year, they show taxable income of $64k. They have decided they will each remove $5k from the corporation. They should: a) declare bonuses of $5k each b) declare dividends of $5k each c) receive loans of $5k each d) None of the options is better than any other.
A
A joint venture is a) two or more individuals merging efforts for one event only. b) an endeavor of two or more persons who intend to have an ongoing business relationship c) created by a government entity to administer government purposes d) an artificial entity created by state statute for two or more persons to carry on a specific business or activity.
A
If the organizers of a small corporation anticipate losses during the first two to three years of operations, which of the following options will provide the best tax treatment for shareholders in the usual situation. a) Chapter S election b) Section 1244 stock c) Nonprofit status d) Leverage financing
A
The "business judgment rule": a) applies to action of the directors b) protects directors from all liability c) makes directors liable for errors in business judgment d) makes officers liable for errors in business judgment
A
The "business judgment rule": a) applies to action of the directors. b) protects directors from all liability. c) makes directors liable for errors in business judgment. d) makes officers liable for errors in business judgment.
A
Holders of fractional share of stock and holders of scrip certificates generally enjoy the same voting rights within the corporate structures
F
A joint stock company is a) formed after combining two or more corps b) members pooling capital into a common fund c) considered the same as a corporation d) a limited liability company
B
A public corporation is: a) one whose stock is traded publicly. b) one created by government to administer government purposes. c) act as a surety for the limited partnership. d) supervise employees of the limited partnership.
B
A shareholder may aggregate his or her votes to elect directors by exercising his or her a) straight voting rights b) cumulative voting rights c) dissent voting rights d) none of the above
B
Combining debt securities and equity securities of a corporation is regarded as a) capital leverage b) capital structure c) paid-in capital d) capital surplus
B
Each of the partners in a general partnership: a) has joint liability for all partnership debt b) has joint and several liability for all partnership debt c) is liable for partnership debt in proportion to his or her capital d) none of the above
B
For which of the following acts is a director most likely to be found personally liable? a) Investment of corporation funds in a venture that loses money. b) failure to supervise the president's actions c) Creation of a new product line that is unsuccessful. d) Breach of warranty for a faulty product made by the corporation.
B
If a limited partner were to particiate in the operations of the partnership in any way, a) the limited partnership would be treated as a general partnership except for taxing purposes. b) the limited partner would become jointly and severally liable, along with the general partner, for all partnership debt. c) the partnership would be dissolved. d) none of the above
B
Jack is a delivery truck driver for Daffy's Taffy, Inc., a corporation. On Friday, May 13, jack drives his delivery truck into the rear of Fee Fee LuPue's car. Fee-Fee sustains injuries and is taken by ambulance to the hospital. Fee-fee remains in the hospital for several days, misses work, and attends therapy for three weeks. Under what theory can Fee-Fee sue Jack's employer for damages? a) corporation by estoppel b) respondeat superior c) de facto d) de jure
B
Rachel and Cori form a partnership. Rachel contributes $75k to the partnership, and Cori contributes $25k. At the end of the first year, the business realizes a profit of $10k. Since no agreement concerning distribution of profits was made, how much will each receive? a) Rachel will receive $7.5k; Cori $2.5k b) Each will receive $5k. c) Rachel will receive $3.75k; Cori, $1.75k d) None is correct.
B
Redemption of stock is a) redeeming voting rights in exchange for receipt of dividends b) giving up the stock in exchange for corporate assets c) classified as corporate leverage d) applied only to nonvoting common stock.
B
Sally owns 500 shares of Fix-It Corp. At the annual shareholder's meeting, five directors are to be elected. If sally wished to exercise her cumulative voting rights, what is the larges number of votes she can cast for any one director. a) 500 b) 2500 c) 2000 d) 1000
B
Stock warrants are used to implement: a) cumulative voting. b) the preemptive right. c) access to corporate stock records. d) dissolution of the corporation.
B
The Uniform Partnership Act was formulated by the: a) American Law Institute b) National Conference of Commissioners on Uniform State Laws. c) National Association of Partnerships d) American Bar Association.
B
The duration of a corporation may be: a) dissolved upon death of the parties. b) perpetual c) subject to liability d) terminated by a lawsuit
B
The owners of equity securities are called a) equity holders or bond holders b) shareholders or stockholders c) capitalists d) debenture holders
B
The persons who plan and organize the business affairs of the intended corporation are called. a) incorporators b) promoters c) investors d) stockholders
B
The right of a shareholder to force the corporation to buy his or her stock following a merger is called: a) repurchase rights b) appraisal rights c) preemptive rights d) preferred rights
B
Treasury stock a) is a class of stock permitted by specific authority of the articles of incorporation b) has no voting rights c) has preemptive rights d) is entitled to dividends
B
Worst Answer Liability of limited partners is limited unless a) the limited partners' name is part of the name of the limited partnership. b) the limited partner has no management responsibilities c) false statement s are in the certificate of partnership d) the limited partner takes no action to correct the defects in the certificate of partnership
B
Insulating owners from a defective formed corporation is known as the doctrine to corporation by estoppel
F
A de facto corporation is one that: a) has compiled with statutory rules and exists in fact. b) is used by its shareholders as a conduit for personal activities. c) has not complied with statutory rules but operates as a corporation. d) is used by its shareholders to defraud creditors.
C
A limited partner a) may participate only in the management of the business b) may contribute to the partnership only with cash or property. c) has no liability for debts or loss beyond his or her investment contribution d) cannot be both the general partner and a limited partner e) all of the above
C
A written proxy a) grants authority to another person to vote at a directors' meeting b) grands only specific authority to vote on a designated matter c) may grant general authority to vote on all matters at a stockholders' meeting d) cannot be revoked for six months once given to the designated proxy holder e) none of the above.
C
Cumulative voting is a term that applies in which of the following situations? a) Voluntary dissolution of a corporation b) Election of Shareholders c) Election of Directors d) Election of Officers
C
Each of the partners in a general partnership: a) has no personal tax liability for partnership income; it is the liability of the partnership. b) bears equal personal liability for tax on partnership income. c) bears personal tax liability in proportion to the partnership income received by him or her. d) None of the above
C
General partnerships are governed by the a) Model Partnership Act b) Revised Uniform Limited Partnership Act c) Uniform Partnership Act d) Model Business Organization Act
C
If the members of a limited partnership fail to provide a basis for making distributions of profit to partners, the Revised Uniform Limited Partnership Act: a) provides for equal distribution to partners. b) provides for distribution to limited partners only. c) provides for distributions according to each partner's capital contribution d) makes no provision for distributions.
C
Joe, Brian, and Nolan form a partnership to operate a movie theater franchise. The partnership realizes a profit in the first year of operation. Under general partnership rules and assuming that all profit is distributed to the partners, what amount will each partner receive? a) an amount equal to his or her percentage of the total capital contribution. b) an amount equal to his or her percentage of the total capital contribution after taxes. c) the same amount as all other partners. d) the same amount as all other partners minus his or her capital contribution.
C
Preemptive rights are exercised when a shareholder has the right a) of first refusal to purchase any additional shares of the corp b) to convert common stock to preferred stock on a predetermined date c) to purchase a proportionate share of new issue of common stock before it is offered for sale to others. d) to purchase shares of new issue of common stock for a price less than market value. e) all of the above f)none of the above
C
Profits left in the corporation will be reported as ___________ on the balance sheet of the corporation. a) paid-in capital b) cumulative voting rights c) retained earnings d) undeclared dividends
C
Worst Answer The corporate officer's express authority to act for the corp derives from a) state corporation statutes b) the articles of incorporation c) the bylaws d) resolutions of the board of directors e) none of the above f) all of the above
E
A corporation cannot be a domestic corporation and a foreign corporation at the same time.
F
A corporation must transact all or most of its business in a state where it is incorporated.
F
A debenture is a corporate obligation secured by a lien or by a mortgage on specific corporate property.
F
A director is always an agent of the corporation.
F
A general partnership must file a partnership income tax return and pay its own tax separately
F
A partnership may be a shareholder in an "S" corporation.
F
A stock split decreases the total number of outstanding shares without distributing corporate assets
F
A close corporation may restrict the rights of shareholders to transfer stock by means of shareholder agreements.
T
A corporation may be incorporated in more than one state.
T
A corporation may be subjected to criminal charges
T
A corporation sometimes is treated as a person within the meaning of the federal Constitution.
T
A dissenting vote recorded in the minutes eliminates the dissenting director's potential personal liability for action taken
T
A general partnership must have as one of its business purposes the intention to generate profit.
T
A limited liability company is a hybrid of a corporation and a partnership
T
A partnership generally is treated as an aggregate for purposes of taxation and as a separate entity for purposes of litigation.
T
A promoter is one who develops a business idea, arranges for the capital, and acquires assets for the corporation before the corporation is actually organized
T
A share of stock with a stated par value of $10, which is sold and issued initially for $8, is an example of watered stock
T
A usury rate is the excess over the lawful interest rate
T
Conflict of interest may arise when an officer of a corp serves on the board of another corp.
T
Corporate directors and officers generally owe no direct duty to individual shareholders of the corporation.
T
Double taxation occurs when corp profits are taxed at corp rates, distributions are made to the shareholders as dividends, and the dividends are taxes again to the shareholders at the individual income tax rate
T
Each partner in a general partnership is an agent of the partnership for purposes of conducting partnership business.
T
A foreign corporation: a) is chartered in a foreign country, such as Canada. b) is a synonym for the term "alien corporation." c) may require a certificate of authority to do business in states where it is not chartered. d) may transact business only foreign states.
c