Chapter 9 Business Organizations and Securities Regulation

Although the law of partnerships originated in the common law, all states except _____ adopted the Uniform Partnership Act. A. Louisiana B. Alabama C. Nevada D. Wisconsin

A.

Carey, the owner of a corporation, uses the business checking account to pay his personal bills. He also makes business deal knowing the business cannot pay the invoices. If he is sued by one of his creditors, which of the following courses of action is most likely to be taken by the court? A. Pierce the corporate veil. B. Apply the business judgement rule. C. Terminate the corporation D. Impose the Rochdale Principles.

A.

The legal doctrine that makes the employer liable for an employee's acts is ___________. A. respondeat superior B. res ipsa loquitur C. piercing the corporate veil D. caveat emptor

A.

Which of the following is a feature of a corporation? A. Double taxation B. Unlimited liability C. Definite duration D. Prohibition of tax-deductible fringe benefits

A.

Which of the following statements about corporations is true? A. A promoter files articles of incorporation with the state government to create a corporation. B. When a corporation's liabilities exceed its assets, its creditors can reach the personal assets of the shareholders. C. A corporation need not establish books of accounts. D. When an employee or director commits a tort or crime while conduction corporate business, the corporation is not liable for the consequences.

A.

Which of the following statements is true of a limited liability partnership? A. It is taxed like a general partnership. B. No annual filings or fees are required. C. To bring a limited liability partnership into existence, the owners file articles of organization with the state. D. It is more like a limited liability company than a general partnership.

A.

According to the 1933 Act, during the ______ period, no sales are permitted by a limited amount of solicitation is allowed. A. shelf registration B. waiting C. profiling D. posteffective

B.

Corporations distribute their aftertax income to their shareholders as _______. A. fringe benefits B. dividends C. exempt securities D. disgorgements

B.

If a delivery truck negligently hits a child in the street, the company for which the driver work will be liable for the injuries under the doctrine of __________. A. caveat emptor B. respondeat superior C. piercing the corporate veil D. res ipsa loquitur

B.

Under the 1933 Act, a draft prospectus is included with the filed registration statement. This is known as a ________ prospectus. A. greenmail B. red herring C. crown jewel D. blue sky

B.

Which of the following legal doctrines will the court apply if the owners of a corporation fail to maintain a formal legal separation between the business and their personal financial affairs? A. Respondeat superior B. Piercing the Corporate Veil C. The Business Judgement Rule D. The Rochdale Principles

B.

Which of the following presents the company's assets, liabilities, and equity in a registration statement? A. Income statement B. Balance sheet C. Statement of cash flows D. Supplemental information

B.

Identify the correct statement about the Securities Act of 1933. A. It allows interstate offering of a new security until a registration statement has been filed with and approved by the Securities and Exchange Commission. B. It ensures partial disclosure of material facts about the investment opportunity to offerees. C. It does not guarantee the economic merits of any investment opportunity. D. It gives the Securities and Exchange Commission the power to suspend trading if it suspects price manipulation.

C.

The lack of regulatory uniformity among the states led Congress in 1996 to enact the ______, preempting state registration requirements for securities traded on national markets. A. Private Securities Litigation Reform Act B. Securities Exchange Act C. National Securities Markets Improvement Act D. Dodd-FrankAct

C.

The principal defense against a Section 11 claim is ____. A. proxy access B. disgorgement C. due diligence D. broker voting

C.

Which of the following is true of the Securities Act of 1933? A. It guarantees the economic merits of any investment opportunity. B. It prohibits full disclosure of all material facts about the investment opportunity to offers before they invest. C. It forbids any interstate offering of a new security until a registration statement has been filed with and approved by the Securities and Exchange Commission D. The Securities and Exchange Commission has repealed the 1933 Act prescribed relationship between solicitation or sales of a security and the registration process.

C.

Which of the following refers to a business venture that has no legal existence apart from the owner? A. Corporation B. Limited Liability company C. Sole Proprietorship D. Partnership

C.

Which of the following acts prohibits broker voting unless specific instructions are received from the shareholder? A. The Private Securities Litigation Reform Act B. The Securities exchange Act C. The National Securities Markets Improvement Act D. The Dodd-Frank Act

D.

Which of the following is true of limited liability companies? A. The management structure of a limited liability company is extremely rigid. B. A single-member limited liability company cannot be treated as a corporation. C. The operating agreement of a limited liability company is most likely to be in the oral form. D. To create a limited liability company, the owners must file articles of organization with the state.

D.

Which of the following is true of the partnership form of business? A. The vast majority of partnership agreements are written. B. An assignee of a partnership interest has the right to participate in control and enjoys the status of partner. C. The partners are not personally liable for the partners for the partnership's obligations should it default. D. Events in the private lives of the partners can seriously impact the business venture.

D.

Which of the following statements is true of the Securities Act of 1934? A. It allows interstate offering of a new security until a registration statement has been filed with and approved by the SEC B. It ensures partial disclosure of material facts about the investment opportunity to offerees. C. It guarantees the economic merits of any investment opportunity. D. It gives the SEC the power to suspend trading if it suspects price manipulation.

D.

Which of the following statements is true of the formation of partnerships? A. Partnership accounting systems are the least expensive of all the business forms. B. The partnership form generally requires a number of annually recurring events such as state filings or statutorily mandated meetings of owners. C. The vast majority of a partnership agreements are written. D. The co-owners of a partnership must intend to join in the sharing of risks and rewards via the active conduct of business.

D.

Which of the following statements is true of the sole proprietorship form of business organization? A. Legal filings are required to establish a sole proprietorship. B. A sole proprietorship is a separate legal entity. C. The owner of a sole proprietorship is not personally liable for all obligations of the business. D. A sole proprietorship is not a taxable entity.

D.

A partnership offers limited liability to its owners.

False

An S corporation pays double tax on its income.

False

Equity holders' claims are always satisfied before creditors' claims.

False

In a limited liability company, the owners are referred to as interest holders.

False

In a limited partnership, the limited partners manage the business and are personally liable for all loses.

False

In the context of the capital structure of corporations, equity capital has a short-term horizon.

False

Online trading services provide professional guidance to investors.

False

Sole proprietorships are mutual agencies.

False

A shareholder derivative suit is brought by a minority shareholder, but any recovery inures to the corporation.

True

Although shareholders are the owners of the corporation, control rests with the board.

True

Blue sky laws are primarily applicable to solely intrastate offerings.

True

Closely held corporations face the loss of limited liability through application of the doctrine known as piercing the corporate veil.

True

Common stockholders share all three property rights associated with stock ownership in proportion to their holdings.

True

Corporations are artificial persons created under the law of a state.

True

Corporations incur the disadvantage of double taxation.

True

In general, the creditors of a corporation cannot reach the personal assets of the shareholders to satisfy the corporation's obligations.

True

The Securities Act of 1933 seeks to ensure full disclosure of all material facts about the investment opportunity to offers before they invest.

True

The owners of a corporation are called stockholders.

True

Where mergers or direct acquisitions fail, a takeover can be attempted.

True