Reading 5

Which choice of business entity is the top choice for a start-up business with low annual revenues and expenses? -Limited liability company -Limited liability partnership -Sole proprietorship -Corporation

-Sole proprietorship

Inadequate capitalization has been grounds for a court to pierce the _____ veil.

corporate or corporation

Limited partnerships are _____-_____ entities for tax purposes, meaning the entity itself does not pay taxes.

pass-through

The ______ is/are filed with a state governing body to create a corporation. -Corporation operation agreement -Articles of organization -Articles of incorporation -Corporate bylaws

-Articles of incorporation

States that have not adopted the RUPA follow the provisions found in the -Partnership Uniformity Code. -Uniform Partnership Act. -Uniform Commercial Code. -Business Organization Act.

-Uniform Partnership Act.

Managers of an LLC owe the members the ______ duties of care and loyalty. -legal -equitable -fiduciary -company

-fiduciary

Loyalty, care, and good faith are -contractual duties owed by partners. -common law duties owed by partners. -fiduciary duties owed by partners. -constitutional duties owed by partners.

-fiduciary duties owed by partners.

_____ are responsible for the oversight and management of a corporation's course of direction.

Directors

_____ are responsible for the day-to-day operations of the corporation.

Officers

True or false: A partnership may not sell ownership rights through the public markets.

True

True or false: Corporations have many of the same rights as an individual.

True Corporations can sue or be sued, hold property, form a contract, and acquire debt, just as an individual person can.

The corporation's name, purpose, and number of issued shares are typically included in the _____ of _____.

articles of incorporation

A(n) _____ is a fictitious legal entity.

corporation

C corporations are subject to _____ taxation.

double

The duty of care and the duty of loyalty are known as _____ duties.

fiduciary

LLCs and LLPs limit the personal ______ of business principals, while avoiding the double taxation found in corporations.

liability or liabilities

A(n) _____ partnership has at least one general partner and at least one limited partner.

limited

In a limited partnership, the _____ partner's liability is limited to what he or she contributed to the business.

limited

The members of an LLC agree on how to operate the business in a(n) _____ agreement.

operating

The ______ agreement of an LLP normally controls the amount and methods of capitalizing the business.

partnership

A(n) ______ _____ is the easiest single-person ownership entity to form and maintain.

sole Proprietorship

If an LLC has no operating agreement, it will be governed by the default rules set out by the state's LLC _____.

statute

Which of the following groups is in charge of the day-to-day operations of the corporation? -Promoters -Shareholders -Officers -Directors

-Officers

Who carries out a business's activities before it is incorporated? -Board of directors -Officers -Promoter -Shareholders

-Promoter

In the absence of an agreement, which of the following are used as default provisions for a limited partnership? -Limited Partnership Uniformity Act -Revised Uniform Limited Partnership Act -Limited Partnership Act -Revised Unilateral Partnership Act

-Revised Uniform Limited Partnership Act

Which of the following have most states adopted to provide default provisions for partnerships where the principals have not expressly agreed otherwise? -Uniform Commercial Code -Revised Uniform Partnership Act -Partnership Agreement Act -Uniform Partnership Reform Act

-Revised Uniform Partnership Act

Who are the owners of a corporation? -Shareholders -Directors -Bond holders -Officers

-Shareholders

When the members do not create an operating agreement, the LLC will be governed by what source of law? -The state's corporation statute -The state's LLC statute -Federal LLC regulations -The state's partnership statute

-The state's LLC statute

Most derivative lawsuits are filed because of an allegation that an insider: ______. -violated the corporate bylaws. -breached a fiduciary duty. -did not declare a dividend. -breached the articles of incorporation.

-breached a fiduciary duty.

If the directors and officers fail to attend to corporate ______ they may be subject to personal liability. -bylaws -filings -liability -formalities

-formalities

State statutes tend to allow shareholders to vote on ______ changes within a corporation, such as engaging in a merger. -ordinary -inconsequential -day-to-day -fundamental

-fundamental

All of the following may be reasons for a court to pierce the corporate veil except: ______. -evidence of fraud -inadequate capitalization -failed to follow corporate formalities -issued proper debentures

-issued proper debentures

The LLC ______ agreement usually controls the amount and methods of capitalizing the business. -taxation -operating -debt -ownership

-operating

An LLC is governed through its -certificate of organization. -operating agreement. -partnership agreement. -by-laws.

-operating agreement.

After filing the articles of incorporation, the principals typically hold the first: ______. -selection of state of incorporation -promotional campaign -organizational meeting -taxable event

-organizational meeting

In the context of business organizations, the principals of the business are the -stakeholders. -suppliers. -owners. -customers.

-owners.

Limited liability partnerships (LLPs) are taxed as -stand-alone entities. -pass-through entities. -non-profits. -corporations.

-pass-through entities.

In a limited partnership, the general partner is -personally liable for the debts of the partnership. -personally liable for the debts of the partnership to the extent of his or her contribution in the partnership. -not responsible for any debts of the partnership. -personally liable for only half of the debts of the partnership.

-personally liable for the debts of the partnership.

A(n) ______ action allows shareholders to sue a corporate insider under the name of the corporation. -shareholder's fiduciary -breach of fiduciary -officer's derivative -shareholder's derivative

-shareholder's derivative

A single document signed by each principal of a privately-held corporation in lieu of a meeting to dispose of necessary tasks, such as electing directors, is a(n): __________. -article of incorporation. -shareholder authorization form. -unanimous consent resolution. -principal authorization form.

-unanimous consent resolution.

____ is the factor that addresses how easy it is to form and maintain a business entity.

Formation

The board of directors appoints and removes: _____. (Please enter one word only.)

officers

Principal funding and commercial lenders are viable funding options for a general _____.

partnership

The abbreviation LLP denotes a limited liability _____.

partnership

LLPs are taxed in the same way general partnerships are, as _____-______ entities.

pass-through

A key benefit for members of an LLC is that they are protected from ______ liability for the obligations of the business.

personal

Which of the following does not require a form to be filed with a government agency? -Limited liability partnership -General partnership -Limited liability company -Corporation

-General partnership

Before a derivative lawsuit can be filed, which of the following must occur? -The bylaws must be amended. -Directors are allowed time to take corrective action. -The chairman of the board of directors must resign. -The articles of incorporation must be amended.

-Directors are allowed time to take corrective action.

True or false: To form a general partnership, a formal document must be filed with the government.

False

Generally, publicly held corporations believe that incorporating in ______ is a wise choice because its state statutes give officers and directors of those corporations wide latitude in decision making that does not require shareholder consent. -Delaware -Kentucky -California -New York

-Delaware

Which of the following has been a popular state in which a business can incorporate? -Delaware -New York -Kentucky -California

-Delaware

Which of the following serves in an oversight capacity function for the corporation? -Officers -Shareholders -Promoters -Directors

-Directors

Which of the following set corporate policy and strategy? -Promoters -Directors -Officers -Shareholders

-Directors

Which of the following typically follows the business name to signify that it operates as a general partnership? -LP -LLC -PP -GP

-GP

Which of the following does not require any formal documents to be filed with the government in order to legally exist? -Limited partnership -Corporation -Limited liability company -General partnership

-General partnership

Articles or certificates of organization are filed with the state to create a(n) ______. -cooperation -LLC -partnership -LLP

-LLC

Which of the following are typically used to denote a limited partnership? -LLP -LLC -LP -GP

-LP

The extent to which principals are personally responsible for the debts of the business is which of the following factors? -Taxes -Formation -Liability -Management

-Liability

Which of the following is the simplest multiple-person business entity? -Partnership -Corporation -Limited partnership -Limited liability partnership

-Partnership

Which of the following is not a source of funding for partnerships? -Selling ownership rights through the public markets -Borrowing money from the principals of the partnership -A private third party -Commercial lenders

-Selling ownership rights through the public markets

_____ are the owners of the corporation.

Shareholders or Stockholders

A(n) _____ is debt money issued by a corporation to the general public with a promise to pay the holder back at a specified date and with a specified amount of interest.

bond or debenture

Duties requiring partners to act in the best interest of the partnership are known as _____ duties.

fiduciary

A business entity with a proven track record of success who sells to another party the right to operate the business and use the business's trade secrets, trademarks, products, and so on is called a ____.

franchisor

Partners in a ____ partnership may wish to convert to an LLP in order to avoid the potential liability they could otherwise incur for each other's mistakes, or for the partnership debts.

general

The "limited" in LLC refers to the idea that LLC members are protected from ____ liability for any business debt or liability if the venture fails.

personal

A(n) _____ held corporation is one that does not sell ownership interests to the general public through public markets or brokerage firms.

privately or private

A partnership is taxed like a sole ______, which means the partnership itself does not pay taxes, but rather taxes are accounted for on individual partner tax returns.

proprietorship

When a limited partnership interest is sold to the public, the transaction is subject to federal and state _____ laws.

securities or security

Voluntary _____ occurs when a partner gives notice of intent to withdraw from the partnership.

separation or dissociation

LLCs and LLPs were created to allow business principals to avoid double _____ while still providing limited liability.

taxation

Which of the following is not a way in which a limited partnership can be funded? -Borrowing money from the general and limited partners -Borrowing from a commercial lender -Selling a percentage of ownership rights in the partnership and any profits in the business -Selling ownership rights through the public markets

-Selling ownership rights through the public markets

Which of the following is typically filed with the secretary of state's office when forming a limited partnership? -Certificate of limited partnership -Articles of organization -Certificate of partnership -Articles of incorporation

-Certificate of limited partnership

Which of the following is not a source of debt funding for a corporation? -Debentures -Common stock -Promissory notes -Bonds

-Common stock

Larry, Moe, and Curly have formed the Three Stooges General Partnership. Moe is concerned that he may one day be personally liable if someone is injured and sues the business over Larry's wild antics. What should the three general partners do to prevent such personal liability? -Convert the GP to an LLP. -Force Larry to dissociate from the GP. -Take out sufficient insurance coverage that personal liability won't be a problem.

-Convert the GP to an LLP.

Limited and general are the two traditional subcategories of which of the following business entities? -Sole proprietorships -Limited liability companies -Partnerships -Corporations

-Partnerships

Karen and Mark are members in an unsuccessful LLC that cannot pay its bills. How does this situation impact Karen and Mark? -If Karen was a member before Mark, she will have to pay the debts herself. -They will not have to pay the company's debts from their own money. -Karen will have to sue Mark to obtain money to pay the debts. -They will have to pay the company's debts from their own money.

-They will not have to pay the company's debts from their own money.

A limited liability company (LLC) offers its principals the same amount of liability protection afforded to principals of a(n) __________. -corporation -general partnership -unlimited liability company (ULLC) -sole proprietorship

-corporation

A limited liability company (LLC) offers business owners the liability protection of a -corporation with the taxation of a corporation. -partnership and the taxation of a corporation. -corporation and the taxation of a partnership. -limited liability partnership with the taxation of a partnership.

-corporation and the taxation of a partnership.

LLCs may select between being taxed as a partnership or as a(n): -joint venture. -nonprofit. -partnership. -corporation.

-corporation.

LLCs may be taxed as: (Check all that apply.) -non-profits. -single-owner entities. -corporations. -pass-through entities.

-corporations. -pass-through entities.

The liquidation or end of an LLC is referred to as its ______. -dissolution -disassociation -termination -finale

-dissolution

Taxing corporations on earnings and taxing shareholders individually for dividends received from the corporation is known as ______ taxation. -single -double -multiple -pass-through

-double

Under RUPA, unless the parties otherwise agree, all partners receive how much of a share of the profits and losses? -equal -50% -33% -25%

-equal

Officers of a corporation have -only express authority as set forth in the bylaws. -no authority. -express and implied authority. -only implied authority as statutory law allows.

-express and implied authority.

An arrangement of a continuing commercial relationship for the right to operate a business pursuant to the franchisor's trade name or to sell the seller's branded goods is a(n): -multinational agreement -franchise -partnership -joint venture

-franchise

The Blank______ is given the right to operate the business and use the business's trade secrets and products. -general partner -franchisee -franchisor -silent partner

-franchisee

What type of partner is also referred to as a managing principal? -limited -controlling -main -general

-general

Two or more people operating as co-owners of a business for profit is called a: -limited partnership -corporation -general partnership -sole proprietorship

-general partnership

In a limited partnership, tax is paid based on the -tax rate of the partner with the most income. -individual partner's tax rate. -corporate tax rate schedule. -federal tax table for limited partnerships.

-individual partner's tax rate.

For tax purposes, a partnership will file a(n) -entity tax return. -corporate tax return. -information return. -entity tax return for every partner.

-information return.

When it comes to partnership debt and liability, all partners in a general partnership are -not responsible for paying the partnership debts. -are severally liable, but not jointly liable for the debt. -jointly and severally liable for the debt. -are jointly liable, but not severally liable for the debt.

-jointly and severally liable for the debt.

The "LL" in both LLC and LLP stands for: -lawful liability -limited lawfulness -limited liability -liability limited

-limited liability

Controlling shareholders are bound by the fiduciary duty of __________. -loyalty -subrogation -independence -compensation

-loyalty

Owners of an LLC owe each other the fiduciary duties of care and ______. -loyalty -honor -integrity -professionalism

-loyalty

Basic information required by the state to create an LLC typically includes the ______ of the business, its principal location, and the names of its members. -employees -liabilities -assets -name

-name

Unless the parties otherwise agree, the RUPA states that partners providing labor to the partnership are: -entitled to a wage, but less than the fair market value of such services -not entitled to any compensation other than a share of profits -entitled to greater than the fair market value of the services provided -entitled to a fair wage for the services provided

-not entitled to any compensation other than a share of profits

At the organizational meeting, the ______ can amend the articles of incorporation to reflect any changes in the principals' strategy since the time of formation. -promoters -venture capitalists -government -principals

-principals

An individual who begins to carry out a business venture's activity before actually filing the articles of incorporation is called a(n): ______. -director -shareholder -promoter -officer

-promoter

If the business entity has already commenced pre-incorporation operations under the ______, the business operations are simply continued by the newly formed corporate entity. -officers -shareholders -promoters -directors

-promoters

The following are traditional ways an LLP are capitalized: -gambling winnings -sale of equity -debt -insurance purchase

-sale of equity -debt

When it comes to liability, general partners are personally exposed to liability similar to -LLP partners. -shareholders. -sole proprietors. -LLC members.

-sole proprietors.

The RUPA provides for expulsion of a partner from a partnership by the what kind of vote of the other partners. -anonymous -majority -unanimous -minority

-unanimous

The dissolution or liquidation of an LLC is most likely to occur: (Check all that apply.) -when a competitor offers to buy the business. -at the end of the fiscal year, after all taxes are paid. -when a majority of the members vote to end the business. -when an event defined in the operating agreement occurs, such as the death of a member.

-when a majority of the members vote to end the business. -when an event defined in the operating agreement occurs, such as the death of a member.

Debt and the sale of equity ownership are the primary ways an LLC is _____.

capitalized, funded, or financed

State statutes expect the board of directors to be _____ from officers and shareholders.

independent, separate, or separated

Basic information required by the state to create an LLC typically includes the name of both the business and its _____, as well as its principal location.

members

An LLC is created by filing articles of ____ with the state.

organization

A general _____ is where two or more principals have demonstrated an intent to carry on as co-owners of a business for profit.

partnership

A(n) _____ creditor, such as a trade creditor, generally does not get to pierce the corporate veil due to their ability to mitigate their loss.

voluntary