Test 3

Match the listed corporate document with the item most likely to be included in that corporate document. - Certificate of Formation - Bylaws - Shareholder Agreement The names and addresses of initial directors

- Certificate of Formation

Match the type of entity with the appropriate description of the owner's liability for the debts of such entity. Limited Liability but Lose Capital Contribution - Sole Proprietorship - General Partnership and General Partner in a Limited Partnership - Corporation, LLC, and a Limited Partner in a Limited Partnership

- Corporation, LLC, and a Limited Partner in a Limited Partnership

Match the type of entity with the appropriate description of the owner's liability for the debts of such entity. Unlimited Liability & Lose Capital Contribution - Sole Proprietorship - General Partnership and General Partner in a Limited Partnership - Corporation, LLC, and a Limited Partner in a Limited Partnership

- General Partnership and General Partner in a Limited Partnership

Match the listed corporate document with the item most likely to be included in that corporate document. - Certificate of Formation - Bylaws - Shareholder Agreement Provisions restricting the transfer of shares to parties that who are not a shareholder

- Shareholder Agreement

Lotte Corporation has assets of $5,000,000 but has liabilities of $10,000,000. Despite this financial situation, Lotte's board of directors pays a dividend to its parent company, Bostick Corporation of $2,000,000. How much if anything will Bostick Corporation have to pay back to Lotte's creditors? A. $2,000,000 because this was an improper dividend. B. $10,000,000 C. Nothing. D. Only $2,000,000 because the court will pierce the corporate veil.

A. $2,000,000 because this was an improper dividend.

Which of the following is correct regarding a foreign corporation? A. A foreign corporation transacting business within a particular state without having first registering as a foreign corporation cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority. B. A foreign corporation is only a corporation that is incorporated in a foreign country. C. A foreign corporation must register with a particular state even if all that corporation does is open a bank account in the particular state. D. Failure to obtain a certificate of authority to transact business in the state impairs the validity of a contract entered into by the corporation.

A. A foreign corporation transacting business within a particular state without having first registering as a foreign corporation cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority.

Alice and Brad enter into a general partnership, which becomes insolvent, as does Brad. What is the most likely result? A. Alice is fully liable to the general partnership's creditors for the debts of the general partnership. B. Alice will not be liable for the debts of the general partnership. C. Alice is only liable to the general partnership's creditors for her share of the debts of the general partnership. D. If Alice has to pay the full amount of the general partnership's debts she cannot collect anything from Brad.

A. Alice is fully liable to the general partnership's creditors for the debts of the general partnership.

Jason signs an agreement, Jason Smith dba The Magic Moment. Jason is the President of Beach Restaurants, Inc. Which of the following statements is TRUE regarding these facts? A. All of the these answers are correct. B. "The Magic Moment" is most likely an assumed name. C. Jason should have signed the contract as follows: Beach Restaurants, Inc. dba The Magic Moment By: [Jason's signature} Name: Jason Smith Title: President D. If the contract had only referenced "The Magic Moment", then the contract may not be binding as "The Magic Moment" is neither an individual or an entity.

A. All of the these answers are correct.

Delaware is a popular state for the formation of corporations because: A. Delaware offers more stability in their corporation laws than other states and investors are familiar with Delaware entity law. B. Delaware is a small state with less competition for the corporations. C. None of these answers are correct. D. Delaware is the cheapest state in which to incorporate.

A. Delaware offers more stability in their corporation laws than other states and investors are familiar with Delaware entity law.

Nancy and Henry each own 50 percent of a limited liability company. Henry wants to sell his interest but there are no buyers. Henry wants to force Nancy to buy his membership interest, but Nancy does not want to buy Henry's interest. What are Henry's options? A. If the operating agreement between Nancy and Henry provides that Henry may withdraw at any time, then Henry may force the entity to pay him the value of his shares. Nancy will have to sell a portion of the entity's assets or use her personal funds to pay Henry. B. Henry is out of luck , no matter what the operating agreement says. C. If the operating agreement prohibits the withdrawal of a member, then Henry still can make the entity purchase his membership interest. D. Henry can force Nancy as the other member to purchase his membership interest from her personal funds.

A. If the operating agreement between Nancy and Henry provides that Henry may withdraw at any time, then Henry may force the entity to pay him the value of his shares. Nancy will have to sell a portion of the entity's assets or use her personal funds to pay Henry.

Your are a sales representative for a national company. One of your customers, Phoebe Jones, informs you that their business name is "Phoebe's Yorkie Grooming" and that you should use that name in the contract with the customer. Phoebe has not created an entity for her business. You, wanting to complete the contract correctly, will need to complete customer name in the contract as follows: A. Phoebe Jones dba Phoebe's Yorkie Grooming B. Phoebe's Yorkie Grooming C. Phoebe's Yorkie Grooming dba Phoebe Jones D. Jones LLC dba Phoebe's Yorkie Grooming

A. Phoebe Jones dba Phoebe's Yorkie Grooming

Harbor Corporation, a Texas corporation has failed to file its required franchise tax return or pay its franchise taxes. What will likely happen to Harbor Corporation? A. The Secretary of State of Texas will change the status of Harbor Corporation from "Active" to "Inactive". If Harbor continues to not file the franchise tax return or pay the taxes, the Secretary of State will involuntarily dissolve Harbor. B. The Secretary of State of Texas will force Harbor Corporation into bankruptcy. C. The Secretary of State of Texas will will immediately involuntarily dissolve Harbor Corporation. D. . Nothing.

A. The Secretary of State of Texas will change the status of Harbor Corporation from "Active" to "Inactive". If Harbor continues to not file the franchise tax return or pay the taxes, the Secretary of State will involuntarily dissolve Harbor.

The term "Flow Through" means: A. The entity does not pay tax on the entity's income. The tax liability for the income of the entity "flows through" to the entity's owners. B. The entity's owner does not pay tax on the entity's income. The tax liability for the income of the entity "flows through" to the entity. C. The entity does not pay tax on the owner's income. The tax liability for the income of the owner "flows through" to the entity. D. None of these answers are correct.

A. The entity does not pay tax on the entity's income. The tax liability for the income of the entity "flows through" to the entity's owners.

Which of the following statements is TRUE regarding an entity? A. The formation and internal operation of entities is governed by state law, not federal law. B.An entity and its owners are not treated separately by the law. C. Entities cannot own assets or borrow money. D. An Entity cannot be sued separately from its owners.

A. The formation and internal operation of entities is governed by state law, not federal law.

Regarding the provisions in a shareholders' agreement related to the transfer of shares, which of the following statements is TRUE? A. A First Right of Refusal clause protects an owner in the event the other owners sell their interests by forcing the buyer to purchase their interest (or a portion thereof) as well. B. A Drag Along clause can force an owner to sell their interest when the other owners want to sell, and the buyer wants to buy 100% ownership C. Shareholders can never agree that the other shareholders must consent to a transfer of shares. D. A Tag Along clause provides a process to control to whom a current owner may transfer.

B. A Drag Along clause can force an owner to sell their interest when the other owners want to sell, and the buyer wants to buy 100% ownership

Which of the following statements regarding corporations is FALSE? ALERT: THIS QUESTIONS IS ASKING WHICH QUESTION IS FALSE!! A. A corporation may sue or be sued by any other party, as well as contract with any other party, including its own shareholders. B. A corporation is dissolved by the death of a shareholder. C. Albert invested $500 in the stock of the Ajax Corporation. Six months later, Ajax filed for bankruptcy with debts of $50,000. Albert has no personal liability, although he may lose his $500 investment. D. A corporation is an entity apart from its shareholders, with entirely distinct rights and liabilities.

B. A corporation is dissolved by the death of a shareholder.

A person who is entitled to receive a share of the profits of a partnership is presumed to be a partner unless the payment is of: A. Wages to an employee. B. All of these answers do not result in the presumption that the person is a general partner. C. A percentage of gross revenue. D. A debt to a creditor. E. Rent to a landlord.

B. All of these answers do not result in the presumption that the person is a general partner.

If you want to form an entity that has the following characteristics, which entity would you choose? * Allows for 1 or more owners * Has limited liability for its owners * Has a perpetual existence meaning the entity will not dissolve or end on the death of one of the owners. Ignore that owners can agree to perpetual existence in their entity agreement. A. Sole Proprietorship B. C Corporation C. Limited Partnership D. General Partnership

B. C Corporation

Which of the following is not necessary for a court to create a general partnership? A. Intention to conduct a business for profit B. Execution of a written partnership agreement C. Agreement to share ownership of the partnership D. The participation of 2 or more persons/entities

B. Execution of a written partnership agreement

If you want to form an entity that has the following characteristics, which entity would you choose? * Allows for 1 or more owners * Is a "Flow Through" Entity for tax purposes * Has limited liability for its owners A. General Partnership B. Limited Liability Company C. Limited Partnership D. C Corporation

B. Limited Liability Company

General Supply owns all the stock of Playne Pencils. A Playne employee commits a tort for which the employer is liable. The suit results in a judgment for $1 million against Playne. Playne's assets total $650,000, but General Supply's assets are in the millions. In which of the following situations would the judgment have to be paid by General due to piercing the corporate veil? A. General Supply and Playne have separate financial statements. B. Playne's income and General Supply's cash is held in one account. C. General Supply's board of directors is exactly the same as Playne's. D. The president of General Supply is also the vice president of Playne.

B. Playne's income and General Supply's cash is held in one account.

"Limited Liability" as it relates to entities is best described as: A. The Entity has limited liability for the debts of the Owner. B. The Owner has limited liability for the debts of the Entity. C. The Entity has limited liability for the debts of the Entity. D. The Owner has limited liability for the debts of the Owner.

B. The Owner has limited liability for the debts of the Entity.

Match the listed corporate document with the item most likely to be included in that corporate document. - Certificate of Formation - Bylaws - Shareholder Agreement The number of votes necessary for a motion to be approved at a Board of Directors meeting

Bylaws

A filing with the Secretary of State is not required to form which of the following entities? A. Limited Partnership B. LLC C. General Partnership D. Corporation

C. General Partnership

Every limited partnership must: A. Have at least 2 general partners and 1 limited partner. B. Have at least 2 general partners and 2 limited partners. C. Have at least 1 general partner and 1 limited partner. D. Have at least 1 general partner and 2 limited partners.

C. Have at least 1 general partner and 1 limited partner.

Which of the following statements is TRUE? A. All shareholders may vote on the day to day operational decisions for the corporation. B. When the "corporate veil" is pierced, the owners only become liable for very few of the entity's liabilities. C. The "corporate veil" is most likely to be pierced in the case of closely held corporations and in parent-subsidiary relationships. D. When an entity makes an improper distribution, all owners immediately become liable for all of the entity's liabilities.

C. The "corporate veil" is most likely to be pierced in the case of closely held corporations and in parent-subsidiary relationships.

In general, which of the following must be contained in the certificate of formation for a corporation? A. The names of the initial officers and their terms of office B. The names of states in which the corporation will be doing business C. The name of the registered agent D. The required number of directors to constitute a quorum at a board of directors meeting.

C. The name of the registered agent

Which of the following is not a correct requirement of a Subchapter S corporation? A. It may have only one class of stock. B. A corporation or partnership cannot be a shareholder. C. It must be a corporation formed in one of the states of the United States. D. It can have no more than 50 shareholders.

D. It can have no more than 50 shareholders.

Which of the following statements is TRUE regarding Limited Liability Companies and Limited Partnerships? A. If a Limited Liability Company is Manager Managed, the Members will actively manage the Limited Liability Company. B. For a Limited Partnership, the General Partner has limited liability for the debts of the Limited Partnership. C. For a Limited Partnership, the Limited Partners participate in the daily management of the Limited Partnership. D. Limited Liability Companies are either Member Managed or Manager Managed.

D. Limited Liability Companies are either Member Managed or Manager Managed.

Which of the following statements is TRUE? A. General Partners in a General Partnership have limited liability for the General Partnership's debts. B. General Partners in a Limited Partnership have limited liability for the Limited Partnership's debts. C. Sole proprietors have limited liability for the sole proprietorship's debts. D. Owners of interests in businesses with unlimited liability place their personal assets at risk.

D. Owners of interests in businesses with unlimited liability place their personal assets at risk.

The officers of a corporation: A. cannot be a shareholder or a director of the corporation, as well as an officer. B. are elected by the shareholders of the corporation. C. must be shareholders of the corporation. D. are appointed by the board of directors of the corporation.

D. are appointed by the board of directors of the corporation.

Piercing the corporate veil: A. denies the corporation access to the state's courts. B. invalidates the contracts of the corporation. C. keeps the corporation from borrowing money. D. imposes personal liability upon the shareholders for the obligations of the corporation.

D. imposes personal liability upon the shareholders for the obligations of the corporation.

A corporation differs from other types of entities in that a corporation: A. must always have more than 1 owner. B. it is the ONLY entity that provides limited liability for its owners. C. s generally managed by its owners. D. may be subject to double taxation but has a perpetual existence.

D. may be subject to double taxation but has a perpetual existence.

Match the type of entity with the appropriate description of the owner's liability for the debts of such entity. Unlimited Liability - Sole Proprietorship - General Partnership and General Partner in a Limited Partnership - Corporation, LLC, and a Limited Partner in a Limited Partnership

Sole Proprietorship