BUL 3310 BAILEY EXAM 4 FSU

May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment? 0: May is a limited partner so has no liability for the debts of the partnership under any circumstances. $50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that. $100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. $300,000: As a limited partner May has joint and several liability for the debts of the partnership so she could be personally liable for the full amount.

$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.

Subchapter S corporations are limited to _________shareholders. 10 35 100 There is no limit to the number of shareholders in a Subchapter S corporation.

100

Which of the following is NOT one of the recognized disadvantages of doing business as a corporation? A corporation must comply with a great number of state and federal regulations. Corporate profits are subject to double taxation. A corporation must qualify to do business in each state in which it engages in business activities. A corporation can be in existence for a maximum of 99 years.

A corporation can be in existence for a maximum of 99 years.

The "weighted average method" refers to a way of voting for directors that protects the rights of minority shareholders. A way of distributing dividends in closely held corporations A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger. A way of resolving antitrust issues when competitor corporations merge.

A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger.

Which of the following is not required to create a partnership? A written agreement between the parties. Two or more persons An understanding to share profits and losses A common interest and intent to conduct business activities together.

A written agreement between the parties

Phil has a 1/4 partnership interest in Green & Sons. He has been denied access to the partnership books and records for over a year and he suspects that one of the partners has been engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil's remedy in this situation is to go to a court of equity for an ______________. Charging order Marshalling order Accounting Decree of insolvency

Accounting

John was a limited partner in Commercial Properties Limited. When the general partner became ill, John took over all the management duties of Commercial Properties. Ace Office Equipment, a supplier of Commercial Properties, is suing Commercial Properties over several months of unpaid bills. Under modern laws governing the operation of limited partnerships, which of the following statements best describes John's personal liability for Commercial's debt to Ace Office Equipment? Ace can hold John personally liable for Commercial's debt because he is a limited partner in the business. Ace can hold John personally liable for Commercial's debt because he assumed management of Commercial. Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties. Under no circumstances can John be liable beyond his capital contribution.

Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.

Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership As rent For wages As an annuity to the spouse of a deceased partner All of the above

All of the above

Which of the following parties could claim an artisan's lien? A common carrier of goods. A jeweler who repaired a watch The owner of a storage facility All of the above are eligible for an artisan's lien.

All of the above are eligible for an artisan's lien.

Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment? The partnership as an entity Jay individually Each of the other partners individually All of the above have liability on the judgment.

All of the above have liability on the judgment.

Which of the following would bring about the dissolution of the partnership? The time the partnership is to last, as stated in the partnership agreement, has expired All of the partners agree to end the partnership One of the partners dies. All of the above would bring about the dissolution of a partnership

All of the above would bring about the dissolution of a partnership

Which of the following is considered a disadvantage of doing business as a general partnership? A general partnership is not a taxable entity under IRS rules. Income in a general partnership flows directly to the partners. All partners can participate in management of the partnership. All partners are/may be held liable for partnership debts.

All partners are/may be held liable for partnership debts.

Smith's Inc. is a closely held corporation in which Joe Smith is the President and owns 80% of the corporation's stock. The corporation was undercapitalized when it was formed, and for the past seven years Joe has regularly taken funds from the corporate account to pay his own personal expenses and debts. Should Smith's Inc. not have sufficient funds to pay a creditor, the creditor may hold Joe personally liable for the corporation's debt under the _____________theory. Ultra vires Alter ego Oppressive conduct Investment trust

Alter Ego

In a manager-managed LLC ___________. No one member of the LLC has authority to make business decisions on behalf of the LLC. An individual or small group has the authority to control and make decisions for the LLC. All members of the LLC participate equally in business decisions. The authority of the members of the LLC to make decisions is directly proportionate to the amount their capital contribution.

An individual or small group has the authority to control and make decisions for the LLC.

Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? Doctors have no personal liability for medical malpractice suits. Because they are also owners of the corporation, doctors have no protection from discrimination based on age. The professional corporation can have no more than 10 owner-employee doctors. Are eligible to participate in tax advantaged pension plans.

Are eligible to participate in tax advantaged pension plans.

The purpose of a buy and sell agreement is to Create a trading partnership Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest. Determine the compensation for partners who manage the business. Set guide lines for selling the goodwill of the business.

Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest.

The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the_____________. Articles of incorporation Articles of partnership By laws charter

Articles of partnership

A Limited Partnership must have ____________. At least one limited partner who participates in management decisions. An equal ratio of limited partners to general partners. At least one general partner. Equal capital contributions from both limited and general partners.

At least one general partner.

Jason has filed suit against Luke claiming $50,000 in damages. While the claim is being litigated, Jason can ask the court for a writ to seize property belonging to Luke which could be used to satisfy a judgment. The seizure prevents Luke from selling or otherwise disposing of the property during the proceedings. The writ Jason will ask for is a writ of________________. Attachment Attainder Execution Garnishment

Attachment

Pearl sued Sam and was awarded a judgment against him for $50,000. Sam has a savings account with First Bank that can be seized in partial satisfaction of the judgment. The writ the court will use ordering First Bank to turn over to it the funds in Sam's account is a writ of____________. Attainder Attachment Garnishment Execution

Attachment

Under the "pass through" principle, a business entity Avoids double taxation Assigns assets of the business to a receiver. Delegates duties of the business to a subcontractor Conducts high risk activities through a subsidiary.

Avoids double taxation

A shareholder who dissents from a merger is entitled to Be paid the fair value of her stock Revoke her dissent within 10 days of the stock appraisal Sue the board of the surviving corporation in a derivative suit. All of the above are shareholder rights.

Be paid the fair value of her stock

State statutes that govern the sale of investment securities within the state are known as ___________laws. Blue sky Red herring Asset protection Investment trust

Blue sky

To protect instate investors, most states have statutes regulating the sale of stocks and other securities within the state. These state statutes are referred to as ________________laws. Blue sky Asset protection Investment trust White knight

Blue sky

A director would incur personal liability if The corporation failed to withhold taxes from the wages of employees The board declared an illegal dividend The shares of the corporation lost more than 20 of their market value. Both a and b

Both a and b

In which of the following business organization do the losses as well as the profits pass through to the owners? LP LLC General corporation Both a and b

Both a and b

Which of the following statements is correct about shareholders' voting rights? Shareholders are entitled to notice when a special meeting is called. A quorum of shareholders must be present to conduct business. A shareholder's vote will be counted only if the shareholder is personally, physically present at the meeting when the vote is take. Both a and b are correct.

Both a and b are correct.

Directors have which of the following fiduciary duties? The duty of loyalty The duty of due care The duty to obey instructions Both a and b are duties of directors

Both a and b are duties of directors

Which of the following statements is true about a partnership name? (The name is an asset of the partnership that may be sold or assigned. The name must include the word "company" in it.) The partnership must comply with the state's assume name provisions. Both a and c

Both a and c

A partnership that fails to comply with a state's assumed name statute Will be given a trade name by the attorney general Will not be able to use the courts of the state to sue its debtors May exposed the partners to criminal liability Both b and c

Both b and c

The agreement among the partners that spells out how the firm's assets will be valued and how the interests of a retiring or deceased partner will be bought out is a(n) ___________________ agreement. Reciprocity Marshalling Buy and sell Accounting

Buy and sell

The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order. Charging Marshaling Accounting Collection

Charging

John, a partner in KLM Partners, had a personal loan from First Bank for 35,000. First Bank got a judgment against John after he defaulted on the loan. First Bank can reach John's interest in KLM Partners and require that a receiver be appointed to take John's share of the partnership profits to satisfy the judgment. The court order that will do this is an ________________ Marshalling order Accounting order Charging order Attachment order

Charging order

The document that the state issues evidencing that a corporation has been duly formed is the corporation's __________. By laws Articles of incorporation Charter Certificate of authority to do business.

Charter

The document that the state issues evidencing that a corporation has been duly formed is the corporation's __________. By laws Articles of incorporation Charter Certificate of authority to do business.

Charter

Rod and Todd have joint and several liability as sureties on a loan made to Rod's business by First Bank. Under this agreement, Todd is a _________________. General guarantor Special guarantor Co-surety Sub-surety

Co-surety

A _________ is the voluntary relinquishment of the right to a mechanic's lien before a notice of lien is filed. Satisfaction and accord. Waiver. Collection proceeding. Confessed judgment.

Collection proceeding.

In a _______, a creditor must have made reasonable but unsuccessful attempts to collect from the principal before the guarantor can be held liable. Absolute guaranty. Unconditional guaranty. Conditional guaranty. Satisfaction guaranty.

Conditional Guaranty

An extension of time of payment between a creditor and principal must be a valid agreement supported by ______ if it is to have an impact on the surety's liability. Consideration Collateral Personal property. Real property.

Consideration

An extension of time of payment between a creditor and principal must be a valid agreement supported by ______ if it is to have an impact on the surety's liability. Consideration Collateral Personal property. Real property.

Consideration

The combination of two corporations that results in the dissolution of both corporations and the emergence of a new corporation is a(n) _____________. Merger Consolidation Purchase of assets Bulk transfer

Consolidation

What is the form of business organization that is subject to the most regulation at the state and federal level? Corporation Partnership Limited Partnership Professional Association

Corporation

The kind of voting that calculates the total number of votes a shareholder may cast by multiplying the number of shares he owns by the number of directors to be elected is _________ voting. Proxy Cumulative Non-cumulative Divisible

Cumulative

The method of voting that gives minority shareholders the best chance of electing someone to the board of directors is ______________ voting. Cumulative Consolidated Proxy Supermajority

Cumulative

A surety is liable to the creditor as soon as the principal ________. Enters into the contract. Makes an initial payment. Files for bankruptcy Defaults.

Defaults.

Any change in the identity of the partners, whether through death, withdrawal, or the adding of a new partner, results in the ________________of the old partnership. Termination Winding up Dissolution Disengagement

Dissolution

A partner who does not participate in management and whose existence is not known by the public is a Silent partner Dormant partner Secret partner Phantom

Dormant partner

A surety owes a _______ to the principal for any profits obtained after the surety performs. Duty to account. Debt. Duty to discharge. Percentage interest.

Duty to account.

The record date on which a dividend is payable is the ___________date. Proxy Activation Ex dividend Issuance

Ex-Dividend

Paul sued Dan and won a $90,000 judgment against him. Paul has identified property belonging to Dan that would be used to satisfy the judgment. The order the court will give to the sheriff instructing him or her to seize and sell Dan's property is a writ of ________________. Attachment Garnishment Execution Expropriation

Execution

Which of the following is recognized as a disadvantage to doing business as an LLC? Existing court decisions addressing LLC issues and formation are relatively undeveloped, which may lead to legal uncertainty when making business decisions. Individual members of the LLC can never bind the LLC in a valid and enforceable contract. Compared to other business entities, the LLC is taxed more heavily by the IRS. An LLC requires the participation of several owners, which can sometimes complicate day-to-day business decisions.

Existing court decisions addressing LLC issues and formation are relatively undeveloped, which may lead to legal uncertainty when making business decisions.

A corporation incorporated in Delaware and doing business in New Jersey is not a foreign corporation in New Jersey. T/F?

False

A creditor must exhaust his or her judicial remedies against the principal before seeking to recover from the surety. True False

False

A limited partnership has to have at least two general partners and at least one limited partner T/F?

False

A partner's capital contribution may consist in business experience or service to the firm. T/F?

False

A partnership is a taxable entity. T/F?

False

A shareholder's desire to discover why a dividend was not paid is not a "proper purpose" for allowing the shareholder access to the corporation's records. T/F?

False

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business. T/F?

False

An artisan's lien is always assignable. True False

False

An incoming partner has unlimited personal liability for the already existing debts of the partnership. T/F?

False

Any profits which a surety makes when called upon to perform the principal's duties belong to the surety. T/F?

False

Article 2A of the Uniform Commercial Code governs the sale of securities.

False

Bonding companies are usually uncompensated sureties. True False

False

Compared to other business entities, a general partnership requires filing complex documentation with the secretary of state's office before it is authorized to do business. True False

False

Contracts of suretyship are legally indistinguishable from contracts of indemnity. True False

False

Directors may vote on matters in which they have a personal interest. T/F?

False

Directors must be compensated for their services.

False

If a personal creditor of Partner A wants to attach A's partnership interest in satisfaction of the debt, he would do so through a marshalling order. T/F?

False

In a Limited Liability Company, the unanimous consent of the members is required to hire a new employee. True False

False

In a closely held corporation, the majority shareholders have a statutory duty to purchase the stock of a minority shareholder who has died. T/F?

False

In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties. T/F?

False

In a limited partnership, a general partner's fiduciary duty is breached when limited partners are not permitted to participate in management. True False

False

Individual members of the LLC can never bind the LLC in a valid and enforceable contract. True False

False

Lack of capacity and discharge in bankruptcy are two common defenses that are available to a surety that may be asserted against a creditor. True False

False

Limited Partnerships offer a convenient way for professional and family-owned enterprises to do business. True False

False

Marshaling of assets is the tax doctrine that allows income to be taxed only at the owner level and not at the organization level. T/F?

False

Misconduct of the principal that induces a party to become a surety allows that surety to avoid the contract. True False

False

One of the disadvantages of a Limited Liability Partnership is double taxation. True False

False

Partnerships are required to use the term "Company" in their names. T/F?

False

Shareholders are taxed on the value of the stock they receive in stock dividends True False

False

Stock that is issued and then repurchased by a corporation is watered stock.

False

The Statute of Limitations does not apply to surety contracts. True False

False

The articles of incorporation are drawn up at the first organizational meeting of the corporation. T/F?

False

The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not. True False

False

The majority of states have not yet enacted Limited Liability Partnership enabling statutes. T/F?

False

The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC. T/F?

False

The partnership must pay interest each year on the capital contributions of the partners. False

False

The partnership must pay interest each year on the capital contributions of the partners. T/F?

False

The person appointed by a corporation to receive service of process is the receiver. T/F?

False

Vic and Thom bought an antique Corvette at auction with the intent of restoring it and selling it for a profit, which they will share equally. Vic and Thom have formed a professional association. T/F?

False

A "certificate of limited partnership" is a document that is Filed with the state Secretary of State by the limited partnership as part of its application process. Issued by the IRS to acknowledge a limited partnership's tax status. Issued by the limited partners jointly to the general partner. Issued by the general partner to the limited partners.

Filed with the state Secretary of State by the limited partnership as part of its application process.

________ is a proceeding by which a plaintiff seeks to reach the assets of the defendant that are in the hands of a third party. Execution. Levy. Garnishment. Foreclosure.

Garnishment

Which business entity has the following characteristics: liability of the owners is limited to their investments; ownership interest is easily transferrable and there are no legal limits to the number of owners; owners elect the managers of the business who operate under duties of loyalty and due care; the entity is organized under state law and may have perpetual existence; profits are subject to double taxation? General partnership General corporation Limited liability corporation Limited partnership

General Corporation

In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? General partners Joint partners Limited partners Silent partners

General Partners

In which of the following business forms are profits taxed at both the entity level and the owner level? General corporation Limited Partnership LLC LLP

General corporation

Any third party who promises a creditor to be liable for a principal's payment is either a surety or _________. Obligee. Guarantor. Principal Debtor Obligor.

Guarantor.

Which of the following issues do not require a unanimous vote of the partners? Admission of a new partner Confession of a judgment against the partnership Disposal of the good will of the business Hiring an office manager for 40 hours a week.

Hiring an office manager for 40 hours a week.

The corporate merger that raises the greatest number of anti-trust issues is a _________merger; the corporate merger that raises the fewest number of anti-trust issues is a __________merger. Vertical ---------------------Conglomerate Horizontal----------------Vertical Horizontal----------------Conglomerate Vertical -------------------Horizontal

Horizontal----------------Conglomerate

If a partnership agreement does not say how losses will be shared, they will be shared Equally among the partners Proportionately according to the capital contribution of each partner. In whatever way the profits are shared. Equally among those partners who have not made loans to the partnership

In whatever way the profits are shared

Jim and Fred had been equal partners in J & F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false? Fred is entitled to compensation for winding up the business. Jim's estate is entitled to an accounting Jim's estate is entitled to participate in the winding up process. If there are not enough assets in the partnership to pay off all the debts, Jim's estate will be liable for one half of the losses

Jim's estate is entitled to participate in the winding up process.

Which of the following is an informal association of two or more persons who agree to engage as co-owners in a single business transaction? Joint venture General partnership Trading group Limited partnership

Joint Venture

Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? Joint venture Limited partnership Professional association General partnership

Joint venture

If a business has the power to own property, enter into contracts, and sue others in court, it is said to have Legal capacity legal standing legal authority corporate authority

Legal Capacity

Partnership agreements often fund the purchase of a deceased partners' partnership interests with Life insurance policies Distributions of retained earnings Levies on partnership interests Partner advances

Life insurance policies

Which business entity has the following characteristics: owners are normally professionals engaged in selling their services; owners have both limited liability for the debts of the entity and limited liability for the contracts and torts of the other owner-professionals; the entity is organized under state law; profits are taxed only at the owner level? General partnership Limited partnership Limited Liability Partnership Limited Liability Company

Limited Liability Partnership

Which business entity has the following characteristics: owners are normally professionals engaged in selling their services; owners have both limited liability for the debts of the entity and limited liability for the contracts and torts of the other owner-professionals; the entity is organized under state law; profits are taxed only at the owner level? General partnership Limited partnership Limited Liability Partnership Limited Liability Company

Limited Liability Partnership

In which of the following business organizations does an owner risk losing his or her limited liability by actively and publicly managing the business? Limited Partnership Limited Liability Partnership General corporation Limited liability corporation

Limited Partnership

All of the following could be recognized as advantages of doing business as a limited partnership, except: A limited partnership allows limit partners to be liable only to the extent of their capital contribution. Limited partners can actively share in management of the partnership, without incurring the risks of business liabilities. Limited partners can invest in a partnership while effectively protecting their personal assets. A Limited Partnership is often a convenient and attractive option to investors.

Limited partners can actively share in management of the partnership, without incurring the risks of business liabilities.

Which of the following statements about the limited partner in a limited partnership is FALSE? Limited partners may participate fully in the management of the partnership. There must be at least one limited partner. Limited partners must approve any changes to the partnership agreement. Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.

Limited partners may participate fully in the management of the partnership.

Which business entity has the following characteristics: one owner has unlimited personal liability for the debts of the business while other owners are liable only to the extent of their investments; owners lose their limited liability if they actively manage the business; the entity is organized under state law; both profits and loses pass through to the owners? General partnership Limited partnership Limited Liability Partnership Limited Liability Company

Limited partnership

An LLC in which non-owners are hired to run the day to day activities of the firm is a ______LLC. Member-managed Manager-managed Proprietary Subchapter S

Manager-managed

What is the equitable rule that 1 distributes assets of an insolvent partnership first to creditors of the partnership and 2 does not let partnership creditors reach the assets of individual partners until the partners' personal creditors are satisfied? Equitable distribution Comity of assets Marshaling of assets Partnership partition

Marshaling of assets

All of the following are considered advantages of doing business as an LLC, except: The LLC insulates its members from personal liabilities for the debts of the business. Members of the LLC may lawfully avoid filing personal tax returns with the IRS. The LLC can function much like a general partnership, while avoiding many of the risks of a general partnership. The LLC can provide its members voting rights that are proportionate to the members' capital contributions.

Members of the LLC may lawfully avoid filing personal tax returns with the IRS.

Stock which has no stated value when it is sold is ___________stock. Watered No par value Par value Restricted

No Par Value

Stock which has no stated value when it is sold is ___________stock. Watered No par value Par value Restricted

No Par Value

Peter, Paul and John, who were licensed pharmacists, formed a partnership to purchase and run a small drugstore chain. Each held a 13 interest in the partnership. When Paul died his wife Ellen began receiving annuity payments equal to 13 of the partnership's net profits. The payments were to last for 3 years. Ellen is also a licensed pharmacist and perfectly capable of performing all the duties that Peter, Paul and John performed. She claims that under partnership law both her right to receive a share of net profits and her expertise in the field are prima facie evidence that she is a partner in the firm. Is Ellen correct? No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership. No, only management rights are prima facie evidence of a partnership Yes, sharing in net profits for whatever reason is prima facie evidence of a partnership. Yes, sharing in net profits and having the same business qualifications as the other partners together create prima facie evidence of a partnership

No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership.

Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this? Yes, this is a legitimate way for closely held corporations to reduce their taxes. No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends. No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year.

No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends

Jim and Sid are partners in Widget Manufacturing. Jim read a letter from one of Widget's buyers asking for adequate assurances that Widget would be able to meet an upcoming contractual obligation. The demand was proper and, under Article 2, the buyer could treat the contract as breached if Widget did not respond to the demand within 3 months. Jim forgot to tell Sid about the demand and did not respond to it himself. Widget is now being sued by Buyer for 4,000 in damages for breach of contract. Sid contends that the partnership is not liable because only one partner was aware of the demand. Is Sid correct? Yes, as an equal owner of the business Sid was entitled to equal notice. No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence. No, the partnership is liable under the doctrine of respondeat superior No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.

No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.

Jim and Sid are partners in Widget Manufacturing. Jim read a letter from one of Widget's buyers asking for adequate assurances that Widget would be able to meet an upcoming contractual obligation. The demand was proper and, under Article 2, the buyer could treat the contract as breached if Widget did not respond to the demand within 3 months. Jim forgot to tell Sid about the demand and did not respond to it himself. Widget is now being sued by Buyer for 4,000 in damages for breach of contract. Sid contends that the partnership is not liable because only one partner was aware of the demand. Is Sid correct? Yes, as an equal owner of the business Sid was entitled to equal notice. No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence. No, the partnership is liable under the doctrine of respondeat superior No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.

No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.

Which of the following statements about the operation of a member-managed LLC is false? Articles of organization must be filed with the state as part of the application process. The application must state that it is to be a member-managed LLC. Only the managing members have access to the books and records of the LLC Any member of the LLC may bind the LLC on a contract.

Only the managing members have access to the books and records of the LLC

Tom was the minority shareholder in a closely held corporation. Despite massive profits, no dividends were ever declared. The corporation did, however, pay extremely large salaries and bonuses to the officers of the corporation, who were also the majority shareholders. The majority shareholders of this corporation are guilty of _______________. Ultra vires acts Quo warranto acts Oppressive conduct Embezzlement

Oppressive conduct

When ABC Corporation was formed, the directors authorized an issue of 1,250,000 shares at $1,000 a share. These shares are classified as _______________stock. Treasury Watered Par value No par value

Par value

Shares that are issued with a face value are Par value shares No par shares Treasury shares Non-certificated

Par value shares

Which of the following is not an advantage of a general partnership? Partners have limited liability for the debts of the partnership The costs to form a partnership are minimal. All partners have equal management rights. All of the above are advantages of a general partnership.

Partners have limited liability for the debts of the partnership

The business entity that consists in an association of two or more persons to carry on as co-owners a business for profit is an__________. Limited partnership Limited liability company Partnership Professional association

Partnership

When partners enter into a partnership without stating how long the partnership will last, they have formed an ____________________. Partnership for a term of years Implied partnership Partnership at will Partnership by the entireties

Partnership at Will

What is the provision of the tax rule that makes income taxable only for the individuals who receive it, and not for the business entity that produces it? Double taxation Pass through Dividend retention Income averaging

Pass Through

Perfect Painters submitted a bid to paint the dorm rooms at State University during the summer. State Law requires that all bidders for state contracts post a bond protecting the state against loss if the bidder fails to perform within the contract time. The kind of bond Perfect Painters will post is a _______________bond. Fidelity Mechanic's Performance Artisan's

Performance

A _______ provides protection against losses that may result from the failure of a contracting party to perform the contract as agreed. Performance bond. Foreclosure sale. Finance agreement. Payment schedule.

Performance Bond

Pat agreed to purchase 250 shares of Pamco Company five months before the corporation came into existence. This agreement is an _______________ Shareholders trust Shareholders proxy Pre-incorporation subscription Preemptive preference

Pre-incorporation subscription

The prerogative of existing shareholders to buy new issues of stock in the same proportion as their current holdings is their ___________ right. Buy and sell Redemption Subscription Preemptive

Preemptive

When a corporation dissolves, holders of ___________ stock have priority in the distribution of corporation assets. Preferred Common Treasury Participating

Preferred

Corporations are said to have a burden of "double tax" because Profits are taxed at the corporate level as income and again at the shareholder level as dividends. Corporations are taxed at both the state and federal level. Corporations must file federal tax returns twice a year because their taxing period runs for only 6 months. Corporations compute their federal tax liability by multiplying their state tax liability by 2

Profits are taxed at the corporate level as income and again at the shareholder level as dividends.

Corporations are said to have a burden of "double tax" because Profits are taxed at the corporate level as income and again at the shareholder level as dividends. Corporations are taxed at both the state and federal level. Corporations must file federal tax returns twice a year because their taxing period runs for only 6 months. Corporations compute their federal tax liability by multiplying their state tax liability by 2.

Profits are taxed at the corporate level as income and again at the shareholder level as dividends.

Which of the following statements about the taxation of corporations is false? Premiums paid for employee health insurance plans are fully deductible. Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule. Salaries paid to employees are deductible expenses for the corporation. Most states impose license fees or franchise taxes on corporations doing business in the state.

Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.

A shareholder who cannot attend a shareholder meeting may give another person the right to vote her shares in that election. This temporary grant of authority is an _______. Warrant Proxy Assignment Delegation

Proxy

The right of first refusal refers to the right of LLC members to Dissent from a business decision by a non-member manager. Vote against admitting another member. Purchase the interest of another member in the LLC before it is offered to an outside buyer Purchase an asset of the LLC before it is offered for sale to the public.

Purchase the interest of another member in the LLC before it is offered to an outside buyer

States have the power to cancel or revoke the charters of corporations that engage in illegal activities. These forfeiture hearings are called ______________proceedings. Divestiture Quo warranto Ultra vires Appraisal

Quo Warranto

Megan agreed to act as a surety on a personal loan First Bank made to Arthur. When Arthur defaulted on the loan, Megan paid off the loan obligation. Megan now has the right of ________against Arthur. Contribution Indemnification" Reimbursement Subrogation

Reimbursement

What happens when a court pierces the corporate veil? Shareholders become personally liable for the debts of the corporation. The court revokes the corporate charter. The promoter becomes liable for the debts of the newly formed corporation The court requires that the corporation be more substantially capitalized.

Shareholders become personally liable for the debts of the corporation.

ABC Corporation has been dissolved. After paying all its creditors, ABC will make a cash distribution to its shareholders. Of the following, which shareholders will have priority in the distribution? Shareholders who own un-exercised warrants. Shareholders who own preferred stock Owners of common stock who had title to the shares 180 days before the last ex-dividend date. All current owners of common stock.

Shareholders who own preferred stock

ABC Corporation has been dissolved. After paying all its creditors, ABC will make a cash distribution to its shareholders. Of the following, which shareholders will have priority in the distribution? Shareholders who own un-exercised warrants. Shareholders who own preferred stock Owners of common stock who had title to the shares 180 days before the last ex-dividend date. All current owners of common stock.

Shareholders who own preferred stock

A partner who has no voice in the management of the partnership Silent partner Dormant partner Secret partner Phantom

Silent partner

A ________ is a party who limits his or her promise to a single transaction or to a single creditor. General guarantor. Special guarantor. Creditor. Obligee.

Special guarantor.

Question 21 2.9 / 2.9 pts Allison is going to create a lawn service business. Allison would like to limit her liability by creating a subchapter "S" corporation. She does not know if the state she lives in allows for a single shareholder corporation. Where should Allison look to find the answer to her question? State statutes Federal statutes US Code of Federal Regulations Local ordinances

State statutes

Mike owned 10,000 shares in Texas Equipment that had a par value of 10. As part of a financial reorganization, Texas Equipment now records Mike as having 20,000 shares with a par value of 5. This is an example of a _____________. Stock dividend Stock repurchase Ex dividend split Stock split

Stock split

The method of voting for directors in which each shareholder casts as many votes as he or she has shares is the _______________method. Straight Cumulative Derivative Absolute

Straight

A ________ promises to be liable to the creditor only in the event that the surety refuses to perform and thereby defaults. Debtor. Co-surety. Subsurety. Obligee.

Subsurety

What is another name for a Subchapter S Corporation? Hybrid Limited Partnership Tax option corporation Limited Liability Company Professional Corporation

Tax option Corporation

Partners hold title to partnership property as Joint tenants Tenants in common Tenants in partnership Tenants by the entireties

Tenants in partnership

A document that an LLC must submit to the secretary of state's office prior to doing business is ______. The Operating Agreement. A Partnership Agreement. The Articles of Organization. A Security Interest Filing.

The Articles of Organization.

Which of the following statements about cash dividends is false? Cash dividends become a debt of the corporation once they are declared. Directors have personal liability for illegally declared dividends Shareholders who receive illegal cash dividends may be forced to return them to the corporation. The cash may come from any source, including the corporation's capital stock.

The cash may come from any source, including the corporation's capital stock.

In a successful derivative suit, any money awarded in the judgment will go to The corporation The plaintiff shareholder The plaintiff shareholder and the corporation will share the money equally. There can be no award of money because only equitable remedies are available in derivative suits.

The corporation

Which of the following are not grounds for a state cancelling a corporation's charter? The corporation has not made a profit in 3 years. The corporation did not pay its franchise tax The corporation failed to maintain a registered agent in the state. The corporation has not performed any corporate functions for a long time.

The corporation has not made a profit in 3 years.

Which of the following would not be grounds for dissolving a corporation? A quo warranto proceeding The shareholders are deadlocked in electing a board of directors. Oppressive conduct by a controlling shareholder. The corporation has not made a profit or declared dividends in two years.

The corporation has not made a profit or declared dividends in two years.

Which of the following best describes the role of a general partner in a limited partnership? The general partner usually has an insignificant role in the overall business decisions of the limited partnership. The general partner defers to the business decisions of the limited partners of the limited partnership, unless those decisions seem economically unreasonable. The general partner may participate in the business decisions of the limited partnership, but he or she will never be held personally liable for the debts of the business. The general partner manages the partnership and remains responsible for partnership liabilities.

The general partner manages the partnership and remains responsible for partnership liabilities.

In a Limited Partnership, a limited partners risk personal liability for partnership debts when __________. The limited partner offers to sell his or her interest in the partnership. The limited partner expresses his or her opposition to a decision made by the general partner. The limited partner becomes overly involved in partnership affairs. The limited partner decides to contribute significant personal assets as capital to the partnership.

The limited partner decides to contribute significant personal assets as capital to the partnership.

A member of an LLC risk personal liability for participating in all of the following activities, except: In the name of the LLC, the member secretly loans money to a close friend. The member knowingly files a false tax return with the IRS. The member volunteers to assume personal responsibility for a loan payments made by the LLC. The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC.

The member consistently votes against decisions that are ultimately approved by the majority of other members of the LLC.

In a suretyship, security for the creditor is provided by: Granting the creditor an interest in the debtor's real property A statutory lien on the debtor's personal property. The promise of a third party to perform if the debtor does not perform. A pledge by the debtor of personal property.

The promise of a third party to perform if the debtor does not perform.

Which of the following is not a right of a partner? The right to participate in the management of the business. The right to draw yearly interest on his or her capital contribution The right to inspect the partnership books and records. The right to sue for an accounting if another partner has taken a secret profit.

The right to draw yearly interest on his or her capital contribution

Which of the following statements about LLC's is false? LLC's are a relatively new form of business organization. There is an extensive body of law based on court decisions governing LLC's. Shareholders have no personal liability for the debts of the LLC. The LLC is not a taxable entity.

There is an extensive body of law based on court decisions governing LLC's.

Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false? They will be protected from suits for medical malpractice. They will be eligible for a tax-advantaged pension plan. Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation.

They will be protected from suits for medical malpractice.

All of the following are functions of an LLC's Operating Agreement, except: To set forth rules concerning voting rights for members of the LLC. To indemnify members of the LLC from liability for any unlawful acts. To make rules concerning the transfer of interests in the LLC. To address circumstances in which the LLC would dissolve.

To indemnify members of the LLC from liability for any unlawful acts.

Which of the following statements about treasury stock is FALSE? Treasury stock can be resold only at par value. It is stock that the corporation acquired by gift or by purchasing from shareholders. Most states require that corporations purchase treasury shares only with accumulated profits or surpluses. Creditors of the corporation or the state itself may block the purchase of treasury stock.

Treasury stock can be resold only at par value.

A Receiver is an officer of the court appointed on behalf of all parties to the litigation to take possession of, hold, and control the property involved in the suit for the benefit of the party, or parties, who will be determined to be entitled thereto True or False?

True

A Subchapter S corporation is taxed in the same way a partnership is taxed. T/F?

True

A corporation officer may be personally liable to the injured third party if he or she aided the corporation in violating a copyright or infringing on a patent. T/F

True

A limited partner has liability to the full extent of his or her capital contribution. True False

True

A limited partnership must have at least one general partner and one limited partner. T/F?

True

A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership. T/F?

True

A partnership maybe created by an express agreement between the parties or it may be implied from their conduct. T/F?

True

A person may become a partner without making a capital contribution. T/F?

True

A shareholder who has not fully paid the corporation for an original issue of stock may become liable to a creditor of the corporation for the unpaid balance. True False

True

A surety who only guarantees collection is entitled to notice. True False

True

Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business. T/F?

True

Absent an agreement otherwise, a Limited Liability Company's operating agreement can only be amended with the unanimous consent of the members. True False

True

An advantage to doing business as a corporation is that ownership interests can be transferred without impact on day-to-day business operations. T/F?

True

Both contractors and subcontractors are entitled to a mechanic's lien against the owner for nonpayment of their accounts. True False

True

California and New York allow only professional services firms to do business as Limited Liability Partnerships. True False

True

Co-sureties share joint and several liability to the creditor True False

True

Contractors have a longer period in which to file mechanic's liens that subcontractors or suppliers have. True False

True

Corporations normally have the power to make charitable contributions. T/F?

True

Courts will not allow a merger of corporations if the only purpose is to get rid of minority shareholders.

True

If net profits are retained in a Subchapter S corporation, income tax must be paid by shareholders on these earnings even though the earnings have not yet been received. T/F

True

If the principal does not default, the surety never becomes liable to the creditor. True False

True

In a Limited Liability Company, the losses and profits pass through to the shareholders. T/F?

True

In a closely held corporation, shareholders owe each other substantially the same fiduciary duties that partners owe one another. T/F?

True

In most states corporations can have perpetual existence. T/F?

True

Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss. T or F

True

Legal capacity is the ability of an organization to sue and to own property. T/F?

True

Limited Partnership must have at least one general partner. T/F?

True

Limited partners may lose the full amount their capital contribution if the limited partnership incurs debts that exceed its assets. True False

True

Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans. T/F?

True

Once a cash dividend is declared, it becomes a debt of the corporation. True False

True

Once a corporation has been dissolved and the remaining assets of the corporation have been distributed to the shareholders, a creditor of the corporation may be able to sue the former shareholders on the corporate debt. T/F?

True

One partner has the ability to veto the admission of a new partner into the business. T/F?

True

Partnership books must be kept in the firm's place of business and be accessible to all partners T/F?

True

Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies. T/F?

True

Professional corporations are business entities organized under state law. T/F?

True

Restatement of Security treats contracts of suretyship as interchangeable with guarantor contracts. T/F?

True

Shareholders have a right to vote on major changes to the corporation, such as mergers and dissolutions. T/F?

True

Shareholders may vote on matters in which they have a personal interest. T/F?

True

Shareholders of a corporation may also be employees of that corporation.

True

Shareholders of corporations pay taxes on the dividends distributed to them by the corporation. T/F?

True

Some states use the alter ego theory to require corporations to assume liability for contracts negotiated on their behalf by the promoters. T/F?

True

State courts have the power to order that real property be sold to satisfy a mechanic's lien. T/F?

True

State laws regulating the sale of securities within the state are called blue sky laws. T/F?

True

Stock warrants are not transferable and cannot be sold on any stock exchange. T/F?

True

Subrogation means the substitution of one person in place of another. True False

True

The agreement to purchase stock in a future corporation is a pre-incorporation subscription. T/F?

True

The bankruptcy of a partner will cause the dissolution of the partnership by operation of law. T/F?

True

The limited liability partnership is often an attractive option for professional associations such as law firms, accountants and medical doctors. T/F?

True

The party who signs the application for a corporate charter is the incorporator. T/F?

True

The surviving corporation in a merger assumes the liabilities and obligations of the merged corporation. T/F?

True

The surviving partner is entitled to compensation for winding up the affairs of the partnership. T/F?

True

The two types of guaranty agreements are general and special. True False

True

To create a Limited Liability Corporation, articles of organization must be filed with the state's Secretary of State's office. True False

True

Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships. T/F?

True

Usury laws do not apply to corporations when they borrow money. T/F?

True

Acts of a corporation that goes beyond the powers granted to it by the state or in its charter are _____________acts. Criminal Ultra vires Preemptive Peremptory

Ultra vires

The Articles of Incorporation for ABC Corporation specifically forbids the corporation from making personal loans to its officers or directors. Despite this, the board approved a personal loan to the President of the corporation. This action by the board is ______________. Ultra vires Peremptory A Malum in se A Malum prohibitum

Ultra vires

When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called __________________. Dissolution Winding up Marshaling of assets Termination

Winding Up

Which of the following statements about corporate bonds is true? Bond holders are creditors of the corporation Bond holders have the right to vote for directors Bonds pay a stated rate of interest. a and c

a and c

By statute, a limited partnership must have a minimum of ____________limited partners. one two four five

one

By statute, a limited partnership must have a minimum of ___________general partners. one two four five

one