Chapters 17, 18 MindTap

Which of the following is a requirement for the initial formation of a corporation? a. Articles of Incorporation b. a board of directors c. an initial stock offering d. a minute book

a. Articles of Incorporation

Which statement is true about creating a sole proprietorship? a. No documentation is required to create a sole proprietorship. b. There is a waiting period of 30 days between opening the business and the time a sole proprietorship becomes official. c. The members of a sole proprietorship must write and sign an operating agreement. d. The owner of a sole proprietorship must file an official record of the business name with the secretary of state's office.

a. No documentation is required to create a sole proprietorship.

The simplest form of business to establish is a: a. sole proprietorship. b. corporation. c. partnership. d. limited liability company.

a. sole proprietorship.

A sole proprietorship differs from a limited liability company (LLC) in: a. the documentation required for formation. b. the minimum number of owners. c. ability to earn a profit. d. how stock is sold.

a. the documentation required for formation.

An operating agreement for a limited liability company: a. may not specify how profits are divided. b. typically includes provisions about choosing the LLC's management. c. must be in writing and signed by all the officers of the company. d. is required for the operation of a limited liability company.

b. typically includes provisions about choosing the LLC's management.

Alma owns fifty shares of common stock in Alpha Corporation. Alma also owns eighty shares of preferred stock in the same corporation. Alpha Corporation has an upcoming vote for a new director. In the election for the new board member of Alpha, Alma will be able to cast: a. 80 votes. b. no votes. c. 50 votes. d. 130 votes.

c. 50 votes.

In ordinary circumstances, when the corporate veil has not been pierced, a shareholder may be liable for: a. a portion of corporate fines for environmental violations. b. the actions of the board of directors. c. unpaid amounts on the shares held by that shareholder. d. a portion of the settlement in a class-action lawsuit.

c. unpaid amounts on the shares held by that shareholder.

Which of the following is a duty of both corporate directors and corporate officers? a. limiting political endorsements to only candidates that the corporation supports b. purchasing stock in the company c. working at least forty hours per week for the corporation d. making a full disclosure of potential conflicts of interest

d. making a full disclosure of potential conflicts of interest

Common shareholders have the right to vote on: a. when to pay dividends. b. price of stock. c. compensation for the officers. d. proposals for fundamental changes affecting the company such as mergers or liquidation.

d. proposals for fundamental changes affecting the company such as mergers or liquidation.

Lillian applies for a job as the chief financial officer (CFO) of Delco Corporation. Lillian is excited about the opportunity and feels that she has a pretty good chance of getting the position. Just to make sure, Lillian decides to explore the backgrounds of the decision-makers at Delco. If Lillian knows their interests, she thinks that might increase her chances of making a good impression in the final interview. The decision-makers who will decide whether or not Lillian gets the CFO position at Delco Corporation include: a. the shareholders of Delco Corporation. b. the chief executive officer, secretary, and treasurer of Delco Corporation. c. the chief executive officer only. d. the board of directors.

d. the board of directors.

Who is liable for contracts entered into on behalf of the corporation before the corporation is formed? a. the promoter b. the Chief Executive Officer c. no one, because that cannot happen d. the corporation

a. the promoter

What type of corporation is formed for the purpose of doing a public service instead of making money? a. public b. publicly held c. nonprofit d. privately held

c. nonprofit

A corporation that is formed in one state but does business in another state is referred to in the second state as: a. an alien corporation. b. a foreign corporation. c. a domestic corporation. d. a distant corporation.

b. a foreign corporation.

Which of the following is a disadvantage of operating as a partnership? a. A partnership may be formed for only one year at a time and the registration must be renewed annually. b. A partnership may not own real or personal property. c. Partners may suffer financial loss if the partnership is not profitable. d. Partnerships are taxed at the same rate as corporations.

c. Partners may suffer financial loss if the partnership is not profitable.

Kelly lives in Arkansas and works in the data division of Acxiom Corporation. Acxiom has its headquarters in Conway, Arkansas. Acxiom is incorporated in Delaware, however, because of the corporate-friendly laws in that state. Kelly works in a(n): a. domestic corporation, because Acxiom's headquarters is in the same state where Kelly works. b. foreign corporation because Acxiom is incorporated in a different state than the division where Kelly works. c. close corporation because Kelly works in a division of Acxiom located close to where she lives. d. alien corporation because Acxiom is incorporated in a different state than the division where Kelly works.

b. foreign corporation because Acxiom is incorporated in a different state than the division where Kelly works.

Savannah is shopping at King Toys Inc. when a large box of toys falls from a top shelf and strikes her, causing severe injuries. Savannah sues King Toys Inc. and each of its shareholders individually for her injuries. If Savannah's lawsuit is successful, she will be able to recover from: a. neither the corporate entity nor the shareholders. b. the shareholders only. c. the corporate entity only. d. the corporate entity and the individual shareholders.

c. the corporate entity only.

Johnson lives near Dollywood, a popular theme park in Tennessee. Johnson decides to begin a new money-making venture selling screen printed t-shirts from a booth just down the road from the theme park, to take advantage of the traffic that flows by on its way to the park. Johnson's t-shirts, however, will not be Dollywood-themed t-shirts; they will be Johnson's own creations. Johnson's daughter Susan helps him in his new venture by manning the booth from time to time, but Johnson has total control over everything about the business—from ordering the t-shirts, paying the bills, pricing the t-shirts, paying the taxes on his sales, and receiving all the profits from the venture. Even though Johnson put no thought into what kind of business venture he was creating when he started his business, Johnson has effectively created a: a. sole proprietorship. b. franchise. c. limited liability company. d. corporation.

a. sole proprietorship.

A partnership in which the liability of all the partners is limited to the amount of their capital investment in the firm is called a: a. limited partnership. b. limited liability limited partnership. c. limited liability partnership. d. general partnership.

b. limited liability limited partnership.

Bart, Sam, and Greg create Big Barns Sales LLC, a company that builds pre-constructed barns. They file the certificate of organization with the secretary of state and create an operating agreement for the LLC. The operating agreement, however, does not address the method by which the LLC will be managed. Because management of the LLC is not addressed in the operating agreement, it is assumed the LLC will be: a. manager-managed, and the members will designate a person or persons to manage the LLC, which may include nonmembers. b. manager-managed; the members will designate a person or persons to manage the LLC, and none of the managers can be members. c. member-managed; all members will vote on decisions of the LLC, and the majority vote controls. d. member-managed, and the member with the largest capital investment will control the decisions of the LLC.

c. member-managed; all members will vote on decisions of the LLC, and the majority vote controls.

Lola, Jacy, and Tate plan to create a company to manufacture bicycles. After reviewing the pros and cons of the various forms of business enterprises, they decide to create a limited liability company. To create a limited liability company: a. they must file a certificate of organization with the secretary of state and should create an operating agreement, although an operating agreement is not required. b. they must file a certificate of organization with the county clerk and should create an operating agreement, although an operating agreement is not required. c. they must file an operating agreement with the secretary of state and should create a certificate of organization, although a certificate of organization is not required. d. they must file a certificate of organization and an operating agreement with the secretary of state.

a. they must file a certificate of organization with the secretary of state and should create an operating agreement, although an operating agreement is not required.

Jerry Hall and Lawrence Vaught practice law in the same building. They share equally in the overhead expenses, such as rent and utilities, required to keep the business running. Both Jerry and Lawrence handle their own cases, consult and accept their own clients, and purchase their own advertising. Jerry and Lawrence do occasionally handle a case together, and they have stationery that says "Hall and Vaught" on the letterhead. They each have their own stationery as well. Jerry and Lawrence keep their finances separate, except when they handle a case together; then, they split the proceeds equally. When a client of Jerry's becomes dissatisfied and sues Jerry for malpractice, she sues Lawrence as well. In deciding whether or not a partnership exists here, the court will look at: a. whether Jerry and Lawrence share profits and losses, whether they own the business jointly, and whether they have an equal right to be involved in the management of the business. b. whether Jerry and Lawrence have signed a partnership agreement. c. whether Jerry and Lawrence share profits and losses in the business. d. whether Jerry and Lawrence list themselves as partners on their letterhead.

a. whether Jerry and Lawrence share profits and losses, whether they own the business jointly, and whether they have an equal right to be involved in the management of the business.

Genna and four others are establishing a business to create monogrammed items of personal clothing to sell to the general public. Genna is concerned about entering into business with others and possibly being liable for their actions, so she convinces the others that they should incorporate. After doing some basic research on how to incorporate a business, Genna starts preparing the articles of incorporation. At a minimum, Genna must make sure that the articles of incorporation include: a. the name of the corporation, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator. b. the name of the corporation, the number of shares of stock the corporation is authorized to issue, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator. c. the name of the corporation, the number of shares of stock the corporation is authorized to issue, and the name and address of each incorporator. d. the name of the corporation and the name and address of each incorporator.

b. the name of the corporation, the number of shares of stock the corporation is authorized to issue, the name and street address of the initial registered agent of the corporation and his or her registered office, and the name and address of each incorporator.

Ellie, Josie, and Dylan are partners in a car dealership. Ellie gives notice to Josie and Dylan that she wants to withdraw from the partnership, and Josie and Dylan decide to continue the partnership without her. Shortly after Ellie leaves the partnership, she has lunch with an old friend, Justin. Justin has been looking for a new car and asks about the price of a particular car he saw on the website of the dealership, because he does not know that Ellie has left the partnership. Instead of telling Justin that she has left the partnership, Ellie quotes Dylan a price for the car, and Dylan accepts. When Dylan goes to the car dealership to complete the deal: a. the dealership is not required to honor the deal whether or not it has provided Dylan notice of Ellie's dissociation. b. the dealership is not required to honor the deal because Ellie is no longer a partner. c. the dealership must honor the deal and reinstate Ellie as a partner. d. the dealership must honor the deal unless it has provided Dylan notice of Ellie's dissociation.

d. the dealership must honor the deal unless it has provided Dylan notice of Ellie's dissociation.