MGMT 402 Exam 1 Review - Book Questions
Which of the following is NOT one of the four key characteristics of a corporation?
Distributed management
In which situation would a Kansas court NOT have personal jurisdiction over Dottie?
Dottie drove through Kansas on vacation, but doesn't live there; however, she is sued there as a result of a car accident she caused in New Hampshire.
The _____________ requires the government to provide you with notice and a hearing before it takes away your property.
Due Process Clause
Which provision in the U.S. Constitution requires a person to receive notice and a fair hearing before the government can deprive them of life, liberty, or property?
Due Process Clause
Which doctrine divides power between a national government and multiple state governments?
Federalism
The Environmental Protection Act was passed by Congress and signed by President Nixon in 1970. It created the federal Environmental Protection Agency (EPA). The EPA is authorized to regulate the amount of pollutants industrial facilities can legally emit. In this case, the Environmental Protection Act is the ________________ that empowers the EPA to create ________________ to control environmental pollution.
enabling legislation; administrative regulations
A lawsuit alleging an employee was fired in violation of Title VII of the Civil Rights Act of 1964, which is a law passed by the U.S. Congress, can be filed in federal court under the doctrine of:
federal question jurisdiction
The rights of corporate officers are generally determined by:
the contractual agreement between the officer and the corporation.
The framers of the Constitution felt a new document was needed to replace the Articles of Confederation largely because:
the federal government was too weak under the Articles.
TIP Tech has started franchising its battery stores around the country. One of the company's franchisees does exceptionally well, making $1 million in profits each year. The average store, however, only makes a profit of $200,000 per year. TIP Tech heavily touts the high-earning store in its franchise disclosure document. The document tells potential franchisees they could make $1 million per year, while failing to mention that the average franchise makes significantly less annually. If TIP Tech is found to have violated disclosure laws, all of the following penalties could be imposed, except:
the government could force TIP Tech to cease operations.
The fact that federalism is a characteristic of the U.S. government means that:
the national government and state governments share authority to govern citizens.
A state may not pass a law that ______________ a resident of another state.
unreasonably discriminates against
The president's tool to curtail Congress's power is known as:
veto power
Inez is TIP Technologies, Inc.'s sole shareholder, and the company is an S corp. TIP Tech has a banner year and makes $1 million in profit. The company decides to reinvest most of this profit into the business, but it pays Inez a distribution of $100,000. How much total taxes are owed to the federal government? (Assume the corporate tax rate is 35% and the individual tax rate is 20%.)
$200,000
Inez is the sole shareholder in TIP Technologies, Inc., a C corp. TIP Tech has a banner year and makes $1 million in profit. The company decides to reinvest most of it into the continued growth of the business, but it pays Inez a distribution of $100,000. How much in total taxes do Tip Tech and Inez owe the federal government? (Assume the corporate tax rate is 35% and the individual tax rate is 20%.)
$370,000
Which of the following might be a valid name for a brand-new corporation?
Battery Specialists Company!!!! (this one is right) Tyler, Inez, and Paulo Investments Silver Dollar Ventures, LLP McDonald's Ltd.
An officer's role in a corporation is to:
manage the day-to-day operations of the company.
Suppose the federal government does not have the power to regulate insurance rates within a state. If the federal government passes a law regulating such rates because that law enables it to effectively regulate matters within its enumerated powers, it is exercising its:
necessary and proper power
Suppose someone wants to stand on a street corner and shout offensive things at passersby. This would usually be regarded as:
partially protected speech
By default, an LLC is taxed like a(n):
partnership
The primary difference between directors and officers when it comes to the duty of obedience is that directors must obey the _____________, and officers must obey the ______________.
shareholders; directors
When forming a corporation, _____________ appoint ____________, and then _____________ appoint _____________.
shareholders; directors; directors; officers
TIP Tech has 25 directors on its board. What is the smallest number of directors possible that could vote in favor of a binding decision?
7
There are four open seats up for election at the Eco Energy annual shareholders meeting. Carla really wants her friend Penny to become a director. If Carla owns 500 Eco Energy shares, and Eco Energy practices cumulative voting, how many votes can she cast for Penny to win one of the open seats?
2,000
Tyler, Inez, and Paulo are the only members of TIP Technologies, LLC. Inez contributes $10,000 of initial capital to the LLC. Tyler and Paulo each contribute $5,000. By default, Inez will be allocated _________ of the company's profits. However, if Tyler, Inez, and Paulo wanted each member's profit allocation to be in proportion to his or her capital contribution, then they could allocate _________ of the profits to Inez.
33.3%; 50%
Suppose you and two friends want to be owners of the stock in a new corporation. You want to make sure that your friends can't sell their stock to some outsiders under any circumstances. Which of the following provisions should you include in your shareholders' agreement?
A buy-sell agreement
Sunny Solar is a franchisor that manufactures solar panels and ships them to franchised retailers, who then sell them to the public. Which type of franchise arrangement is this?
A distributorship
Suppose the federal government passes a law prohibiting employees of battery manufacturers from campaigning for political candidates, with the penalty for violating the law being one year in prison. If this prohibition infringes upon a right granted to the people by the Constitution (which it would), and a TIP Tech employee is charged criminally for violating the law, what would happen when the case gets to federal court?
A federal court would invalidate the law as being unconstitutional and the employee would go free.
Which of the following situations is likely to result in a court piercing the corporate veil?
A sole shareholder of a small corporation pays their personal expenses using the corporate checking account.
Which of the following types of courts exists outside the three levels of judicial branch courts?
Administrative court
If TIP Technologies, LLC agrees to license its intellectual property and business methods to someone else, the franchisee must be organized as what form of business?
Any form
Suppose Mobilio files a lawsuit against TIP Tech in Florida. Which of the following would NOT be a reason why the court might agree to move the case to California?
California judges are more knowledgeable in resolving disputes between high-tech firms.
Suppose TIP Technologies, LLC allows a North Dakota company to use TIP Tech's technology to manufacture and sell TIP Tech-brand batteries to the public in that state. Which form of franchise arrangement is this?
Chain-style franchise
Suppose your friend wants to start a new corporation. They come to you asking how to get started. What should you advise them to do first?
Choose a corporate name.
Which of the following is NOT one of the steps in forming a limited liability company?
Choose whether the owners will be personally liable.
Your friend Jamal comes to you and is very frustrated because he owns stock in a corporation that is very profitable but is not paying any of its profits to the shareholders as dividends. Jamal asks you what he can do, as a shareholder, to be paid more dividends. What do you advise him to do?
Elect directors who will pay dividends.
The clause that prevents the government from treating one religion more favorably than another is the:
Establishment Clause
Administrative regulations are laws created by which branch of government?
Executive branch
Suppose you obtain a judgment in Kentucky against someone who hit your car. If you try to enforce that judgment against the person where they live in Indiana, Indiana will honor the Kentucky judgment because of the:
Full Faith and Credit Clause
Suppose you win a judgment against a company in an Oregon state court, but the company is headquartered in Nebraska. When you try to collect on the judgment, which part of the Constitution will ensure that a Nebraska court will enforce the judgment?
Full Faith and Credit Clause
Ohm Motors, Corp. is starting to create a lot of buzz in the automotive technology industry. Sammy, David, and Gina are Ohm Motors shareholders. Gigantic Vehicle Company has indicated that it's interested in purchasing Ohm. Sammy and David both want to sell it to Gigantic, but Gina doesn't. So, Sammy and David hatch an ingenious plan: They call a special meeting of Ohm's shareholders and send out a notice stating that the purpose of the meeting is to consider expanding the number of directors from three to four. Sammy and David know that Gina doesn't care about that issue, so she may not show up to the meeting. And she doesn't. During the meeting, Sammy and David don't vote on whether to elect another director. Instead, they vote to sell Ohm to Gigantic. When Gina finds out what happened at the meeting, she sues to stop the sale. Who wins?
Gina wins because Sammy and David took an action at a special shareholders' meeting that was not listed on the notice of meeting.
Tyler, Inez, and Paulo are the only members of TIP Technologies, LLC, a limited liability company taxed under the default rules, and each owns an equal share of the company. TIP Tech makes a $3-million profit this year, but doesn't distribute the profits to the members so that it can continue to invest in more growth. How can Tyler's tax liability be described?
He must pay taxes on $1 million of income, even though he received nothing from the company.
Which of the following would be an acceptable name for a new limited liability company?
Hybrid Technologies Co. Ford Motor LLC Green Car LC!!! (this one is right) Electric Vehicles Ltd.
Tucson is a city that lies within Pima County in the state of Arizona. Suppose Tucson passes an ordinance prohibiting residents from keeping chickens on their properties. Pima County has no such ordinance. If you want to legally keep chickens on your property, where should you live?
In Pima County but not in Tucson
Trixie Trouble files a frivolous lawsuit against TIP Tech for employment discrimination. They go to court, have a trial, and TIP Tech wins. Huzzah! Trixie is very upset, however, and immediately after the trial verdict is read exclaims, "I'm taking this straight to the Supreme Court, and you'll be sorry!" Will the Supreme Court hear Trixie's appeal?
No, because she can't appeal from the trial court to the Supreme Court.
Suppose Colorado decided it didn't want to permit its residents to speak freely anymore and thus took away their First Amendment rights. Which doctrine would allow the Supreme Court to force Colorado to comply with the Bill of Rights?
Incorporation
Tyler is hired as an officer of TIP Tech. Inez is a member of TIP Tech's board of directors and instructs Tyler to invest in a new line of business. However, Xuen, a TIP Tech shareholder, goes to Tyler and tells him to invest in a different new line of business. Whom should Tyler obey?
Inez, because an officer's duty is to obey the board of directors.
Of the various meetings that must happen when a new corporation is formed, which one happens first?
Initial meeting of shareholders
Congress does not have the authority to set speed limits on local city streets. If Congress passes a law providing that trucks carrying hazardous chemicals across state lines are never permitted to exceed 45 miles per hour, including on local city streets, what is the most likely outcome of a lawsuit challenging the constitutionality of this law?
It is found to be valid as long as the speed limit on local city streets is necessary and proper for carrying out the regulation of interstate commerce.
If Julie owns and operates a local Jamba Juice franchise, who will be held liable if a customer slips on a wet floor inside the store and injures himself?
Julie, because she is an independent contractor.
Athos is hired as an officer of Musketeers, Inc. Which of the following activities would be most consistent with his job responsibilities as an officer?
Manage the day-to-day operations of the company
Tyler is hired as an officer of TIP Tech. His employment agreement states that the corporation is not required to indemnify him for any claims, but that he has the right to a certain amount of compensation and the right to reimbursement. If a shareholder sues the directors, and Tyler personally as an officer, for mismanaging the business, will TIP Tech be required to pay for Tyler's defense in court?
No, because he agreed not to be indemnified.
Tyler, Inez, and Paulo properly fill out the articles of incorporation for TIP Technologies, Inc. and mail the articles, along with the appropriate filing fee, to the secretary of state. They then hold an initial meeting of shareholders and appoint directors. The directors then hold their initial meeting and appoint officers. Those officers interview several candidates to fill a position at TIP Tech, and one of those candidates claims he was discriminated against because of his age. TIP Tech wants to quickly sweep this issue under the rug, so they settle with the candidate for $500,000. Tyler, Inez, and Paulo are then surprised when their lawyer informs them that the state has no record of a TIP Technologies, Inc. ever being formed. The articles of incorporation appear to have been lost in the mail and no one realized it until after TIP Tech incurred the $500,000 debt. Will Tyler, Inez, and Paulo be held personally liable for the debt?
No, because they made a good faith effort to follow the statutory incorporation requirements and did not know that the corporation had not been properly formed.
If you witness your friend stealing a stranger's purse, can you sue your friend for the theft, assuming you file the lawsuit in the same state where it happened?
No, because you don't have standing to sue.
If North Dakota passes a law prohibiting South Dakotans from using North Dakotan emergency rooms, this is a violation of which part of the Constitution?
Privileges and Immunities Clause
Which of the following does NOT fall within the definition of "speech" under the First Amendment?
Publishing a novel Sending an email Donating money to a political organization THESE ARE ALL SPEECH
Which of the following instruments can prevent a shareholder from selling their shares in a company to an outsider?
Right of first refusal Shareholder agreement Buy-sell agreement ALL OF THESE
Which of the following rights is NOT afforded to corporate directors?
Right to recruit and hire new entry-level employees
What is the biggest difference between S corporations and C corporations?
S corps avoid double taxation.
Tyler, Inez, and Paulo are all members of TIP Technologies, LLC. Tyler and Paulo have a falling out, and Paulo decides that he doesn't want to own any part of the company any longer. TIP Tech is very successful, and Paulo's friend, Elizabeth, offers to buy his ownership interest. Once Paulo sells his ownership interest to Elizabeth, what rights does she have in relation to the company?
She can receive distributions of profits but not vote on LLC affairs.
If Susan sells her membership interest in Sunny Solar LLC to her friend Eliza, what rights will Eliza have with respect to the company?
She will have the right to receive distributions of profits but not the right to vote.
Which of the following types of courts are the most prevalent nationwide?
State trial courts
Daphne runs a small side business making beaded jewelry and selling it on the internet. She forms a corporation to operate her small business and takes out a bank loan in the name of the corporation. She fails to repay the loan, and the bank sues the corporation, but the corporation has no money at this point. During the lawsuit, it comes out that Daphne made rent payments for her apartment and paid for a Hawaiian vacation using the corporation's checking account. The bank sues Daphne personally to recover the corporate debt. Who wins?
The bank wins because Daphne commingled funds.
Suppose the Nebraska state constitution contains a provision that allows employers to discriminate based on an applicant's race when making hiring decisions. If a federal administrative regulation issued by the U.S. Department of Labor prohibits discrimination based on race when making hiring decisions, which law will prevail: the state constitution or the federal administrative regulation?
The federal administrative regulation.
Suppose there is a law that requires food producers to cite research studies that back up their claims when they advertise the health benefits of their products. If a company is fined for publishing an ad claiming its foods fight cancer without adequate scientific support and it tries to fight the fine in court, claiming that it was simply exercising its right to free speech and that the fine is a violation of the First Amendment, who wins?
The government wins, because the ad was commercial speech.
If the president issues an executive order that exceeds their constitutional authority, what checks do the other branches of government have to rein in this action?
The legislative branch can impeach the president.
Which of the following is NOT a requirement in order to have standing in a lawsuit?
The plaintiff must have witnessed the events giving rise to the lawsuit.
Suppose the Montana legislature passes a statute making it illegal to kill bison in the state, and the governor signs the legislation. Later a new governor is elected. The new governor believes there are too many bison in the state, so she issues an executive order requiring all of Montana's state park rangers to hunt bison to thin out their herds. (Park rangers are employees of the state's executive branch.) Which law should you follow if you are a park ranger in Montana?
The state statute prohibiting killing bison
How prevalent are federal trial courts?
There are one to four districts in each state.
Which of the following is NOT required for a director to prove they acted in accordance with their duty of care?
They acted in accordance with industry best practices.
Suppose Angel works for We're All Nuts Snacks and serves on the board of directors of MegaSnacks, Inc. Which of the following would be a reason why Angel might need to resign from MegaSnacks' board?
We're All Nuts Snacks and MegaSnacks release products that directly compete with one another.
Isabella, Susan, and Ben form Sunny Solar LLC as a member-managed limited liability company, and all three become members. They decide Isabella will have the primary responsibility of managing the company on a daily basis. Without the knowledge or consent of Susan or Isabella, Ben signs a lease on behalf of Sunny Solar to rent some office space. Will the company have to abide by the contract that Ben signed?
Yes, because all members of a member-managed LLC have the right to manage the company.
Paulo is a director of TIP Tech. Carlyle Icon, an activist investor, purchases a large stake in TIP Tech and starts demanding changes to the way the corporation is run. Carlyle wants to increase the stock price in the short term so he can cash out his stock and make a large profit. Paulo strongly disagrees with the changes Carlyle is demanding, specifically his suggestion to eliminate a newly launched product Paulo believes will eventually become very profitable. When Carlyle requests to see a report on the company's financial status, Paulo sends it to him. However, Paulo modifies the sales numbers for the new product to make it seem more successful than it currently is so that Carlyle will stop pressuring the board to stop it. The product continues to be unsuccessful. Carlyle eventually finds out about how Paulo changed the report and sues him. Will Paulo be liable to Icon?
Yes, because he intentionally misled a shareholder and caused him damage.
Inez is a director of TIP Tech. She hears a rumor that TIP Tech's CEO has been sexually propositioning several subordinates. The source is credible, but Inez doesn't investigate because she doesn't think the CEO is the type of person who would do such a thing. Has Inez breached her duty of care?
Yes, because she failed to investigate a corporate officer who may have put the corporation at risk for a lawsuit.
You and your colleagues want to form a corporation, but you all want to be shareholders and directors and officers. Can you do this?
Yes, one person can be a shareholder, director, and officer of a corporation.
Pia is a director of Great Big Games, Inc. Her husband owns a large parcel of vacant land near Great Big Games' current offices. As Great Big Games grows and starts to look for space to expand, Pia convinces the board to approve the purchase of her husband's property for their new headquarters building, but she doesn't disclose her husband's ownership of the land. Has Pia breached any of her fiduciary duties to the corporation?
Yes, she breached the duty of loyalty.
The directors of We're All Nuts Snacks are considering a merger with MegaSnacks, Inc., so they put the merger to a vote of the shareholders. We're All Nuts' shareholders vote against the merger, but the directors decide to proceed with it because they reasonably, and in good faith, think it is in the best interests of the corporation. Have the directors violated a duty?
Yes, they have violated the duty of obedience by not following the shareholders' vote.
Sam Shady, a TIP Tech employee, makes several public posts to his social media accounts that paint the company in a very negative light. TIP Tech finds out about the posts and fires him. Sam wants to sue the company because he believes his First Amendment rights have been violated. If Sam and TIP Tech are both residents of the same state, can he sue the company in federal court?
Yes, under federal question jurisdiction.
If Li, Charlie, and Donell form Recycled Sports LLC, and in the articles of organization they give the company perpetual existence, this is known as a(n):
at-will LLC
A manager-managed LLC that chooses not to be taxed as a pass-through entity looks and acts very similar to a:
corporation
In a derivative shareholder lawsuit, the plaintiff is the ____________, and any money recovered goes to the _____________.
corporation; corporation
Rafael decides to form his new business as a corporation under the corporation statute of South Carolina. Within the state of South Carolina, the company would be known as a ___________ corporation, but in all other states, it would be a(n) _____________ corporation.
domestic; foreign
The decision of whether to file a lawsuit in state court or federal court is a question concerning:
forum
In a franchise, the __________ allows the ____________ to use its intellectual property to operate a separately owned and managed business.
franchisor; franchisee
When starting a new corporation, the _________ is the person who signs and files the articles of incorporation, and the ___________ are people who agree to purchase stock once the corporation has been created.
incorporator; subscribers
Chen and Amanda are both shareholders and directors of We're All Nuts Snacks. Chen is also a We're All Nuts employee, but Amanda is employed by Behemoth Enterprises. Chen is an _____________ director, and Amanda is an ______________ director.
inside; outside
