Chapter 6 Test

True

A corporation offers more flexibility than a limited liability company (LLC) in terms of tax treatment.

False

A disadvantage of an S corporation is that it can have no more than 50 stockholders.

False

A limited liability company (LLC) can elect to be taxed as a corporation.

True

Choice of ownership determines the degree to which each owner has personal liability for the firm's debts.

True

Corporations are by far the most common type of business organization in the United States.

spin-off

A(n) _____, a type of divestiture, occurs when a company issues stock in one of its own divisions or operating units and sets it up as a separate company—complete with its own board of directors and corporate officers.

statutory close corporation

All owners of a _____ can actively participate in management while still having limited liability.

common stockholders

Heinrich Chemical Corporation holds an annual meeting in which it invites all individuals who hold shares in the company. The occasion is also set aside for the election of a new member to the company's board of directors. However, the company ensures that only individuals who have the right to vote participate in the election. In this scenario, the _____ of the company take part in the voting process.

only pays taxes on his income as the owner.

Francois is the sole owner of a photo studio and handles most of the work himself. All earnings from the studio become Francois's income. Given this information, Francois:

hostile takeover

In the context of an acquisition, when the acquiring firm buys the target firm despite the opposition of the target's board and top management, the result is called a _____.

improve efficiency by eliminating duplication of facilities and personnel.

In the context of corporate restructuring, a common objective of a horizontal merger is to:

Preffered stockholder

Norman owns a large number of shares in a telecommunications corporation. Despite that, he does not have the right to vote in a meeting held specifically to elect the CEO of the company. In this scenario, Norman is most likely a _____.

True

One of the disadvantages of general partnerships is the lack of continuity.

because single individuals can retain the total profits of the company.

One of the reasons why C corporations have an edge over sole proprietorships is:

offer limited liability.

Since sole proprietorships are extensions of their owners, they:

True

The earnings of not-for-profit corporations are exempt from federal and state income taxes.

False

The most common type of corporation is an S corporation.

C corporation

The stockholders of a construction firm decide to start a steel company, but they want to have limited liability. After completing the business plan, they initiate the process of establishing the company by filing articles of incorporation and paying the filing fees to the state government. In this scenario, the stockholders of the firm want to start a _____.

True

There is no limit on the number of partners who can participate in a general partnership.

chief executive officer

Conall is appointed by a nine-member board of directors of a real estate company to manage the company on a daily basis. The board ensures that Conall acts in a manner that is consistent with the interests of the stockholders. Given this information, Conall is most likely a _____.

Both can actively participate in the management of the company.

Which of the following is a similarity between a general partner and a limited partner in a limited partnership?

Its stockholders have limited liability.

Which of the following is an advantage of an S corporation?

Partners capitalize on complementary skills.

Which of the following is an advantage of general partnerships?