Business - Quiz #7

Billy BigBucks, a millionaire, forms a corporation so Bill will have "limited liability" with his business. Billy invests $1,000 in the business and the business borrows the rest of the money it needs to operate the business. Billy's business is called "Back-Yards-R-Us, Limited" and the business installs a swimming pool in Kelly's backyard (this is the first customer of the business). During construction of the swim pool, a neighbor's 11-year-old son, Mike, falls into the empty pool and hits his head, causing a serious concussion and brain injury. Billy's business did not have the required fence around the construction site as required by local law. The neighbor sues Kelly, the home-owner, Back-Yards-R-Us, the business, and Billy BigBucks, the owner of the business, for a total of $500,000. Assuming the parent of Mike wins this lawsuit, and assuming Kelly only has $100,000 in potential assets, and assuming the business only has $1,000 in actual assets, is it possible that Bill BigBucks has personal liability for this lawsuit? A. Back-Yards-R-Us, Limited, is liable for this judgment to the extent the business has assets (in this case only $1,000) and Billy BigBucks is, also, personally liable assuming the court "pierces the corporate veil" and finds the owner of the business, Billy, personally liable since the corporation was breaking the law. B. Back-Yards-R-Us, Limited, is liable for this judgment to the extent the business has assets (in this case only $1,000), and Billy BigBucks is not liable since Billy has the "limited liability" of an investor in the corporation. This is the reason why investors form corporations so there is never any personal liability for the debts of the corporation.

A. Back-Yards-R-Us, Limited, is liable for this judgment to the extent the business has assets (in this case only $1,000) and Billy BigBucks is, also, personally liable assuming the court "pierces the corporate veil" and finds the owner of the business, Billy, personally liable since the corporation was breaking the law.

In a limited partnership (keeping in mind our discussion of the Grand Rapids B.O.B.), who assumes unlimited personal liability for the debts of the limited partnership? A. General partners B. Limited partners C. Special partners D. General partners, Limited partners, and Special partners E. General partners, Special partners, but not limited partners

A. General partners

What is a "B-Corp.?" A. A corporation certified by the Bond Authority to hire Daca "dreamers" B. A corporation that has met certain sustainability and environmental standards and has been certified by B-Lab. C. A corporation that strictly follows Milton Friedman's philosophy D. None of the other choices are good answers

B. A corporation that has met certain sustainability and environmental standards and has been certified by B-Lab.

Which of the following is generally not true regarding the management of the corporation? A. Shareholders elect directors B. Directors do not participate in corporate management C. The board of directors selects officers to manage the day-to-day business of the corporation D. All choices are correct

B. Directors do not participate in corporate management

Both Officers and Shareholders are directly responsible for the daily management of a corporation A. True B. False

B. False

For the materials on Business Organizations and Sustainability, professor Sanford assigned two articles on West Michigan businesses: Brewery Vivant and Herman Miller (now MillerKnoll). Both of these businesses are good examples of business organizations that follow Milton Friedman's philosophy of maximizing profits for only shareholders and not engaging in any other social or environmental activity (Both organizations practice "stockholder capitalism"). A.True B. False

B. False

The Sarbanes-Oxley Act of 2002 (called "socks") applies to all corporations (both publicly traded and private companies). There are civil and criminal penalties for a violation of this law. A. True B. False

B. False

When the Board of Directors has a meeting, what is the term used to define the minimum number of directors necessary to have a valid meeting? A. Electorate B. Quorum C. Super-majority D. Base

B. Quorum

A director, who cannot attend a board meeting due to a good reason, is allowed to vote by proxy. A. This statement is correct. B. This statement is incorrect.

B. This statement is incorrect.

When a company has an annual meeting and all shareholders are invited, normally what do the shareholders do at the annual shareholder meeting? A. Decide and approve the amount of dividends that should be paid to the shareholders B. Vote for directors and vote on any major corporate structural changes C. Vote on officers D. All of the above

B. Vote for directors and vote on any major corporate structural changes

In the video lecture and related outline, professor Sanford said he liked a sole proprietorship as a form of doing business when one first starts a business. Why does Sanford like the sole proprietorship? A. The owner of the sole proprietorship has limited liability like the corporate form of doing business. B. While the owner of the sole proprietorship will have unlimited liability for the business debts, the business is inexpensive and easy to form. If personal liability is an issue, buying business liability insurance might be an option to solve the liability problem and might be cheaper than forming a corporation. C. The owner of a sole proprietorship will pay no taxes on any income earned for the first 5-years. D. The owner of a sole proprietorship cannot be sued for the first seven years of starting the business.

B. While the owner of the sole proprietorship will have unlimited liability for the business debts, the business is inexpensive and easy to form. If personal liability is an issue, buying business liability insurance might be an option to solve the liability problem and might be cheaper than forming a corporation.

In the class materials there was a paper that discussed the criticism of "stockholder capitalism" v "stakeholder capitalism." Which capitalism was called by some "woke capitalism?" A. stockholder capitalism B. stakeholder capitalism C. Neither of the other choices has been called "woke capitalism."

B. stakeholder capitalism

Typically, how are corporate directors chosen? A. By a majority vote of the officers. B. By a two-thirds vote of the shareholders. C. By a majority vote of the shareholders. D. The president appoints them, subject to the approval of the shareholders E. By a unanimous vote of the shareholders

C. By a majority vote of the shareholders.

The sustainability movement has caused businesses to manage using the triple-bottom-line (3BL) philosophy. This concept states that business management should consider what three factors in making business decisions? A. Shareholders, directors, and officers B. Political candidates, school policies, and gun control C. Profits, people, and the planet D. None of the other choices are correct

C. Profits, people, and the planet

It is the Board of Directors for a corporation that is responsible for the overall management of the business. For approximately the last one hundred years, until recently, the Board of Directors would manage to "maximize the profits" of the corporation. This management style was advocated by almost everyone including the famous economist, Milton Friedman, who won a Nobel Peace Prize. Friedman indicated that the only social responsibility a business should have was to maximize profits and increase shareholder value. Further, Friedman argued that any business that did not do this would eventually be driven out of business by the competition. On August 19, 2019, the Business Roundtable, a group of leading business leaders, stated that it should not be the only goal of the business to advance only the interest of the shareholders (the owners of the business). Instead, the management of the business should take into account all "stakeholders." This was a major philosophical change. Who are some of the "stakeholders" that should be considered in the management of the corporation? Select the best answer. A. Employees of the corporation B. Customers of the corporation C. The society in general, including the goals of sustainability for the planet D. All choices are correct

D. All choices are correct