Deck 10: Business Organizations

Question 1

With some exceptions, the rules that govern partnerships apply to limited liability partnerships.

Answer 1

True

Question 2

If a party to a franchise contract fails to perform, he or she may be subject to a suit for breach of contract.

Answer 2

True

Question 3

Most states require a limited liability company to have at least two members.

Answer 3

False

Question 4

The members of a limited liability company are liable for its obligations by virtue of their status.

Question 5

The dissociation of a mem?ber of a limited liability company automatically triggers the firm's dissolution.

Question 6

A limited partner has a right to participate in the management of the partner?ship without personal liability to the firm's creditors.

Question 7

A sole proprietor may own and manage any type of business.

Question 8

A franchisor is never liable for the act of a fran?chisee's employee.

Question 9

The law emphasizes the importance of good faith and fair dealing in terminating a franchise relationship.

Question 10

In a limited partnership, the liability of a general part?ner is the same as the liability of a limited partner.

Question 11

An association cannot be a partnership without a written agreement.

Question 12

A sole proprietorship is a legal entity for tax pur?poses.

Question 13

A sole proprietorship automatically dissolves on the death of the owner.

Question 14

On a partner's dissociation, his or her right to participate in running the business terminates.

Question 15

A limited liability company is not a "citizen" of any state.

Question 16

A limited liability company offers the limited liability of a corporation.

Question 17

A shareholder is not an "owner" of a corporation.

Question 18

State regulation of franchises tends to be similar to federal statutes and regulations.

Question 19

There is an entirely uniform body of national corporate law.

Question 20

For some purposes, the law recognizes a partnership as a legal entity.

Question 21

Directors are rarely compensated.

Question 22

Preemptive rights entitle shareholders to bring a derivative suit against the corpora?tion.

Question 23

A business incorporated in one state has an automatic right to do business in any other state.

Question 24

To vote their shares, shareholders must attend shareholders' meetings and vote in person.

Question 25

"Piercing the corporate veil" means revealing to shareholders the internal rules of corporate management.

Question 26

Noah and Orin do business as Personnel Partners. In most states, for purposes of title and ownership of property, Personnel Partners would be treated as

A) an aggregate of the partners.
B) a natural person.
C) an entity.
D) a non-existent party.

Question 27

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Question 28

For shareholders to act during a meeting, a forum must be present.

Question 29

Shares issued for more than fair market value are known as watered stock.

Question 30

Shareholders have no responsibility for the daily management of a corporation.

Question 31

Directors are required to exercise a reasonable amount of supervision over the corporate officers.

Question 32

Sabin and Tyler agree while talking on the phone to form a partner?ship. Their partnership agreement is legally binding

A) only if a third person knows of the agreement.
B) only if the agreement is reduced to writing.
C) only if the parties exchange valid consideration.
D) without more.

Question 33

Grady and Hedy do business as Island Tours. For this partnership, federal income taxes are paid by

A) the individual partners.
B) the partnership as a natural person.
C) the partnership as an entity.
D) the partnership as a non-existent party.

Question 34

A director is elected by a majority vote of the other members of the board.

Question 35

Jim organized, and owns and operates, Jim's Landscaping Service in the simplest form of business organization. This is

A) a corporation.
B) a limited liability company.
C) a partnership.
D) a sole proprietorship.

Question 36

A corporation's rules for managing the firm can be set out in its bylaws.

Question 37

Leigh wants to go into the business of construction contracting. Among the reasons that would probably convince Leigh to set up his business as a sole proprietorship would be

A) its flexibility.
B) its limited liability.
C) its perpetual existence.
D) the ease of transferring the business to others.

Question 38

A shareholders' voting agreement is usually invalid and unenforceable.

Question 39

Incorporators can appoint a corporation's first board of directors.

Question 40

Damages awarded in a shareholder's derivative suit go into the corporation's treasury.

Question 41

Dan is considering forms of business organization for his financial advisory firm. Like most states, Dan's state requires that to form a limited liabil?ity company, he must file with a central state agency

A) articles of certification.
B) articles of formation.
C) articles of organization.
D) no specific documents.

Question 42

Fritz is interested in buying a franchise from Good n' Plentiful Inc. This transaction, like other franchise deals, is regulated to protect

A) certain types of anticompetitive agreements.
B) franchisors from dishonest prospective franchisees.
C) prospective franchisees from dishonest franchisors.
D) the government's power to restrict freedom of contract.

Question 43

Bluto is considering forms of business organization for Consult Me!, his Web site consult?ing firm. Most states require that a limited liability com?pany have at least

A) no members.
B) one member.
C) two members.
D) three members, including at least one general partner.

Question 44

Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

A) buy a prorated share of a new issue of stock before other buyers.
B) choose to have Matchless act exclusively in a certain area.
C) "preempt" managerial decisions that affect shareholders.
D) sell a prorated share of a new issue of stock before other sellers.

Question 45

Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be

A) invalid and unenforceable.
B) oppressive and irresponsible.
C) suspect and voidable.
D) valid and enforceable.

Question 46

Flip is a member of TriState Trucking LLC. Flip's relationship to TriState ends, but the firm continues to do business. Flip's ending his relationship with the firm is termed

A) dissociation.
B) dissolution.
C) required.
D) wrongful.

Question 47

Eddie contracts to buy a franchise from Fast n' Fresh Grocery Company. The contract is silent on the issue of territorial rights. Fast n' Fresh allows a competing franchise to be established near Eddie's store, which suffers a significant loss in profits. This is most likely a violation of

A) no law.
B) the ban on certain types of anticompetitive agreements.
C) the Federal Trade Commission's Franchise Rule.
D) the implied covenant of good faith and fair dealing.

Question 48

Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can

A) authorize major corporate policy decisions.
B) decide to issue stock and bonds, and declare dividends.
C) select and remove corporate officers.
D) vote to amend the articles of incorporation or bylaws.

Question 49

Mit-E Mart LLC was formed in New Jersey. Mit-E Mart's members are Odel, who is a citizen of New Jersey, and Pola, who is a citizen of New York. For federal jurisdictional purposes, Mit-E is a citizen of

A) all states.
B) New Jersey and New York.
C) New Jersey only.
D) no state.

Question 50

B2B, LLC, is a limited liability company. Among its members, a dispute arises that the operating agreement does not cover. The dispute is gov?erned by

A) the applicable state LLC statute.
B) a federal Uniform LLC Law.
C) the principles of partnership law.
D) a state corporation statute.

Question 51

Bret buys a franchise from Comida Mexicano Ltd. If their agreement is like most franchise agree?ments, it will specify that Comida can ter?minate the franchise

A) at will.
B) for any reason.
C) for cause only.
D) for no reason.

Question 52

Nico is interested in buying a franchise from Oz Inc. For Nico to make an informed decision concerning this purchase, Oz must disclose in writing or online

A) general estimates of costs and sales, but not the basis for them.
B) material facts such as the basis of projected earnings figures.
C) no information.
D) start-up requirements, but not renewal conditions.

Question 53

Opie buys a franchise from Paradise Clothing Corporation. Because this franchise relationship is, like all other franchise relationships, primarily of a certain type, it is governed by

A) contract law.
B) the federal service-station franchise termination law.
C) the Federal Trade Commission's Franchise Rule.
D) the Illinois Franchise Disclosure Act.

Question 54

Farley and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form

A) a C corporation.
B) a close corporation.
C) an S corporation.
D) a private corporation.

Question 55

Thor Power Products Corporation permits its directors to be elected by cumulative voting. This

A) allows minority shareholders to be represented on the board.
B) assures directors that they will be selected by their peers.
C) guarantees Thor's executive officers of the final choice.
D) insures against persons who may "cloud" the corporate direction.

Question 56

Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is a legal entity created and recognized by

A) a central federal administrative agency.
B) a city or county clerk's office.
C) an artificial legal person.
D) state law.

Question 57

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is

A) adopting Java's bylaws.
B) agreeing on Java's purpose.
C) drafting Java's articles.
D) obtaining a charter for Java.

Question 58

Skyla and Terry want to form and do business as Unique Boutique Corporation. The state statute governing the formation and operation of their corporation is most likely guided by

A) city or county corporate codes.
B) the Entrepreneur's Corporate Handbook.
C) the federal Administrative Procedure Act.
D) the Revised Model Business Corporation Act.

Question 59

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan disposes of the mine's waste illegally. Liability for this crime most likely rests with

A) neither Raw Resources nor Stefan.
B) Raw Resources and Stefan.
C) Raw Resources but not Stefan.
D) Stefan but not Raw Resources.

Question 60

Clu, Dolf, and Elton do business as Fertile Valley Farm, a partnership. Clu's relationship to the firm ends, but it continues to do business. Clu's ceasing to be involved with the farm is termed

A) dissociation.
B) dissolution.
C) winding up.
D) wrongful.

Question 61

The board of directors of Integral Components Corporation consists of Frida, Gayla, and Hart. A quorum is the number of these directors

A) who must be at odds in a dispute to call for its resolution.
B) who must be present to validly transact business.
C) whom the shareholders may remove from office at any one time.
D) whose positions must be vacant to warrant an election.

Question 62

Niki owns O.K. Oil Corporation. Niki creates Pure Fuel Corporation to engage in the same business as O.K., transfers O.K.'s assets to Pure Fuel, and petitions O.K. into bankruptcy to defraud its creditors. This most likely warrants

A) a bonus to Niki for financial maneuvers.
B) a discharge for O.K. in bankruptcy.
C) a pierce of O.K.'s corporate veil.
D) a review of Pure Fuel's articles of incorporation.

Question 63

Petra, Queenie, and Randell want to form Sales-to-Infinity, LLC (limited liability company). What should they provide in their operating agreement With respect to the management of Sales-to-Infinity, what are the their options If they fail to draft an operating agreement or do not include some important details, what determines these terms

Question 64

Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not

A) authorize major corporate policy decisions.
B) decide to issue stock and bonds, and declare dividends.
C) select and remove corporate officers.
D) use corporate funds for personal advantage.

Question 65

Tank is a director and the majority shareholder of Unique New Investment Corporation (UNIC). Tank buys, for $1,500, an option to purchase a tract of real estate for $50,000. Tank forms Vista Property, Inc., to hold the option. As the majority shareholder, and thus controlling director, of UNIC, Tank orders the firm to authorize the purchase of the land from Vista Property for $500,000. Tank then has Vista Property buy the land, sell it to UNIC, and loan the money to UNIC for the purchase at a 10 percent interest rate. Wim, a minority shareholder in UNIC, complains to UNIC's board, which takes no action. Wim files a suit against Tank on UNIC's behalf. Will Wim prevail Explain.

Question 66

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what he believes is the firm's best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule he is

A) immune from liability.
B) liable only to the extent that he gained as a result.
C) liable only to the extent that Motor Parts suffers as a result.
D) wholly liable.

Question 67

Frawsty Corporation distributes beverages in the greater Northwest. Frawsty's board of directors can delegate some of its functions to

A) Frawsty's incorporators.
B) Frawsty's officers.
C) Frawsty's shareholders.
D) no one.

Question 68

Rusty and Sylvia are shareholders of Global Hotel Corporation. Global's directors fail to declare a dividend. Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend

A) if Global has sufficient earnings available to pay a dividend.
B) if Global has cash reserves.
C) if withholding a dividend is an abuse of the directors' discretion.
D) under no circumstances.

Question 69

Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for pol?icymaking decisions necessary to the management of corporate affairs rests with Delite's

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 70

Lon and Merry act as the incorporators for NuGame Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of NuGame's

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 71

Clive sells Direct Marketing Enterprises, a sole proprietorship, to Edwina. This is a transfer of

A) a license.
B) a trade name.
C) the formula to make a product.
D) the ownership of the business.

Question 72

Cara and Dru are officers of EZ Trucking Corporation. As cor?porate officers, the rights of Cara and Dru are

A) determined by their employment contracts.
B) specified in state corporation statutes.
C) the same as those of the directors.
D) the same as those of the shareholders.