Question 1

Which of the following is not a common form of company financing?&#10;A) equity financing&#10;B) debt financing&#10;C) bank borrowing&#10;D) donations

Accepted Answer

Donations are not a common form of company financing as they are typically associated with non-profit organizations and charities rather than for-profit companies.

Question 2

A debenture is&#10;A) a type of company&#10;B) a document that acknowledges a debt&#10;C) a document that cancels a debt&#10;D) an official company document

Accepted Answer

A debenture is a type of bond or promissory note that acknowledges a debt. It is a legal document that guarantees that the borrower will pay back the loan with interest to the lender within a specific time period.

Question 3

A fixed charge is a&#10;A) a charge over land&#10;B) proprietary interest over all company assets&#10;C) a charge over a particular company asset&#10;D) a charge over chattels

Accepted Answer

A fixed charge is a type of security interest or lien that is placed on a particular company asset. It gives the creditor a legal claim to that specific asset if the debtor defaults on the loan or obligation. This is different from a floating charge, which applies to a changing pool of company assets.

Question 4

A floating charge is a&#10;A) proprietary interest over all company assets&#10;B) a charge over a ship&#10;C) a charge over aircraft&#10;D) a charge over a particular company asset

Accepted Answer

A floating charge is a type of security interest over a pool of changing assets of a company or a corporation. It allows the company to use the assets in the ordinary course of business, with the charge 'floating' until a specific event causes it to 'crystallize' into a fixed charge over particular assets.

Question 5

A company is insolvent when&#10;A) it is unable to pay its debts&#10;B) it has no assets&#10;C) it lacks a viable business plan&#10;D) it is unwilling to pay a creditor

Accepted Answer

Insolvency occurs when a company is unable to pay its debts as and when they fall due. This means that the company has more liabilities than assets, or it is experiencing negative cash flow.

Question 6

Which of the following is not a method of obtaining security for a loan?&#10;A) registering a floating charge over the company's assets&#10;B) registering a fixed charge over the company's assets&#10;C) including a Retention of Title clause in sales of goods contracts with the company&#10;D) refusing to hand over goods till paid

Accepted Answer

Refusing to hand over goods until paid is not a method of obtaining security for a loan, but rather a method of ensuring payment for goods sold. The other options (registering a floating or fixed charge and including a Retention of Title clause) all provide some form of security or collateral for a loan.

Question 7

Company A borrows money from Bank B. This makes B&#10;A) a creditor of A&#10;B) a debtor of A&#10;C) a part-owner of the company&#10;D) obligated to contribute to the company's success

Accepted Answer

When a company borrows money from a bank, the bank becomes a creditor of the company since they are owed money.

Question 8

Company A borrows money from Bank B. This makes A&#10;A) a creditor of B&#10;B) a debtor of B&#10;C) morally obligated to repay&#10;D) a subsidiary of B

Accepted Answer

When a company borrows money from a bank, it becomes a debtor of the bank. The company owes the bank the amount borrowed along with any interest and fees.

Question 9

What is lease financing?&#10;A) another term for equity financing&#10;B) another term for debt financing&#10;C) a lease of equipment, instead of a money raising exercise&#10;D) an illegal form of lending

Accepted Answer

Lease financing refers to a contract where a company (lessor) agrees to lease equipment to another company (lessee) in exchange for periodic payments instead of the lessee having to purchase the equipment outright. This is a way for companies to acquire needed equipment without the large upfront cost of purchase.

Question 10

How many classes of shares can a company have?&#10;A) unlimited classes&#10;B) voting and non-voting shares&#10;C) no less than two classes&#10;D) no more than three classes

Accepted Answer

A company can have unlimited classes of shares as long as they are properly disclosed in their articles of incorporation or bylaws. This allows for flexibility in structuring ownership and investment opportunities. While voting and non-voting shares are common, there is no minimum or maximum number of classes required by law.

Deck 6: Inchoate Offences