Question 1

When Alyssa decides that she no longer wants her Radio Shack stock, she will discover that a related benefit of a corporation is

Accepted Answer

The ease of transfer of ownership is a related benefit of a corporation because stocks can be easily bought and sold on the stock market, making it easy for investors to transfer ownership of their shares. This is a major advantage over other forms of business, like partnerships, where the transfer of ownership can be difficult and complicated.

Question 2

The retail card and gift shop chain that Heidi started has since been incorporated. Which of the following best describes the limited liability that Heidi has as the primary stockholder in this corporation?

Accepted Answer

As a primary stockholder in a corporation, Heidi's personal assets will be protected in the event that the corporation fails, although she could lose her entire investment. This is because a corporation has limited liability, which means that its shareholders are not personally responsible for the corporation's debts or financial obligations beyond their investment in the company. However, if Heidi has personally guaranteed any loans or debts for the corporation, she may still be held liable for those.

Question 3

Mark owns stock in Walgreens. He has the right to vote on company issues and examine corporate records, and he receives dividends from Walgreens' profits. What type of stock does Mark own?

Accepted Answer

Mark owns common stock, as indicated by his rights to vote on company issues and receive dividends, which are characteristic features of common stock ownership.

Question 4

Unless specified in the charter, a corporation has a

Accepted Answer

Unless specified in the charter, a corporation has a perpetual life, which means it can continue to exist indefinitely unless dissolved voluntarily or by court order.

Question 5

Wade serves on Foot Locker's board of directors. How did Wade get this position?

Accepted Answer

Typically, members of a company's board of directors are elected by the company's stockholders.

Question 6

Your friend Steve owns a considerable amount of common stock in Intel, the large microchip manufacturer. He wants to cast his votes on various issues at the annual stockholders' meeting, but he does not have the time to travel a great distance to the meeting. Instead of attending the meeting, Steve decides to register his votes by

Accepted Answer

Steve can register his votes by proxy, which means he designates someone else to attend the meeting and cast his votes on his behalf. Proxy voting is a common way for shareholders to participate in meetings without physically being present.

Question 7

Which of the following is an advantage of the corporate form of organization?

Accepted Answer

Ownership of stock is easy to transfer. This is an advantage because it allows investors to buy and sell shares easily, providing liquidity and promoting investment in the corporation.

Question 8

Amy owns 100 shares of General Electric preferred stock. She wants to attend the annual stockholder meeting to cast her vote on company issues. Based on your knowledge from school, you caution Amy that

Accepted Answer

Most preferred stock does not have voting rights, so Amy may not be able to cast a vote at the annual stockholder meeting. However, she may still be able to attend the meeting and listen to the issues being discussed.

Question 9

The most effective form of business organization for raising capital is the

Accepted Answer

A corporation is the most effective form of business organization for raising capital because it allows for the sale of stocks to raise capital from a large number of investors. The other options do not have the same ability to easily sell ownership stakes to raise capital.

Question 10

The top governing body of a corporation is known as the

Accepted Answer

The top governing body of a corporation is known as the board of directors. The board of directors is responsible for overseeing the management of the corporation and making major decisions regarding its direction and strategy. They are elected by the shareholders and are responsible for representing their interests.

Question 11

Which of the following is not a disadvantage of the corporate form of ownership?

Accepted Answer

Limited liability is one of the main advantages of the corporate form of ownership, as it protects the personal assets of shareholders from the company's liabilities. The other options are all considered disadvantages of the corporate form of ownership. Difficulty of formation refers to the legal requirements and paperwork involved in setting up a corporation. The expense of incorporation and selling stock includes legal fees and registration costs. Lack of secrecy refers to the fact that corporations must report their financial information to the public. Double taxation occurs when the corporation pays taxes on its profits, and shareholders pay taxes again when they receive dividends or sell their shares.

Question 12

Corporate officers are

Accepted Answer

Corporate officers are typically appointed by the board of directors, who are responsible for overseeing the management of the company. While stockholders may elect directors, they do not typically have a direct role in appointing corporate officers. The corporate charter may list the names of initial officers, but this is not necessarily the same as the ongoing appointment process. Incorporators are also not typically involved in electing or appointing officers. Management may recommend officers to the board, but it is ultimately the board's decision to appoint them.

Question 13

How can the following quotation best be explained: "Stockholders control the activities of a corporation"?

Accepted Answer

Stockholders elect the board of directors, and the board is responsible for appointing corporate officers who manage the daily business of the corporation. The board of directors is ultimately responsible for making major decisions and setting policy for the corporation. While stockholders do have some input through their election of the board, they do not control daily operations or have a direct hand in decision-making. Option A, B, and E are false as they do not accurately explain the role of stockholders in controlling a corporation. Option D is somewhat accurate but not the complete picture, as the board appoints officers who manage daily business, but ultimately the board sets the direction and strategy for the corporation.

Question 14

A ____ is a form that enables stockholders to allow someone else to vote for them.

Accepted Answer

A proxy is a document that allows a stockholder to authorize someone else to vote on their behalf. This is commonly used when a stockholder cannot attend a meeting in person, but still wants their vote to count. The person authorized to vote on the stockholder's behalf is called a proxy.

Question 15

Common stock carries all the following rights except the right to

Accepted Answer

Common stock does not have the right to receive part of the profit before other classes of stock. All other options listed are typical rights of common stockholders.

Question 16

A distribution of earnings to the stockholders of a corporation is a(n)

Accepted Answer

A distribution of earnings to stockholders of a corporation is known as a dividend. This is the payment made by the company to its shareholders for their investment in the company. Dividends can be paid out in cash, stock, or other forms of property.

Question 17

Tiffany is about to finish her degree in business management and wants to find a job that will provide her with opportunities to advance within an organization. What type of business organization should Tiffany work for?

Accepted Answer

Tiffany should work for a corporation because it provides opportunities for advancement within the organization. Corporations are typically larger than other business structures and have more job opportunities available for employees looking to climb the corporate ladder. Additionally, corporations often have formalized career development programs and policies in place to facilitate employee advancement.

Question 18

A contract between a business and a state recognizing the business as an artificial person is known as the

Accepted Answer

A contract between a business and a state recognizing the business as an artificial person is known as the articles of incorporation. This document is filed with the state and includes information about the company's name, purpose, structure, and ownership. Once approved, the business becomes a legal entity separate from its owners and can enter into contracts, sue or be sued, and own property in its own name.

Question 19

The order of difficulty and expense, from most to least, when forming a business organization is as follows:

Accepted Answer

The most difficult and expensive business organization to form is a corporation as it requires filing articles of incorporation and paying fees. Partnership is next because it may require a partnership agreement and registering with the state. Sole proprietorship is the easiest and least expensive as it does not require any formal registration or documents. Therefore, the correct order from most difficult and expensive to least is corporation, partnership, sole proprietorship.

Question 20

What is the significance of the name preferred stock?

Accepted Answer

The name "preferred stock" is significant because it indicates that these shares have priority or preference over common stock when it comes to receiving dividends. Preferred stockholders are typically entitled to receive their dividend payments before common stockholders, hence the name "preferred."

Quiz 4: Choosing a Form of Business Ownership