Question 1

The retail card and gift shop chain that Bria started has since been incorporated.Which of the following best describes the limited liability that Bria has as the primary stockholder in this corporation?
A) Bria has no responsibility if the business fails and will still be able to get her initial investment back.
B) Bria may have to give up her car and house if the corporation fails in order to cover the debts of the corporation.
C) The other stockholders will be able to seize Bria's personal money but not her primary residence in the event that the business fails.
D) Bria's personal assets will be protected in the event that the corporation fails,although she could lose her entire investment.
E) Bria will only be liable for losses that develop from decisions she made about the daily business operations.

Accepted Answer

As the primary stockholder in the incorporated company, Bria's personal assets will be protected in the event that the corporation fails. However, she could lose her entire investment in the company. This is because a corporation is a separate legal entity from its owners, so the owners (or shareholders) have limited liability for the company's debts and losses. In other words, Bria's personal assets are not at risk if the corporation fails, but she could lose the money she invested in the company.

Question 2

Before Troy can incorporate his advertising business in Champaign,Illinois,he must have a(n)____ approved by the ____.
A) articles of incorporation;U.S.Corporate Business Administration
B) corporate charter;Champaign city mayor
C) agreement;Secretary of Commerce of the United States
D) articles of incorporation;stockholders
E) articles of incorporation;secretary of state of Illinois

Accepted Answer

In order to incorporate a business in Illinois, the Articles of Incorporation must be filed and approved by the Secretary of State of Illinois. Therefore, the best choice is E - "articles of incorporation; secretary of state of Illinois".

Question 3

Jonathan serves on Foot Locker's board of directors.How did Jonathan get this position?
A) He volunteered for the assignment.
B) He was appointed by the chief executive officer.
C) He was assigned by the Federal Trade Commission.
D) Through default as the largest stockholder,Wade got the position.
E) He was elected by the company's stockholders.

Accepted Answer

Jonathan was likely elected by the company's stockholders to serve on the board of directors. As a board member, he would represent the interests of those stockholders and have a say in the company's decision-making processes.

Question 4

When Meredith decides that she no longer wants her Radio Shack stock,she will discover that a related benefit of a corporation is
A) the ease of transfer of ownership.
B) its perpetual life.
C) limited liability.
D) specialized management.
E) avoiding double taxation.

Accepted Answer

The ease of transfer of ownership is a related benefit of a corporation, as shares of stock can easily be bought and sold on the stock market.

Question 5

A contract between a business and a state recognizing the business as an artificial person is known as the
A) articles of partnership.
B) articles of incorporation.
C) S-corporation.
D) stock certificate.
E) proxy.

Accepted Answer

A contract between a business and a state recognizing the business as an artificial person is known as articles of incorporation.

Question 6

Unless specified in the charter,a corporation has a
A) legal life of one decade.
B) life of seventeen years,which is renewable.
C) life of fifty years.
D) perpetual life.
E) legally recognized life,which varies from state to state.

Accepted Answer

Unless specified otherwise in the charter, a corporation has perpetual life, meaning it can exist indefinitely.

Question 7

A ____ is a form that enables stockholders to allow someone else to vote for them.
A) waiver
B) rights transfer
C) proxy
D) voter registration
E) dividend

Accepted Answer

A proxy is a form that allows a stockholder to give someone else the right to vote on their behalf. This can be useful if the stockholder cannot attend a meeting in person or does not wish to personally vote on a specific matter. The person designated as the proxy typically has specific instructions on how to vote on behalf of the stockholder.

Question 8

What is the significance of the name preferred stock?
A) It is the type of stock that most investors would rather have.
B) Its claims on dividends are paid before those of common stock.
C) The overall return on preferred stock is higher than that on common stock.
D) This stock is available only to select individuals associated with the company.
E) This stock provides the most powerful voting rights.

Accepted Answer

The term "preferred" indicates that this type of stock has priority or preference in terms of receiving dividends. Preferred stockholders receive their dividend payments before common stockholders.

Question 9

Common stock carries all the following rights except the right to
A) vote on changes to the corporate charter.
B) share in profits.
C) receive information about the corporation.
D) receive part of the profit before other classes of stock.
E) attend the annual stockholders' meeting.

Accepted Answer

Common stock does not have the right to receive part of the profit before other classes of stock. Preferred stock usually has that right.

Question 10

The most effective form of business organization for raising capital is the
A) joint venture.
B) syndicate.
C) sole proprietorship.
D) partnership.
E) corporation.

Accepted Answer

Corporations have the ability to offer ownership shares (stocks) to a large number of investors, making it easier to raise capital compared to other forms of business organization such as sole proprietorship, partnership, joint venture, or syndicate. Additionally, corporations have more options for accessing various sources of funding such as bond issuance, bank loans, and venture capital.

Question 11

Which of the following is an advantage of the corporate form of organization?
A) Ownership of stock is easy to transfer.
B) Forming a corporation is a complex and costly process.
C) The corporation and its stockholders pay taxes on profits.
D) A corporation must submit detailed information to government agencies.
E) It is difficult to keep operations confidential because of required reports.

Accepted Answer

Ownership of stock in a corporation is easy to transfer, making it easier for investors to buy and sell shares and for shareholders to divest their holdings.

Question 12

Your friend Nathaniel owns a considerable amount of common stock in Microsoft,a computer software company.He wants to cast his votes on various issues at the annual stockholders' meeting in Seattle,but he does not have the time to travel a great distance to the meeting.Instead of attending the meeting,Nathaniel decides to register his votes by
A) registered mail.
B) preemptive right.
C) proxy.
D) power of attorney.
E) preferred stock.

Accepted Answer

Nathaniel can register his votes through a proxy, which is a written authorization that allows another person to vote on his behalf at the shareholders' meeting. This option allows him to participate in the decision-making process without physically being present at the meeting. The other options (A, B, D, and E) are not applicable in this scenario.

Question 13

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
A) people with fewer than 1,000 shares of stock cannot vote.
B) stockholders are not allowed to attend the annual meetings.
C) most preferred stock does not have voting rights.
D) only institutional investors are allowed to attend the meetings.
E) she can vote only by proxy and not in person.

Accepted Answer

Generally, preferred stock does not have voting rights. Therefore, it is unlikely that Amy will be able to cast a vote at the annual stockholder meeting.

Question 14

Which of the following is not a disadvantage of the corporate form of ownership?
A) Difficulty of formation
B) Limited liability
C) Expense of incorporation and selling stock
D) Lack of secrecy
E) Double taxation

Accepted Answer

Limited liability is not a disadvantage of the corporate form of ownership; it is one of the main advantages. A, C, D, and E are all disadvantages of the corporate form of ownership.

Question 15

When starting a corporation,people submit articles of incorporation to
A) a county judge.
B) the secretary of state.
C) the U.S.Attorney General.
D) the Department of Commerce.
E) the Small Business Administration.

Accepted Answer

The articles of incorporation need to be submitted to the secretary of state of the state where the corporation is being formed. The other options listed are not involved in the process of submitting articles of incorporation.

Question 16

Corporate officers are
A) listed in the corporate charter.
B) elected by stockholders.
C) appointed by the board of directors.
D) appointed by management.
E) elected by incorporators.

Accepted Answer

Corporate officers are appointed by the board of directors. They are responsible for managing the day-to-day operations of the company and implementing the strategic plans set by the board of directors. While officers may be elected by the stockholders or appointed by management, the ultimate authority for their appointment lies with the board of directors. Incorporators only play a role in the initial formation of the corporation and do not have a say in the appointment of officers. The corporate charter may list the positions of officers, but it is the board of directors that actually appoints individuals to fill those positions. Therefore, C is the best choice.

Question 17

The top governing body of a corporation is known as the
A) incorporators.
B) stockholders.
C) management.
D) officers.
E) board of directors.

Accepted Answer

The top governing body of a corporation is known as the board of directors. They are responsible for making major decisions and setting policies for the corporation. The incorporators are responsible for filing the articles of incorporation with the state. The stockholders are the owners of the corporation but do not have direct control over day-to-day operations. Management and officers are responsible for running the corporation on a daily basis but ultimately report to the board of directors.

Question 18

How can the following quotation best be explained: "Stockholders control the activities of a corporation"?
A) All stockholders vote on all the major issues and problems that a company faces on a monthly basis.
B) Stockholders are intricately involved in the daily operations of a corporation.
C) Stockholders elect the board of directors,and this board is responsible for appointing corporate officers who manage the daily business of the corporation.
D) Stockholders vote for the members of the board of directors,and this board makes all the daily business decisions for the corporation.
E) Stockholders usually call company management and tell executives better ways to run the organization.

Accepted Answer

Stockholders have the power to elect the board of directors who are responsible for making decisions about the management of the corporation. The board of directors appoints corporate officers who are responsible for the daily business activities of the corporation. Therefore, stockholders indirectly control the activities of a corporation by electing the board of directors.

Question 19

Lucas owns stock in CVS Health.He has the right to vote on company issues and examine corporate records,and he receives dividends from CVS Health's profits.What type of stock does Lucas own?
A) Common
B) "A" class
C) Proxy
D) Dividend
E) Preferred

Accepted Answer

Common stock gives the holder the right to vote on company issues and examine corporate records, as well as receive dividends from profits. "A" class and Proxy stocks do not exist, and while dividend stocks do provide regular income from profits, they do not provide the same rights of voting and examination as common stock. Preferred stock, on the other hand, is a type of stock that typically does not offer voting rights but instead provides a fixed dividend payment.

Question 20

A distribution of earnings to the stockholders of a corporation is a(n)
A) par distribution.
B) dividend.
C) earnings per share.
D) distributed payment.
E) common payment.

Accepted Answer

A distribution of earnings to the stockholders of a corporation is called a dividend.

Quiz 4: Choosing a Form of Business Ownership

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

Before Troy can incorporate his advertising business in Champaign,Illinois,he must have a(n) approved by the .

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

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

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

Unless specified in the charter,a corporation has a

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

What is the significance of the name preferred stock?

Common stock carries all the following rights except the right to

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

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

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

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

When starting a corporation,people submit articles of incorporation to

Corporate officers are

The top governing body of a corporation is known as the

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

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

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