Question 1

A separate legal entity organized under the authority of a state is referred to as a ________.

Accepted Answer

A corporation is a separate legal entity that is formed under the authority of a state. It has its own legal rights and obligations and can enter into contracts, buy or sell assets, and conduct business activities in its own name. The other options (limited partnership, conglomerate, general partnership, sole proprietorship) do not have the same legal status as a corporation.

Question 2

Most C corporations have two classes of stock- ________ and ________.

Accepted Answer

The most common types of stock for C corporations are common and preferred. Common stock typically offers voting rights and a share of the company's profits, while preferred stock offers fixed dividends but may not offer voting rights. Other options listed in the answer choices are not commonly used terms for classes of stock.

Question 3

Which of the following statements about limited partnerships is incorrect?

Accepted Answer

This statement is incorrect because only the general partners are responsible for the debts and obligations of the partnership in a limited partnership. Limited partners have limited liability and are not responsible for the debts of the partnership beyond the amount of their investment.

Question 4

________ are a special form of incentive compensation. These plans provide employees the option or right to buy a certain number of shares of their company's stock at a stated price over a certain period of time.

Accepted Answer

Stock options are a form of incentive compensation where employees are given the option or right to buy a certain number of shares of their company's stock at a stated price over a certain period of time. This allows employees to benefit from any increase in the company's stock price over the period of the option. It is often used as a way to attract and retain talented employees, as well as align their interests with those of the company's shareholders.

Question 5

Which of the following is true regarding common and preferred stock?

Accepted Answer

Common stock is typically issued more broadly than preferred stock. Preferred stock is usually only issued by larger, established companies or in certain types of transactions. Common stock, on the other hand, is often issued by both large and small companies and is the most common type of equity investment.

Question 6

If the owners of a corporation don't file their annual paperwork, neglect to pay their annual fees, or commit fraud, a court could ignore the fact that a corporation has been established and the owners could be held personally liable for the actions of the corporation. This chain of events is referred to as ________.

Accepted Answer

"Piercing the corporate veil" is a legal term used to describe the situation where a court ignores the separation between a corporation and its owners, typically due to the owners' failure to fulfill legal obligations such as filing paperwork or paying fees, or due to fraudulent behavior. In this scenario, the owners become personally liable for the actions and debts of the corporation, as if the corporation never existed.

Question 7

Corporations that trade their stock on organized exchanges like the New York Stock Exchange and the NASDAQ are called ________ corporations.

Accepted Answer

Public corporations are those that trade their stock on organized exchanges like the New York Stock Exchange and the NASDAQ. National, civil, premier, and common are not the appropriate terms to describe corporations traded on organized exchanges.

Question 8

According to the textbook, ________ are common in real estate development, oil and gas exploration, and motion picture ventures.

Accepted Answer

Limited partnerships are commonly used in real estate development, oil and gas exploration, and motion picture ventures because they provide limited liability to the limited partners while allowing the general partner to have control over the operations of the venture.

Question 9

Corporations are organized as either ________ corporations or ________ corporations.

Accepted Answer

The answer of Corporations are organized as either ________ corporations...

Question 10

A ________ combines the advantages of a partnership and a C corporation.

Accepted Answer

A subchapter S corporation has the taxation advantages of a partnership (profits and losses are passed through to shareholders and taxed on an individual level) while also offering the limited liability protection of a C corporation. Limited partnerships still have at least one general partner with unlimited liability, general partnerships have unlimited liability for all partners, sole proprietorships offer no limited liability protection, and there is no such thing as a subchapter K corporation.

Question 11

________ stock is typically issued to conservative investors who have preferential rights over common stockholders in regard to dividends and to the assets of the corporation in the event of liquidation.

Accepted Answer

Preferred stock is typically issued to conservative investors who have preferential rights over common stockholders in regard to dividends and to the assets of the corporation in the event of liquidation. Restricted stock refers to shares that are subject to certain restrictions, such as a lock-up period or vesting schedule. Partial stock is not a commonly used term in finance. Common stock is the most basic form of stock and typically carries voting rights. Limited liability stock does not exist as a separate category in finance.

Question 12

In a ________ corporation, the voting stock is held by a small number of individuals and is very thinly or infrequently traded.

Accepted Answer

The term "closely-held" is often used interchangeably with "private" to describe a corporation where the voting stock is owned by a small number of individuals and is not widely traded. Choice A is incorrect because public corporations have widely traded shares and anyone can buy stock in them. Choice C is not a commonly used term to describe this type of corporation. Choice D does not accurately describe the characteristics of this type of corporation.

Question 13

Which of the following statements is incorrect regarding common stock?

Accepted Answer

This statement is incorrect as common stock is typically issued more widely than preferred stock. Preferred stock is usually issued to a smaller group of investors who are looking for a fixed income stream and priority in dividend payments over common stockholders.

Question 14

Which of the following is a disadvantage of a C Corporation?

Accepted Answer

One major disadvantage of a C Corporation is that its income is subject to double taxation. This means that the corporation itself is taxed on its earnings, and then the shareholders are also taxed on any distributions they receive from the corporation as dividends.

Question 15

Which of the following is an advantage of a C Corporation?

Accepted Answer

One advantage of a C Corporation is that stock is liquid if traded on a major stock exchange, allowing for easier buying and selling of ownership in the company.

Question 16

Large firms like Apple, Facebook, General Electric, and Microsoft, that trade on organized stock exchanges, are ________.

Accepted Answer

Large firms like Apple, Facebook, General Electric, and Microsoft, that trade on organized stock exchanges, are C corporations. C corporations are the most common type of corporation and are taxed as separate entities from their owners. They have limited liability protection for shareholders and can raise capital through the sale of stock.

Question 17

A ________ sets forth the rights and duties of the general and limited partners, along with the details of how the partnership will be managed and eventually dissolved.

Accepted Answer

A limited partnership agreement sets forth the rights and duties of both the general and limited partners, outlines the details of how the partnership will be managed, and specifies how the partnership will be dissolved.

Question 18

A corporation is formed by filing ________ with the Secretary of State's office in the state of incorporation.

Accepted Answer

The articles of incorporation are the legal document filed with the Secretary of State's office to form a corporation. This document outlines the basic information about the corporation, including its name, purpose, and structure.

Question 19

Which of the following is not one of the standards that a business must meet to qualify for status as a subchapter S corporation?

Accepted Answer

The requirement for the business to be a subsidiary of another corporation is not one of the standards that a business must meet to qualify for status as a subchapter S corporation. The other options listed (B, C, D, and E) are all actual requirements for subchapter S corporation status.

Question 20

A disadvantage of C corporations is that they are subject to ________, which means that a corporation is taxed on its net income and when the same income is distributed to shareholders in the form of dividends it is taxed again on shareholders' personal income tax returns.

Accepted Answer

C corporations are subject to double taxation, which means that the corporation is taxed on its net income and when the same income is distributed to shareholders in the form of dividends it is taxed again on shareholders' personal income tax returns. This can result in a significant tax burden for both the corporation and its shareholders.

Quiz 7: Preparing the Proper Ethical and Legal Foundation