Question 1

Which of the following is an activity that a limited partner may NOT engage in?

Accepted Answer

Limited partners may not participate in the management of the limited partnership. Under the RULPA, a limited partner who participates in the organization's management becomes liable as a general partner if a third party had knowledge of the limited partner's activities.

Question 2

Which of the following is a taxable entity?

Accepted Answer

Corporations must pay income taxes on their earnings. The fact that there is a separate corporate income tax may work as an advantage.

Question 3

Which of the following is true about an S corporation?

Accepted Answer

The S corporation has all the legal characteristics of the corporation. The one exception to this similar treatment is that shareholders in the S corporation are responsible for accounting on their individual income tax returns for their respective shares of their organization's profits or losses.

Question 4

Disadvantages of the corporate form of organization include:

Accepted Answer

Disadvantages of corporations include cost of forming and maintaining a corporation, assessment of license fees and franchise taxes, requirement of qualification in each state of operation, subjection to governmental regulations at all levels, and double taxation.

Question 5

The owners of LLCs are called:

Accepted Answer

The owners of LLCs are called members rather than shareholders or partners.

Question 6

How can business organizations be classified based on the number of persons who own them? Give one example of each.

Accepted Answer

The answer of How can business organizations be classified based...

Question 7

Explain sole proprietorship in terms of its continuity.

Accepted Answer

The answer of Explain sole proprietorship in terms of its...

Question 8

What factors should be considered when selecting the best organizational form for a particular business?

Accepted Answer

The answer of What factors should be considered when selecting...

Question 9

When a derivative law suit is filed:

Accepted Answer

If the majority is acting illegally or oppresses the rights of the minority shareholders, a lawsuit known as a derivative suit may be brought by a minority shareholder on behalf of the corporation. If a suit is brought, the burden is on the director or officer (who may be the majority shareholder) to prove good faith and inherent fairness in such transactions.

Question 10

When a court finds that the shareholders of a corporation are using the corporate structure to shield themselves from liability when acting for purely personal purposes, the court may disregard the corporate structure and impose personal liability on the shareholders treating them like partners. This is called:

Accepted Answer

When courts find that the corporate organization is being misused, the corporate entity can be disregarded. This has been called piercing the corporate veil. When this veil of protection has been pierced, the shareholders are treated like partners who have unlimited liability for their organization's debts.

Question 11

Explain the degree of control enjoyed by a sole proprietor.

Accepted Answer

The answer of Explain the degree of control enjoyed by...

Question 12

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

Accepted Answer

Advantages of corporations include best means for bringing together large number of investors, control held by those with a minority of the investment, ownership divided into many unequal shares, limited liability of shareholders, perpetual existence, and benefits for shareholders.

Question 13

An LLC is created through filing the _____ with a state official, usually the secretary of state.

Accepted Answer

An LLC is created through filings much like those used when creating a corporation. Articles of organization are filed with a state official, usually the secretary of state. Instead of "incorporators," the term "organizers" is used.

Question 14

When one person, or a very few persons, own all the shares of stock in a corporation, it is considered a _____ organization.

Accepted Answer

Unlike the situation with a large, publicly held corporation, one shareholder (or at least a small group of shareholders) may be able to control a closely held corporation. This can result because this individual (or the group) can own an actual majority of the issued shares.

Question 15

In a closely held corporation, the majority shareholders:

Accepted Answer

Unlike the situation with a large, publicly held corporation, one shareholder (or at least a small group of shareholders) may be able to control a closely held corporation. This can result because this individual (or the group) can own an actual majority of the issued shares. This majority can control the election of a board of directors.

Question 16

Which of the following is true about the trends in operating business organizations?

Accepted Answer

A recent trend is the continued definition of the nature of corporate personhood. In many cases, corporations and individuals reasonably have an equal claim to rights and protections under the law.

Question 17

If a corporate entity is disregarded by officers or directors so that there is such a unity of ownership and interest that separateness of the corporation has ceased to exist, the corporate veil may be pierced based on the:

Accepted Answer

The alter-ego theory, by which the corporate veil can be pierced, may also be used to impose personal liability upon corporate officers, directors, and stockholders. If the corporate entity is disregarded by these officials themselves, so that there is such a unity of ownership and interest that separateness of the corporation has ceased to exist, the alter-ego theory will be followed and the corporate veil will be pierced.

Question 18

For limited partners to retain their status of limited liability, the partnership must evidence _____ compliance with all technical requirements of the limited partnership law.

Accepted Answer

If an accurate certificate is not on record and the limited partnership continues its operation, the limited partners become liable as general partners. Substantial compliance with all the technical requirements of the limited partnership law is essential if the limited partners are to be assured of their limited liability.

Question 19

Limited partners:

Accepted Answer

A limited partner may participate in the following activities and not be considered participating in management: being an agent or employee of the partnership; being a consultant; a guarantor of partnership debt; inspecting the books; receiving profits or other compensation from the business; voting on an amendment to the partnership certificate; voting on major partnership issues; and, having contributions returned after dissolution.

Question 20

Explain the term "creation" as a factor considered when selecting a business organizational form.

Accepted Answer

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Quiz 14: Business Organizations