Deck 19: Forms Of Business Organizations

Question 1

Under the Revised Uniform Partnership Act,which all states have adopted,a general partnership agreement may be express or implied.

Answer 1

False

Question 2

An outside director is also known as a dependent director.

Answer 2

False

Question 3

The main issue in CASE 19.3 Burwell v.Hobby Lobby Stores,Inc.(2014)involved a question of whether the requirements for contraception under the Affordable Care Act (Obamacare)violated the due process rights of Hobby Lobby Stores.

Answer 3

False

Question 4

A partnership may acquire property in the individual partners' names.

Question 5

A creditor of a sole proprietorship may seek recovery only from business assets of the sole proprietorship,not from personal assets of the sole proprietor.

Question 6

Duty of care and duty of loyalty are known as shareholder duties.

Question 7

If a sole proprietorship operates under a fictitious business name,then that name must be registered with the state.

Question 8

An S corporation cannot have more than one class of stock.

Question 9

Cumulative voting allows a greater control by the management interests of a corporation.

Question 10

The main function of an LLP is to insulate its partners from vicarious liability for certain partnership obligations.

Question 11

Corporations must incorporate in the state where their headquarters are located.

Question 12

Appraisal rights are only available to shareholders who had a right to vote on a transaction.

Question 13

C corporations are taxed as a pass-through entity.

Question 14

Limited partnerships are often used to raise capital because their limited liability for limited partners makes them attractive to investors.

Question 15

Partnerships and LLCs are taxed at the firm level unless they elect to be taxed at the individual level.

Question 16

Any corporation not meeting the requirements for an S corporation is automatically a C corporation.

Question 17

A corporation that is technically defective but that is formed in good faith and exercises corporate power is known as a de jure corporation.

Question 18

A corporation is a private entity that can be created by a mere handshake,as long as the shareholders have completed a certificate of incorporation.

Question 19

In a joint venture,the authority of one member to bind the partnership is more limited than in a general partnership.

Question 20

B corporations have no duty to maximize shareholder value even when there is a change of control.

Question 21

__________ is the simplest and most prevalent form of business enterprise in the United States.

A) S corporation
B) Partnership
C) Sole proprietorship
D) Joint venture

Question 22

The __________ theory applies to the situation in which owners of a corporation have so mingled their own affairs with those of the corporation that the corporation does not exist as a distinct entity.

A) undercapitalization
B) alter ego
C) per se
D) absolute

Question 23

ANY Corporation has made a public offer to all the shareholders of Buyer,Inc.,to buy their shares at a stated price.This activity is known as a:

A) leveraged buyout.
B) tender offer.
C) target bid.
D) merger.

Question 24

An L3C indicates a low-profit,low-liability corporation.

Question 25

Which of the following is true regarding the effect of the death of a partner on a general partnership?

A) Unless there is an agreement to the contrary,the partnership dissolves upon the death of a partner.
B) Unless there is an agreement to the contrary,the partnership ceases to exist 10 days after the death of any partner.
C) The remaining partners must by operation of law continue the partnership for at least one year.
D) Within 90 days the remaining partners may elect to continue the partnership.

Question 26

An S corporation would likely be used as the corporate form for a business intending to raise money from venture capitalists.

Question 27

In Estate of Countryman v.Farmers Cooperative Association,the plaintiffs attempted to hold an active member of an LLC personally liable as the LLC's manager,after propane gas delivered by the LLC exploded.How did the court rule?

A) Only the LLC could be held liable.
B) The manager was subject to personal liability along with the LLC regardless of whether it could be established that the manager participated in tortious conduct in performing his duties.
C) Only the manager,not the LLC,could be held liable.
D) The manager who participated in tortious conduct while performing managerial duties was not shielded from personal liability.

Question 28

A(n)__________ is created when two or more persons agree to place their money,labor,or skills in a business and to share the profits and losses.

A) sole proprietorship
B) general partnership
C) S partnership
D) C corporation

Question 29

In a(n)__________ a stock purchase is financed by debt.

A) cash-out merger
B) freeze-out acquisition
C) leveraged buyout
D) illegal purchase

Question 30

In CASE 19.1 Gatz Properties,LLC v.Auriga Capital Corporation (2012),Gatz Properties was the managing member of Peconic Bay,LLC,controlled by the Gatz family.After failing to disclose material offers for assets of the LLC,Gatz bought out the minority members' interests in Gatz Properties LLC for $20,890.The minority members sued,winning over $800,000 based on Gatz's breach of fiduciary duties.Gatz appealed.How did the court rule on appeal,and why?

A) Affirmed,Gatz had breached its fiduciary duties to the minority members of Gatz Properties,LLC.
B) Affirmed,Gatz had breached its lease with Peconic Bay LLC.
C) Reversed,Gatz had breached its fiduciary duties to the minority members of Gatz Properties,LLC.
D) Reversed,Gatz had breached its lease with Peconic Bay LLC.

Question 31

A member of the board who also serves as an officer is a(n)__________ director.

A) inside
B) interested
C) outside
D) employed

Question 32

What does the term "reverse piercing" reference in regard to a corporation and its shareholders?

A) Holding a corporation liable for debts of a shareholder
B) Holding a shareholder liable for debts of a corporation
C) Holding a corporation liable for debts of a shareholder and holding a shareholder liable for debts of a corporation
D) Holding a corporation liable for debts of a shareholder,holding a shareholder liable for debts of a corporation,and holding officers liable for debts of a corporation.

Question 33

When directors on a board serve for a fixed term but are not elected all at once it is known as a(n)__________ board.

A) cumulative
B) staggered
C) proxy
D) inside

Question 34

__________ refers to a method by which courts hold shareholders individually liable for claims against a corporation.

A) Reverse liability
B) Piercing the corporate veil
C) Upholding the ethical theory
D) Unveiling

Question 35

Which of the following is NOT true regarding limited partnerships?

A) General partners of a limited partnership assume no liability for partnership obligations beyond the amount of capital they contributed.
B) Limited partners assume liability for all partnership debts.
C) Limited partners are responsible for the management of the partnership.
D) Limited partnerships are often used to raise capital.

Question 36

Which of the following statements is true regarding the advantages and disadvantages of a sole proprietorship?

A) A sole proprietorship cannot be created without formal agreements or state filings.
B) The proprietor reports income from the business as corporate tax.
C) The proprietor alone bears liability for the losses.
D) It is usually easy for sole proprietorships to raise capital.

Question 37

In most jurisdictions,there is no quorum unless the holders of at least _____ of the outstanding shares are present in person or by proxy.

A) 25 percent
B) 33 percent
C) 50 percent
D) 75 percent

Question 38

Which of the following is true regarding taxation of losses of a C corporation?

A) The operating loss is passed on to shareholders,but the corporation itself does not realize any benefit.
B) The operating loss is recognized at the corporate level,and shareholders also receive a tax benefit.
C) The operating loss will be recognized at the corporate level,shareholders receive no tax benefit,and the corporation receives no benefit until it has operating income against which its prior losses can be deducted.
D) The operating loss is not recognized at the corporate level; and although shareholders may receive a deduction,they must wait until they receive some amount of profit from the corporation at which point they can deduct up to 10 percent of the losses per year.

Question 39

Which of the following is NOT an element of a merger?

A) The merger agreement is negotiated by the boards of the two companies.
B) Consummation of a merger generally depends on approval of the transaction by the boards and the shareholders of both companies.
C) A merged corporation must adopt a name that does not belong to either of the parties to the merger.
D) The disappearing corporation relinquishes its separate corporate existence and becomes part of the surviving corporation.

Question 40

If a business is operated by a partnership,LLC,or S corporation,then operating losses will be passed through to the individual partners or shareholders.

Question 41

Which of the following involves settling accounts and liquidating assets of a partnership for the purpose of making distributions and ending the partnership?

A) Debt resolution
B) Bypassing formalities
C) Termination
D) Winding up

Question 42

A corporation can conduct business as a(n)__________ in states other than its state of incorporation.

A) domestic corporation
B) foreign corporation
C) pass through entity
D) alien

Question 43

In CASE 19.2 Holmes v.Lerner (1999),Lerner (a wealthy entrepreneur)talked to Holmes about setting up a cosmetics business called Urban Decay.Holmes received assurances from Lerner about finances and setting up the business.Later Lerner negotiated a separate deal for Urban Decay without including Holmes,and drafted articles of incorporation which gave Holmes only a 1 percent interest in Urban Decay.Holmes sued,insisting that even though they had no written agreement,she should have been a full and equal partner.How did the court rule and why?

A) The court held for Lerner as a full and equal partner,because the oral and written expressions and discussion of profits was a prerequisite to form a partnership.
B) The court held for Lerner; there was insufficient evidence of intentions to form a partnership.
C) The court held for Holmes as a full and equal partner,because the oral and written expressions and discussion of profits was a prerequisite to form a partnership.
D) The court held for Holmes,because under state law,she automatically became a limited partner.

Question 44

Which of the following is true regarding incorporation?

A) A corporation must be incorporated in the state in which it has its principal place of business.
B) Laws regarding incorporation and the rights and duties of corporations are uniform from state to state.
C) Since the mid-1930s,Delaware has been considered the preeminent state for incorporation.
D) Incorporation may be done pursuant to common law as well as statute.

Question 45

Which of the following refers to a merger in which some shareholders are required to surrender their shares in the disappearing corporation in exchange for cash?

A) Illegal merger
B) Termination merger
C) Surrender consolidation
D) Freeze-out merger

Question 46

In most corporations a director could be elected as long as he or she received a __________ of the votes cast for any nominee,without regard to the number of votes withheld; but more recently,the process in which a director must receive a __________ of the shares voted to be elected has become more prevalent.

A) proxy; majority
B) quorum; proxy
C) plurality; majority
D) quorum; plurality

Question 47

The __________ set forth the steps that must be taken to establish a corporation in a state.

A) Uniform Federal Rules
B) corporate statutes of each state
C) corporate bylaws
D) corporate charter requirements

Question 48

Which of the following requirements must be met by a corporation to qualify for S corporation status?

A) The corporation must have more than one class of stock.
B) The corporation must file a timely election signed by all the shareholders to be treated as an S corporation.
C) The corporation must have no more than twenty-five shareholders.
D) The corporation can be a domestic or foreign corporation.

Question 49

Define a joint venture and list the elements necessary for a finding of a joint venture.

Question 50

Which of the following is false regarding decision making in a partnership?

A) Each partner's assets are vulnerable to the poor business decisions of the fellow partners.
B) A partnership is prohibited from placing managerial control of the business in one partner.
C) Unless the partners expressly agree otherwise,partnership law requires unanimous agreement of all partners on all but the most ordinary matters.
D) If the partners in an informal partnership cannot agree on a decision,they may disband the partnership,distribute its assets,and terminate it.

Question 51

__________ of a general partnership occurs when all the affairs are wound up and the partners' authority to act for the partnership is completely extinguished.

A) Dissolution
B) Termination
C) Winding up
D) Staged end

Question 52

A(n)__________ is a for-profit corporation that uses the power of business to solve social and environmental problems.

A) close corporation
B) S corporation
C) benefit corporation
D) closely held corporation

Question 53

Five accountants have formed an organization within which they will provide their services.What type of organization have they most likely chosen and why?

A) They have formed a corporation in which members are liable for their own malpractice but not for the malpractice of other members.
B) They have formed a partnership because members are not liable for their own malpractice or for the malpractice of other members because recovery for malpractice may only be obtained from assets of the partnership itself.
C) They have formed a limited liability partnership because members are liable for their own malpractice but not for the malpractice of other members.
D) They have formed a corporation because the tax structure is most beneficial to the five of them this way.

Question 54

Sage Smith works as a laser technician for a local dermatology center consisting of physicians operating under a partnership agreement.Sage purchased supplies through the mail from a medical supply facility totaling $5,000,signing the contract agreeing to pay for the supplies under the name,Sage Smith.A few weeks later the dermatologists became embroiled in a bitter dispute regarding profits and terminated the partnership.Unfortunately,the partners were not aware of the debt owed to the medical supply facility; and the bill remained unpaid.Sage received a bill from the supply company for $5,000.Is Sage liable to the medical supply company,and why or why not?

A) No,because Sage was only employed as a technician.
B) No,because the medical supply facility should have asked for proper identification.
C) Yes,because the contract was signed in Sage's name.
D) Yes,but only because the partnership terminated.

Question 55

Which of the following statements is true regarding the characteristics of a corporation?

A) A corporation as a legal entity is not distinct from its owners.
B) A corporation is owned by shareholders.
C) The shareholders are responsible for the corporation's liabilities.
D) The board of directors implements the decisions of the officers.

Question 56

When a third party,based on all of its transactions with the enterprise,acts as if it were doing business with a corporation,the third party is prevented from claiming that the enterprise is not a corporation because a __________ has been formed.

A) partnership by estoppel
B) corporation de facto
C) corporation de jure
D) corporation by estoppel

Question 57

A shareholder who cannot be present at a meeting can vote by __________,that is,by a written authorization for another person to vote on his or her behalf.

A) proxy
B) allowance
C) record
D) nomination

Question 58

In most states,partnership agreements may:

A) not alter the obligation of equal fiduciary duty.
B) prescribe the standards by which the performance of good faith is to be measured.
C) eliminate the obligation of good faith.
D) reduce the duty of care.

Question 59

A __________ is a public offer to all the shareholders of a target corporation to buy their shares at a stated price,usually __________ the market price.

A) tender offer; higher than
B) leveraged buyout; higher than
C) tender offer; below
D) leveraged buyout; below