Deck 11: Business Organizations

Question 1

The Delaware chancery courts operate without a jury.

Answer 1

True

Question 2

A corporation has no constitutional rights.

Answer 2

False

Question 3

In a publicly traded company,the identity of the shareholders cannot change.

Answer 3

False

Question 4

Banks approach loans to sole proprietors exactly as they would a loan to any individual.

Question 5

Franchises operate under a license agreement.

Question 6

A nonprofit that is a "501c)3)" organization does not have to pay taxes.

Question 7

Corporations earned First Amendment protections by proving their ability to exercise independent judgement,and the ability to tell right from wrong.

Question 8

Entities that receive "501C)3)status are prohibited from engaging in business outside the borders of the United States.

Question 9

There are no limits on the tax planning opportunities for general partners.

Question 10

A corporation is a legal entity chartered by the state,with a separate and distinct existence from its owners.

Question 11

Not every partner in a general partnership is liable for the partnership's debts and obligations.

Question 12

Once a choice of business organization is made,it is impossible to change to another selection.

Question 13

The physical embodiment of what we call a corporation is known as its articles of incorporation.

Question 14

Many sole proprietors resort to running their personal credit cards to the maximum limit,or transferring balances between credit cards,in the early stage of their business.

Question 15

The U.S.Supreme Court has recognized First Amendment protections for corporations.

Question 16

In effect,there is no creation cost or time in a sole proprietorship,since there is nothing to create.

Question 17

Most corporations incorporate where their principal place of business is located,but not all do.

Question 18

Choosing a business organization is a "one size fits all" exercise.

Question 19

Limited partners are generally prohibited from participating in day-to-day management of the business.

Question 20

Incorporation allows more flexibility in carrying out business operations than a sole proprietorship.

Question 21

Outside board members for a corporation's board of directors can be drawn from other private companies,including competitors.

Question 22

A limited liability company LLC)cannot choose how it wishes to be taxed.

Question 23

Unlike sole proprietorships,corporations can be complicated to manage.

Question 24

LLCs are the right form for taking a company public and selling stock.

Question 25

The infrequent meetings held by Boards necessitate the use of committees to deal with specific issues.

Question 26

All states give shareholders the right to sue a third party on behalf of the corporation.

Question 27

Articles of incorporation are similar across all states and typically include a common set of questions.

Question 28

The duty of loyalty,one of the fiduciary duties of board members,includes a duty not to take corporate opportunities for their own purposes and a duty not to self-deal.

Question 29

Limited liability partnerships LLPs)allow the partnership to pass through income for tax purposes.

Question 30

The number of shareholders tends to be large in a closely held corporation.

Question 31

A corporation that files for chapter 7 bankruptcy and then re-commences business after the bankruptcy is over,will find that its pre-petition debts will be revived by law.

Question 32

Shareholders can be human beings or corporate entities,such as partnerships or corporations.

Question 33

Corporate law is very inflexible in the United States and can lead to complicated solutions to business problems.

Question 34

Not all shareholders in a corporation are necessarily equal.

Question 35

Starting an LLC is often more difficult than starting a corporation.

Question 36

If a partner files a personal bankruptcy,it will have no bearing on the partnerships in which he happens to be a partner.

Question 37

The only difference between an S corporation and any other corporation is in tax treatment.

Question 38

Corporate officers are involved in everyday decision making for the company and implementing the board's strategy into action.

Question 39

Shareholders in derivative litigation cannot overcome the business judgment rule.

Question 40

Limited liability company LLC)members can be real persons or they can be other LLCs.

Question 41

_____ is a voluntary contract in which two or more persons decide to conduct business together and share profits and losses.

A)Operating agreement
B)Noncompete agreement
C)A committee charter
D)Articles of incorporation
E)Articles of partnership

Question 42

A true statement about a corporation is that:

A)it has to be discontinued once there is a change in ownership.
B)it is difficult to manage.
C)it must be formed in compliance with corporate law.
D)it can be incorporated only where the principal place of business is located.
E)it cannot have just one owner.

Question 43

The value of a withdrawing partners share of a general partnership would be determine via:

A)a buy/sell agreement
B)Angel Investors
C)Private placement
D)Initial Public Offering IPO)
E)Creditors

Question 44

Venture capital firms identify promising start-ups and fund them in an)_____ offering until the start-up has developed its technology to a commercially feasible stage.

A)initial public
B)private placement
C)merger and acquisition
D)secondary
E)follow-on

Question 45

Which of the following is an undesirable situation associated with sole proprietorships?

A)Unlimited liability
B)Dilution of stock
C)Lack of flexibility
D)Double taxation
E)Lack of continuity

Question 46

When a debtor is in bankruptcy,the creditors must choose which type of bankruptcy to file.

Question 47

Which of the following statements is true about limited liability?

A)It is any type of investment where the investor's maximum possible losses is the amount invested.
B)It is full liability for the debt and other obligations of a legal entity.
C)It is an undesirable situation where if the debts of the business exceed its ability to pay,creditors may reach the personal assets of the business owners.
D)With limited liability,all it takes is one successful personal injury lawsuit,not covered by insurance,to destroy years of hard work by an individual business owner.
E)With limited liability,every partner in the partnership is jointly and severally liable for the partnership's debts and obligations.

Question 48

Affluent individuals or groups of individuals)who provide capital to start-up and early-stage businesses are known as:

A)debtors.
B)business consultants.
C)angel investors.
D)institutional investors.
E)sole proprietors.

Question 49

One of the disadvantages associated with sole proprietorships is that:

A)raising working capital is difficult.
B)acquiring total ownership of the business's finances is not easy.
C)creating a sole proprietorship is a complicated process.
D)obtaining licenses and permits is difficult.
E)making autonomous business decisions is difficult.

Question 50

Which of the following is a major advantage of sole proprietorships?

A)If sole proprietors seek funding from banks,down payment requirements typically are low.
B)Banks don't require any form of personal collateral to guarantee loans to sole proprietors.
C)A range of options are available for raising working capital for sole proprietors.
D)It is always possible to bring in others to the business in a sole proprietorship.
E)Autonomy in a sole proprietorship comes with total ownership of the business's finances.

Question 51

An)_____ is considered a disregarded entity for tax purposes.

A)foreign corporation
B)C corporation
C)general partnership
D)sole proprietorship
E)domestic corporation

Question 52

The tax return that provides information to the taxing authority about a general partnership is called a n):

A)501c)3)
B)Information return
C)Disregarded entity
D)Buy/Sell agreement
E)Initial Public Offering IPO)

Question 53

Venture capital firms combine funds from institutional investors and _____ to identify promising start-ups.

A)personal investors
B)HYPERLINK "http://en.wikipedia.org/wiki/Sweat_equity" \o "Sweat equity" sweat equity investors
C)turbo capitalists
D)angel investors
E)venture capitalists

Question 54

Which of the following is a disadvantage of sole proprietorships?

A)It is difficult to create a sole proprietorship.
B)There is a lack of flexibility.
C)They have limited liability for business debts.
D)They have to pay ordinary income tax on their business profits.
E)Autonomy comes with limited ownership of the business's finances.

Question 55

What is the most common form of doing business in the United States?

A)General partnership
B)Corporation
C)Sole proprietorship
D)Limited liability company
E)Limited liability partnership

Question 56

In most cases,the debtor in a chapter 7 bankruptcy does not go to court and never has to see the judge.

Question 57

_____ are capital raised by a corporation through issuance of shares entitling owners to an ownership interest.

A)Assets
B)Stocks
C)Bonds
D)Debentures
E)Options

Question 58

In the United States,_____ income typically suffers the highest rate of taxation.

A)discretionary
B)personal
C)disposable
D)national
E)domestic

Question 59

An)_____ is an association of two or more persons in an unincorporated entity to do business and share profits and losses.

A)general partnership
B)corporation
C)limited partnership
D)S corporation
E)limited liability partnership

Question 60

A chapter 7 bankruptcy is a liquidation bankruptcy,often called a fresh start bankruptcy.

Question 61

_____ is a portion of a corporation's net income designated by the board of directors and returned to shareholders on a per share basis.

A)Compensation
B)Retained earnings
C)Share
D)Dividend
E)Corporate bond

Question 62

A corporation whose stock is held by only a small number of shareholders is an):

A)partnership.
B)publicly traded corporation.
C)mutual benefit nonprofit corporation.
D)sole proprietorship.
E)closely held corporation.

Question 63

An Employer Identification Number EIN):

A)serves the purpose of identifying sole-proprietorships to revenue authorities.
B)is used by the governments of many countries for official paperwork.
C)is a means of disbursing Social Security benefits.
D)is a unique nine-digit number issued by the IRS to business entities for purposes of identification.
E)has become a de facto national identification number.

Question 64

_____ refers to a legal document that creates a corporation when filed and approved by the relevant state authority.

A)Articles of incorporation
B)A charter
C)Articles of organization
D)Writ of certiorari
E)Articles of partnership

Question 65

The rules and regulations adopted by a corporation for its own internal governance are known as:

A)articles of partnership.
B)charters.
C)covenants.
D)policies.
E)bylaws.

Question 66

_____ results when a corporation issues additional shares,resulting in a reduction of percentage of the corporation owned by shareholders.

A)Preemption
B)Novation
C)Dilution
D)Accretion
E)Restitution

Question 67

The board of directors is responsible for all of the following EXCEPT:

A)declaring and paying a corporate dividend to shareholders.
B)authorizing major new decisions such as a new plant or factory or entry into a new foreign market.
C)determining employee compensation,especially bonus and incentive plans.
D)appointing and removing corporate officers.
E)electing new directors to replace directors who resign.

Question 68

A true statement about D&O insurance is that:

A)it usually insures a business for losses caused by competitors.
B)it is extremely cost prohibitive and should be avoided unless required by contractual needs.
C)it is business liability insurance for professionals.
D)it is usually paid by the board members.
E)it protects board members of corporations from liability arising from their actions.

Question 69

_____ rights are rights given to existing shareholders in a corporation to purchase any newly issued stock to maintain same proportion of their existing holdings.

A)Preemptive
B)Tag-along
C)Drag-along
D)Tender
E)Squeeze-out

Question 70

Which of the following is true about shareholders?

A)If a company that is unable to pay its debts seeks protection from creditors in a bankruptcy court,its shareholders lose the value of their stock.
B)In a closely held corporation,the body of shareholders tends to be large.
C)Shareholders' personal assets such as their own homes or bank accounts are reachable to creditors.
D)Shareholders of a corporation enjoy unlimited liability.
E)Shareholders should be human beings and not corporate entities,such as partnerships or corporations.

Question 71

_____ is a debt obligation issued by corporations to raise money without selling stock.

A)Corporate stock
B)Corporate bond
C)Dividend
D)Equity securities
E)Net worth

Question 72

Identify the incorrect statement about a shareholder derivative lawsuit.

A)It is a lawsuit brought by a shareholder on behalf of a corporation against a third party.
B)A shareholder alleges in the lawsuit that the people charged with acting in the corporation's best interests are failing to do so.
C)Very few state laws give shareholders a right to sue a third party in a shareholder derivative lawsuit.
D)These lawsuits are very controversial because they are typically litigated by plaintiffs' lawyers working on contingency fees.
E)Executives disfavor these lawsuits because oftentimes,shareholders sue the directors themselves for failing to act in the company's best interest.

Question 73

S Corporations are limited to what number of shareholders?

A)10
B)250
C)100
D)1,000
E)50

Question 74

Identify the incorrect statement about corporate officers.

A)Corporate officers can be removed by the board but only with cause.
B)Corporate officers are appointed by the board of directors.
C)Corporate officers are involved in implementing the board's strategy into action.
D)As officers of the company,they have legal authority to sign contracts on behalf of the corporation.
E)Corporate officers are employees of the company and work full-time for the company.

Question 75

Which of the following is a legal assumption that prevents juries from second-guessing decisions made by directors,unless they are proven to act with bad faith?

A)Business judgment rule
B)Conjecture
C)Exclusionary rule
D)Corporation by estoppel
E)"Value of consideration" rule

Question 76

Under older common law,shareholders could sue a company that conducted business beyond the scope of its articles.These actions are called:

A)respondeat superior.
B)actus reus.
C)ultra vires.
D)mens rea.
E)res ipsa loquitur.

Question 77

Identify the correct statement about an arm's-length transaction.

A)It is a transaction involving a party that is controlled by another entity and does not act on its own behalf.
B)It is a transaction made by parties as if they were unrelated,in a free market system,each acting in its own best interest.
C)It is a transactions in which one party sets aside independent interest so as to focus on the wishes of the controlling party.
D)An arm's-length transaction should involve at least one interested party that is concerned about the probable consequences of the transaction.
E)A transaction involving subsidiaries would not be considered an arm's-length transaction because the parties are acting independently.

Question 78

Many companies choose to incorporate in the tiny state of Delaware because:

A)disputes heard in Delaware courts are seldom predictable,making it easy to manipulate business operations.
B)shareholders are given a right to sue a third party on behalf of the corporation.
C)the courts operate with the most experienced and knowledgeable juries.
D)the chancery courts in Delaware have developed a reputation for fairly and quickly applying a very well-developed body of corporate law.
E)disputes heard in Delaware courts are not usually transparent,providing the opportunity to make quick profits.

Question 79

A company wholly owned or controlled by another company is known as an):

A)affiliate.
B)corporation.
C)limited liability company.
D)subsidiary.
E)closely held corporation.

Question 80

_____ is a corporation that,after meeting certain eligibility criteria,can elect to be treated like a partnership for tax purposes,thus avoiding paying corporate income tax.

A)Quasi corporation
B)C corporation
C)S corporation
D)Series LLC
E)A conglomerate