Question 1

Federal law governs the obligations,if any,that members of a limited liability partnership owe to creditors.

Accepted Answer

False

Question 2

A shareholder's right of appraisal only applies to transactions that were initially subject to shareholder approval.

Accepted Answer

Shareholders only have the right of appraisal for transactions that require their approval in the first place such as mergers, consolidations, or restructuring. Shareholders do not have this right for other transactions like stock splits, dividend declarations, or for any decision that a company takes.

Question 3

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

Accepted Answer

Cumulative voting actually allows minority shareholders to have a greater say in the election of the board of directors by pooling their votes together, rather than giving more control to management interests.

Question 4

C corporations are taxed as a pass-through entity.

Accepted Answer

C corporations are not taxed as a pass-through entity. They are taxed separately from their owners, which means they pay their own taxes on their profits and any dividends they distribute to shareholders are also taxed on the individual level.

Question 5

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

Accepted Answer

A de jure corporation is one that is formed in accordance with all legal requirements, while a corporation that is technically defective, but still operates as if it were valid, is known as a de facto corporation.

Question 6

The term "appraisal rights" when used in regard to a corporate merger refers to the right of dissenting shareholders to have corporate property independently appraised.

Accepted Answer

The answer of The term "appraisal rights" when used in...

Question 7

A partnership may acquire property in its own name.

Accepted Answer

A partnership is a separate legal entity from its partners and can acquire property in its own name.

Question 8

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

Accepted Answer

In a joint venture, the partners have a specific goal or project they are working on together, and their authority to bind the partnership is generally limited to that project or goal. In contrast, in a general partnership, the partners have more broad authority to act on behalf of the partnership in all business matters.

Question 9

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

Accepted Answer

This is a requirement of S corporations according to the Internal Revenue Code.

Question 10

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

Accepted Answer

Corporations can incorporate in any state they choose, regardless of where their headquarters are located. This is known as choosing a "home state" and is often done based on factors such as favorable tax laws or business regulations.

Question 11

Partners owe each other a duty of care but not a duty of loyalty.

Accepted Answer

Partners owe each other both a duty of care and a duty of loyalty. The duty of care requires partners to act in good faith and with the level of care that an ordinary prudent person would exercise in similar circumstances. The duty of loyalty requires partners to act in the best interests of the partnership and not engage in self-dealing or conflicts of interest.

Question 12

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

Accepted Answer

B corporations are legally required to consider the impact of their decisions on all stakeholders, not just shareholders. Therefore, even if there is a change of control (i.e. ownership), the B corporation's duty to consider all stakeholders remains unchanged.

Question 13

A partnership requires a minimum amount of capital in order to be formed.

Accepted Answer

There is no legal requirement for a minimum amount of capital to form a partnership. The amount of capital required is determined by the partners themselves and can vary depending on the nature and size of the business.

Question 14

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

Accepted Answer

By default, corporations are classified as C corporations unless they meet specific IRS criteria and elect to be treated as an S corporation.

Question 15

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

Accepted Answer

This is true. In most states, if a sole proprietorship operates under a fictitious name (also known as a "DBA" or "doing business as"), it must be registered with the state as a legal requirement. This helps to ensure transparency and prevent confusion for customers and other businesses.

Question 16

States may not impose a higher fiduciary duty upon partners than that set forth in the Revised Uniform Partnership Act.

Accepted Answer

The answer of States may not impose a higher fiduciary...

Question 17

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.

Accepted Answer

This is correct, as pass-through taxation is a characteristic of partnerships, LLCs, and S corporations, which means that the losses (or profits) of the business are distributed among the individual owners and reported on their personal tax returns.

Question 18

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.

Accepted Answer

A creditor of a sole proprietorship can pursue recovery from both business assets and personal assets of the sole proprietor. This is because there is no legal separation between the business and the owner in a sole proprietorship.

Question 19

An outside director is a director who lives outside the state of incorporation.

Accepted Answer

An outside director is a director who is independent of the company and not a member of the management team, but they do not necessarily live outside the state of incorporation.

Question 20

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

Accepted Answer

While an S corporation can be a tax-efficient choice for many small businesses, it is usually not the preferred corporate form for raising money from venture capitalists. Venture capitalists typically prefer C corporations because they offer more flexibility for investments and ownership and have fewer restrictions on the number of shareholders and types of stock.

Quiz 19: Forms of business organizations