Question 1

Which of the following statements is true of an S corporation?

Accepted Answer

S corporations cannot have more than 100 shareholders, each of whom must elect to have the corporate income allocated to the shareholders annually in computing their income for tax purposes, whether actually paid out or not. Only individuals are eligible to elect under Subchapter S.

Question 2

A limited liability company is created through filing the ______ with a state official.

Accepted Answer

A limited liability company (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.

Question 3

The formal application for a corporate charter is called the ______.

Accepted Answer

The formal application for a corporate charter is called the articles of incorporation. These articles must contain the proposed name of the corporation.

Question 4

The ______,by which the corporate veil can be pierced,may also be used to impose personal liability upon corporate officers,directors,and stockholders.

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 5

Which of the following is the disadvantage of the corporate form of organization?

Accepted Answer

Corporate income may be subject to double taxation. Generally, corporations are subject to more governmental regulation at all levels than are other forms of business.

Question 6

Which of the following statements is true of limited partners?

Accepted Answer

Limited partners can act as a guarantor of the partnership's obligations. They can also vote on matters of fundamental importance such as dissolution, sale of assets, or change of the partnership's name.

Question 7

The owners of limited liability companies are called ______.

Accepted Answer

The owners of limited liability companies (LLCs) are called members rather than shareholders or partners. Membership in LLCs is not limited to individuals.

Question 8

In a closely held corporation,the majority shareholders

Accepted Answer

In a closely held corporation, the majority shareholders can control election of a board of directors. In fact, the shareholders with the largest amount of stock are often elected to the board of directors.

Question 9

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 10

Which of the following organizations is equally managed by the members unless a manager is designated?

Accepted Answer

Limited liability companies (LLCs) are equally managed by the members unless a manager is designated. The owners of LLCs are called members rather than shareholders or partners.

Question 11

A corporate charter is issued following an application made by individuals known as ______.

Accepted Answer

A corporation is created by a state issuing a charter upon the application of individuals known as incorporators. In comparison with partnerships, corporations are more costly to form.

Question 12

Which of the following is required to have its organizers file articles of organization with state official for formation?

Accepted Answer

A limited liability company is required to have its organizers file articles of organization with state officials for formation. The limited liability company is an increasingly popular organizational alternative.

Question 13

Which of the following has a perpetual existence so long as the number of shareholders is limited?

Accepted Answer

S corporation has a perpetual existence so long as the number of shareholders is limited. The S corporation has all the legal characteristics of the corporation.

Question 14

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

Accepted Answer

Control of a corporation may be held by those with a minority of the investment. In addition to being owners, shareholders of a corporation may be employees entitled to benefits such as workers' compensation.

Question 15

In a closely held corporation,which of the following lawsuits is likely to be brought by a minority shareholder on behalf of a corporation if the majority is acting illegally or oppresses the rights of the minority shareholders?

Accepted Answer

In a closely held corporation, 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 such 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 16

When organizations are owned by only a few persons,they are said to be ______.

Accepted Answer

When organizations are owned by only a few persons, they are said to be closely held. The basic difficulty of owning a minority interest in a closely held corporation arises from the fact that there is no ready market for the stock should the shareholder desire to dispose of it.

Question 17

In the context of the continuity of limited liability companies (LLCs),which of the following statements is true?

Accepted Answer

Unlike in the S corporation, a business organization can be an owner in any LLC (limited liability company). Membership in LLCs is not limited to individuals.

Question 18

Which of the following is essential if limited partners are to be assured of their limited liability?

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

Under the Revised Uniform Limited Partnership Act (RULPA),if a limited partner's name is used in a firm's name,that partner

Accepted Answer

Under the Revised Uniform Limited Partnership Act (RULPA), if a limited partner's name is used in the firm's name, that partner will become personally liable to unsuspecting creditors.

Question 20

When courts find that a corporate organization is being misused,the corporate entity can be disregarded.This has been called

Accepted Answer

When courts find that a 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.

Quiz 14: Business Organizations