Deck 20: Forms of business organizations

Question 1

In the absence of an agreement to the contrary,partners share both profits and losses according to their capital contributions.

Answer 1

False

Question 2

The liabilities and obligations of the partners do not end at dissolution.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Most general partnerships pay income taxes as a separate entity.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

General partners of a limited partnership remain jointly and severally liable for partnership obligations.

Question 12

A joint venture is a perpetual partnership of two or more persons for a specific purpose.

Question 13

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

Question 14

C corporations are taxed as a pass-through entity.

Question 15

The intention of one party alone cannot create a partnership.

Question 16

If the owners of a limited liability entity are active in the operation of the business,they can be held directly liable for their own tortious acts.

Question 17

A staggered term for a board of directors supports the purpose of cumulative voting.

Question 18

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

Question 19

The general partners hold the partnership's property as joint tenants.

Question 20

During the winding up of a partnership,the partners' fiduciary duties to each other are suspended.

Question 21

A ________ is a public offer to all the shareholders of a corporation to buy their shares at a stated price.

A)leveraged buy out
B)tender offer
C)target bid
D)merger

Question 22

Which of the following statements is not true regarding the advantages and disadvantages of a sole proprietorship?

A)A sole proprietorship can be created without formal agreements or state filings.
B)The proprietor reports income from the business on a personal tax return.
C)The proprietor alone bears liability for the losses.
D)It is usually easy for sole proprietorships to raise capital.

Question 23

State laws usually permit a ________ to significantly depart from corporate formalities.

A)C corporation
B)S corporation
C)close corporation
D)de jure corporation

Question 24

A person who shares in the profits of the business but not in its ________ is not a partner.

A)management
B)losses
C)control
D)voting

Question 25

The ________ doctrine prevents a third party who acts as if it were doing business with a corporation is from later claiming that the corporation is not really a corporation.

A)de jure corporation
B)de facto corporation
C)corporation by estoppel
D)alter ego

Question 26

A partnership is not automatically dissolved upon a partner's ________,and the partners holding a majority of the partnership interests may elect to continue the general partnership.

A)death
B)bankruptcy
C)withdrawal
D)all of the responses are correct

Question 27

Small corporations can avoid double taxation by electing to be treated as a(n)

A)C corporation
B)S corporation
C)Close corporation
D)LLC.

Question 28

In a ______________,one person owns all of the assets of the business and is liable for all of its debts.

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

Question 29

A ________ 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)limited partnership
D)C corporation

Question 30

Which of the following statements is not true regarding the characteristics of a general partnership?

A)No minimum amount of capital is required.
B)The partners must share in profits.
C)There must be a written partnership agreement.
D)It may acquire property in its own name.

Question 31

The rules that govern the internal operation of a corporation are called the

A)corporate charter.
B)bylaws.
C)articles of incorporation.
D)corporate articles.

Question 32

A ________ corporation is owned by a limited number of shareholders.

A)public
B)private
C)close
D)none of the responses are correct

Question 33

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

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

Question 34

Which of the following is not true regarding limited partnerships?

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

Question 35

In a ________ merger,the shares in the disappearing corporation are automatically converted into shares in the surviving corporation.

A)cash out
B)non-cash
C)freeze out
D)liquidation

Question 36

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

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

Question 37

In a ________ a stock purchase is financed by debt.

A)cash out merger
B)freeze out acquisition
C)leveraged buyout
D)none of the responses are correct

Question 38

A ________ combines the tax advantages of a pass-through entity with the limited liability advantages of a corporation

A)limited liability company
B)de jure corporation
C)joint venture
D)general partnership

Question 39

Which of the following requirements is not required by a corporation to qualify for S corporation status?

A)The corporation must have only one class of stock.
B)The corporation must file a timely election to be treated as an S corporation.
C)The corporation must have no more than twenty-five shareholders.
D)The corporation generally may not own more than 80 percent of another corporation.

Question 40

After the corporation is formed,the new directors have a meeting at which they

A)ratify the adoption of the bylaws.
B)appoint officers.
C)authorize the sale of stock to the initial shareholders.
D)all of the responses are correct

Question 41

Mike owns a small but successful coffee house.He has decided to incorporate.Should Mike form a C corporation or a subChapter S corporation? Discuss taxation under both forms and explain requirements for formation of an S corporation.

Question 42

Fact pattern 20-2
Maxine and Vince verbally agree to form a dog grooming partnership called "Groomers R Us." They file nothing with the state.Maxine puts up 80% of the capital needed for the partnership,and Vince supplies 20%.Maxine assumed that Vince would do extra work to account for the small amount of capital contributed by him,but that did not occur.Maxine found herself grooming more than 60% of the animals on her own.Maxine told Vince that he was only entitled to 40% of the profits because he was only doing 40% of the work.Vince disagreed,and a heated argument occurred.Not surprisingly,Maxine and Vince decided to end the partnership.While winding up affairs,Maxine discovers that Vince paid an excessive amount for some dog shampoo.She thought he bought it from a certain supplier,just so he could flirt with the receptionist there.She told him that paying for the shampoo was entirely his responsibility because she had not agreed to the purchase.Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,and that the owner lost money because the dog could not be entered into shows.Maxine told Vince that the litigation was entirely his responsibility and that she disavowed any liability to the plaintiff.
Refer to fact pattern 20-2.Is Maxine,Groomers R Us,or Vince responsible for payment of the shampoo purchased by Vince?

A)The partnership is liable and Vince is liable in the event there are insufficient partnership assets,but Maxine is not liable on the debt.
B)The partnership is liable,and so are both Vince and Maxine if insufficient partnership funds exist to pay the debt.
C)Vince is liable on the debt,but neither Maxine nor Groomers R Us are liable.
D)Since the winding-up process has begun,neither Maxine,Vince,nor Groomers R Us are liable.

Question 43

If incorporators cannot show substantial compliance with statutes regarding incorporation but can show that they were unaware of any defect and acted in good faith,a court may treat the entity as a(n)________.

A)de jure corporation
B)real corporation
C)de facto corporation
D)equitable corporation

Question 44

A general partnership is characterized by

A)a centralized board of directors.
B)a governing board of shareholders.
C)direct control by executive and audit committees.
D)direct owner management and control.

Question 45

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

A)Uniform Federal Rules
B)corporate statutes of each state
C)corporate bylaws
D)none of the responses are correct

Question 46

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 47

________ is the process by which a corporation is formed.

A)Registration
B)Statutory filing
C)Incorporation
D)Delineation

Question 48

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 are uniform from state to state.
C)Since the mid-1930's,Delaware has been considered the preeminent state for incorporation.
D)Incorporation may be done pursuant to common law as well as statute.

Question 49

Fact pattern 20-1
Joan decides to enter into a franchise agreement with Great Burgers to sell their burgers in her town.The franchise agreement she entered into with Great Burgers did not prohibit Great Burgers from granting other franchises in the area,but that did not concern Joan because she thought Great Burgers would treat her fairly.She did not bother to read the franchise papers,contracts,and disclosures she was provided.Joan's business went very well for the six months.Then,however,another Great Burgers franchise opened just down the street from Joan's restaurant.She was very upset and called Great Burgers to complain.They brushed off her concerns and told her that there was enough business for everyone.Joan,however,is interested in suing Great Burgers.
Refer to fact pattern 20-1.Which of the following is the term used when a franchisor sells a franchisee an outlet in a certain location,and then a few months later,sells another outlet a few blocks away to someone else?

A)Encroachment
B)Fair trace
C)False competition
D)Crowding

Question 50

Compare and contrast a general partnership with a corporation.Explain the advantages and disadvantages of both forms of business ownership.Discuss fully.

Question 51

Fact pattern 20-2
Maxine and Vince verbally agree to form a dog grooming partnership called "Groomers R Us." They file nothing with the state.Maxine puts up 80% of the capital needed for the partnership,and Vince supplies 20%.Maxine assumed that Vince would do extra work to account for the small amount of capital contributed by him,but that did not occur.Maxine found herself grooming more than 60% of the animals on her own.Maxine told Vince that he was only entitled to 40% of the profits because he was only doing 40% of the work.Vince disagreed,and a heated argument occurred.Not surprisingly,Maxine and Vince decided to end the partnership.While winding up affairs,Maxine discovers that Vince paid an excessive amount for some dog shampoo.She thought he bought it from a certain supplier,just so he could flirt with the receptionist there.She told him that paying for the shampoo was entirely his responsibility because she had not agreed to the purchase.Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,and that the owner lost money because the dog could not be entered into shows.Maxine told Vince that the litigation was entirely his responsibility and that she disavowed any liability to the plaintiff.
Refer to fact pattern 20-2.Which of the following is true regarding liability on the lawsuit brought by the Corgi owner?

A)The partnership is liable and Vince is liable in the event there are insufficient partnership assets to pay any judgment,but Maxine would not be liable on any judgment.
B)The partnership is liable,and so are both Vince and Maxine if insufficient partnership funds exist to pay any judgment.
C)Vince is liable on any judgment,but neither Maxine nor Groomers R Us would be liable.
D)Since the winding-up process has begun,neither Maxine,Vince,nor Groomers R Us would be liable on any judgment obtained.

Question 52

Fact pattern 20-2
Maxine and Vince verbally agree to form a dog grooming partnership called "Groomers R Us." They file nothing with the state.Maxine puts up 80% of the capital needed for the partnership,and Vince supplies 20%.Maxine assumed that Vince would do extra work to account for the small amount of capital contributed by him,but that did not occur.Maxine found herself grooming more than 60% of the animals on her own.Maxine told Vince that he was only entitled to 40% of the profits because he was only doing 40% of the work.Vince disagreed,and a heated argument occurred.Not surprisingly,Maxine and Vince decided to end the partnership.While winding up affairs,Maxine discovers that Vince paid an excessive amount for some dog shampoo.She thought he bought it from a certain supplier,just so he could flirt with the receptionist there.She told him that paying for the shampoo was entirely his responsibility because she had not agreed to the purchase.Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,and that the owner lost money because the dog could not be entered into shows.Maxine told Vince that the litigation was entirely his responsibility and that she disavowed any liability to the plaintiff.
Refer to fact pattern 20-2.Which of the following is true regarding Vince's entitlement,if any,to share in profits of the business?

A)Because he was not doing his share of the work,he was not entitled to any profits.
B)He was entitled to 20% of the profits.
C)He was entitled to 40% of the profits.
D)He was entitled to 50% of the profits.

Question 53

________ 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)All of the responses are correct.

Question 54

Which of the following does a partnership agreement usually include?

A)The division of profits and losses between the partners.
B)Partnership salaries or withdrawals.
C)The duties of the partners.
D)All the responses are correct.

Question 55

Fact pattern 20-1
Joan decides to enter into a franchise agreement with Great Burgers to sell their burgers in her town.The franchise agreement she entered into with Great Burgers did not prohibit Great Burgers from granting other franchises in the area,but that did not concern Joan because she thought Great Burgers would treat her fairly.She did not bother to read the franchise papers,contracts,and disclosures she was provided.Joan's business went very well for the six months.Then,however,another Great Burgers franchise opened just down the street from Joan's restaurant.She was very upset and called Great Burgers to complain.They brushed off her concerns and told her that there was enough business for everyone.Joan,however,is interested in suing Great Burgers.
Refer to fact pattern 20-1.What is the position of the Federal Trade Commission regarding a franchisor selling a franchise very near to an existing franchise?

A)That the practice is illegal.
B)That the practice is illegal unless the first franchisee provides specific permission for the sale to the second franchisee.
C)That the practice is legal and that no disclosures are required.
D)That the practice is legal but that certain disclosures must be made to the first franchisee when that agreement is made.

Question 56

A corporation can conduct business as a ________ in states other than its state of incorporation.

A)domestic corporation
B)foreign corporation
C)pass through entity
D)all of the responses are correct

Question 57

Describe in detail the steps necessary to form a corporation.

Question 58

Which of the following statements is not true regarding the characteristics of a corporation?

A)A corporation is a legal entity distinct from its owners.
B)A corporation is owned by shareholders.
C)The corporation itself is responsible for its liabilities.
D)The board of directors implements the decisions of the officers.

Question 59

Define class voting.Why would a group of investors be interested in a guarantee of class voting?

Question 60

Sarah Smith works as a laser technician for a local dermatology center consisting of physicians operating under a partnership agreement.Sarah purchased supplies through the mail from a medical supply facility totaling $5,000.She signed the contract agreeing to pay for the supplies in her name,Sarah 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.Sarah received a bill form the supply company for $5,000.Is she liable to the medical supply company,and why or why not?

A)No,because she was only employed as a technician.
B)No,because the medical supply facility should have asked for proper identification.
C)Yes,because she signed in her own name.
D)Yes,because she signed in her own name and the partnership has terminated.

Question 61

In what five categories does the Franchise Rule require a franchisor to make material disclosures?

Question 62

Set forth four of the shareholder proposals that must be included in proxy materials according to the Securities and Exchange Commission.