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1)

Law

1).An important factor to consider in the creation of a business organization is:

A.Liability

B.Control

C.Taxation

All of the above are important factors to consider

 

 

2.Which of the following statements about proprietorships is true?

The owner of a proprietorship is personally liable for all the debts of the proprietorship.

 

A business organized as a proprietorship may have up to, but not more than, thirty-five owners

False

3.Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction?

Joint venture

4.Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of a ____ .

 Joint venture                                               

5. Which of the following statements about the limited partner in a limited partnership is false?

Limited partners may participate fully in the management of the partnership.

6. limited partnership must have at least one general partner and one limited partner.

True

7.Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss.

True

8.What kind of business organization is subject to the most regulation at the state and federal level?

Corporation

 

9.Limited Partnership must have at least one general partner.

 True

 False

10.Which of the following is NOT one of the recognized disadvantages of doing business as a corporation?

A corporation can be in existence for a maximum of ninety-nine years.

11.Why are corporations said to have a burden of "double tax"?

Profits are taxed at the corporate level as income and again at the shareholder level as dividends

12.Which of the following best describes the "double taxation" on corporate profits?

 Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends a

 13.Premiums paid by corporations for the health insurance it provides to employees are tax-deductible expenses.

True

14.Subchapter S corporation will avoid double taxation if which of the following applies?

All the shareholders agree to be taxed as in a partnership

 

16.What is the limit of shareholders in subchapter S corporations?

  Thirty five

 

17.Which of the following statements about LLC's is false?

 

There is an extensive body of law based on court decisions governing LLC's.

 

18.States give corporations many rights, among them is the right to sue and the right to own property in the corporation's name. What do such legal rights collectively constitute for a corporation?  

 

Legal capacity

 

19.The owner of a limited liability company (LLC) has unlimited personal liability for the debts of the LLC.

  False

 

20.The provisions of the law AND the partnership agreement govern the operations of the partnership.

True

21.Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership

As rent

For wages

 As an annuity to the spouse of a deceased partner

All of the above

23.Which of the following statements is true about a partnership name?

The name is an asset of the partnership that may be sold or assigned

The name must include the word "company" in it.

The partnership must comply with the state's assume name provisions.

 

 Both a and c

24.The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends.

True

25.Under RUPA, a partnership may take title to real property as a tenancy in partnership.

True

 

26.AMJ Partnership has 3 partners: Amy made a 60,000 capital contribution; May, made a 20,000 capital contribution; and June made a 10,000 capital contribution. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed?

30,000 each to Amy, May and June

 

27If a partnership agreement does not say how losses will be shared, they will be shared

In whatever way the profits are shared.

 

28A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out.

True

29.A partner who does not participate in the management of the business is a ____ partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a ____ partner. 

 Silent----------------------Secret

 

30.Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.

False

 

31.Which of the following is not a right of a partner?

 The right to draw yearly interest on his or her capital contribution

 

32.Phil has a partnership interest in Best Bike. He has been denied access to the books and records and he suspects that one of the partners is engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil should request an

Accounting

 

33.The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a ____ order.

Charging

34.Partner A defrauded a client of the partnership. Partners B and C are jointly and severally liable with A to the client, even though they were unaware of the fraud.

True

35.A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership.

True

36.The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.

True

37.Which of the following would bring about the dissolution of the partnership?

The time the partnership is to last, as stated in the partnership agreement,

has expired

All of the partners agree to end the partnership

 One of the partners dies.

All of the above would bring about the dissolution of a partnership

 

38.A partnerhsip cannot have a provision for the continuation of  the partnership upon the death of one of the partners.

 False

 

39.In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time.

False

 

40.When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called ____ .  Winding up.

 

41Jim and Fred had been equal partners in J amp; F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false?

 Jim's estate is entitled to participate in the winding up process.

 

42.Which of the following decisions would require a unanimous vote of the partners?

 Admitting a new partner into the partnership

 

43.A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership.

  true

 

44.What is the equitable rule that 1 distributes assets of an insolvent partnership first to creditors of the partnership and 2 does not let partnership creditors reach the assets of individual partners until the partners' personal creditors are satisfied?

Marshaling of assets

 

45.Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this?

 

Yes, this is a legitimate way for closely held corporations to reduce their taxes.

 

No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.

 

No, the shareholder-employees will have do return the excess portion of their salaries to the corporation.

 

No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year.

46.By statute, a limited partnership must have a minimum of ____________limited partners.

 

one

 

two

 

four

 

five

47.Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of an______

 

General partnership

 

Limited partnership

 

Joint venture

 

Proprietorship

 

 

 

 

48.Which of the following is NOT a recognized advantage of doing business as a corporation?

 

Investors have extremely limited liability for the debts of the corporation.

 

A corporation can have perpetual existence.

 

Usury laws do not apply to corporations.

 

All of the above are advantages of doing business in corporate form.

49.In a Limited Liability Company, the losses stay with the corporation although the profits pass through to the shareholders.

True

False

50.Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans.

True

False

51.In a limited partnership, the _________partner has unlimited personal liability for the debts of the partnership; the ____________partner is liable only to the extent of his or her capital contribution.

 

Limited-----------------general

 

General----------------limited

 

Senior------------------limited

 

General----------------junior

 

 

 

 

 

 

52.Which of the following statements about the limited partner in a limited partnership is false?

 

Limited partners may participate fully in the management of the partnership.

 

There must be at least one limited partner.

 

Limited partners must approve any changes to the partnership agreement.

 

Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.

53.Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false?

 

They will be protected from suits for medical malpractice.

 

They will be eligible for a tax-advantaged pension plan.

 

Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name.

 

Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation.

54.What is the form of business organization that is subject to the most regulation at the state and federal level?

 

Corporation

 

Partnership

 

Limited Partnership

 

Professional Association

55.The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order.

 

Charging

 

Marshaling

 

Accounting

 

Collection

56.Which of the following is not a right of a partner?

 

The right to participate in the management of the business.

 

The right to draw yearly interest on his or her capital contribution

 

The right to inspect the partnership books and records.

 

The right to sue for an accounting if another partner has taken a secret profit.

57.Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment?

 

The partnership as an entity

 

Jay individually

 

Each of the other partners individually

 

All of the above have liability on the judgment.

58.Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business.

True

False

59.Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships.

True

False

60.The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.

True

False

61.Which of the following statements is true about a partnership name?

 

The name is an asset of the partnership that may be sold or assigned.

 

The name must include the word "company" in it.

 

The partnership must comply with the state's assume name provisions.

 

Both a and c

62.Partnership books must be kept in the firm's place of business and be accessible to all partners

True

False

63.Which of the following is the order in which partnership assets will be distributed upon termination of the partnership?

 

Outside-creditors, partner-creditors, undistributed profits, capital contributions.

 

Capital contributions, outside-creditors, partner-creditors, undistributed profits.

 

Partner-creditors, outside-creditors, undistributed profits, capital contributions

 

Outside-creditors, partner-creditors, capital contributions, undistributed profits.

64.The admission of a new partner automatically dissolves the partnership.

True

False

 

65.Subchapter S corporations are limited to _________shareholders.

 

10

 

35

 

100

 

There is no limit to the number of shareholders in a Subchapter S corporation.

66.In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties.

True

False

67.A corporation can be in existence for a maximum of ninety-nine years.

True

False

68.If a business has the power to own property, enter into contracts, and sue others in court, it is said to have

 

Legal capacity

 

legal standing

 

legal authority

 

corporate authority

69.A limited partnership has to have at least two general partners and at least one limited partner

True

 

False

70.Which of the following statements about LLC's is false?

 

LLC's are a relatively new form of business organization.

 

There is an extensive body of law based on court decisions governing LLC's.

 

Shareholders have no personal liability for the debts of the LLC.

 

The LLC is not a taxable entity.

71.Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss.

True

False

72.Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses.

True

False

73.When partners enter into a partnership without stating how long the partnership will last, they have formed an ____________________.

 

Partnership for a term of years

 

Implied partnership

 

Partnership at will

 

Partnership by the entireties

74.Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership.

True

False

 

75.Which of the following statements is true about a partnership name?

 

The name is an asset of the partnership that may be sold or assigned.

 

The name must include the word "company" in it.

 

The partnership must comply with the state's assume name provisions.

 

Both a and c

76.One partner has the ability to veto the admission of a new partner into the business.

True

False          

77.The formal document that represents the agreement of the parties to form a partnership is the ___________.

 

Partnership charter

 

Partnership certificate

 

Articles of partnership

 

Uniform Act of Partnership

78.The admission of a new partner automatically dissolves the partnership.

True

False

79.A partnership whose primary business purpose is the buying and selling of goods is a ________partnership.

 

Professional

 

Entrepreneurial

 

Trading

 

Non-trading

80.A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership.
a. Professional
b. Entrepreneurial
c. Trading
d. Non-trading

81.Partnership agreements often fund the purchase of a deceased partners’ partnership interests with
a. Life insurance policies
b. Distributions of retained earnings
c. Levies on partnership interests
d. Partner advances

82.A partner who does not participate in the management of the business is a _________partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a _________________partner.

 

Dormant-------------------Silent

 

Secret----------------------Dormant

 

Silent----------------------Secret

 

Silent-------------------Dormant

83.In most states corporations can have perpetual existence.

True

84.A corporation is a person for purposes of the due process clauses of the 5th and 14th Amendments.

True

 

85.The document that the state issues evidencing that a corporation has been duly formed is the corporation's

Charter

 

86.The person who is designated to receive notices and service of process for a corporation is its

Registered agent

 

87.Stock which has no stated value when it is sold is ____ stock.

No par value

 

88.Which of the following is FALSE about the name of a corporation?

The name can never be changed once it is registered with the state.

 

89.Acts of a corporation that goes beyond the powers granted to it by the state or in its charter are ____ acts.

 Ultra Vires

90.The rules that govern the corporation, including the number of directors it will have, the method of electing directors, the time and place of shareholder meetings, etc., are found in the corporation's

By laws

91.DEF Corporation, which is incorporated in Maryland, is a ____ corporation in Maryland.

Domestic 

92.Some states use the alter ego theory to require corporations to assume liability for contracts negotiated on their behalf by the promoters.

True

93.A promoter has a fiduciary responsibility toward the prospective corporation.

True

94.Courts will allow creditors to pierce the corporate veil of any corporation that has only one shareholder.

False

95.The theory under which courts pierce the corporate veil of corporations whose shareholders do not treat the corporation like a separate legal identity is the ____ theory.

Alter ego

 

96.A corporation ceases to exist as a legal entity when

The state issues a certificate of dissolution

 

97.Partnerships are required to give notice to creditors when they dissolve, but corporations are not required to give notice of their dissolution.

  False

 

98.States have the power to cancel or revoke the charters of corporations that engage in illegal activities. These forfeiture hearings are called ____ proceedings.

Quo warranto

 

99.Which of the following would not be grounds for dissolving a corporation?

 The corporation has not made a profit or declared dividends in two years.

 

100.Dominant shareholders in closely held corporations who exploit their control of the corporation to benefit themselves at the expense of minority shareholders are guilty

Oppressive conduct

101.States have statutes of limitations limiting the time after the dissolution of a corporation when creditors of the corporation may sue former shareholders on corporate debts.

True

102.The combination of two corporations that results in the dissolution of both corporations and the emergence of a new corporation is an ____

.  Consolidation

103.A shareholder who dissents from a merger is entitled to

Be paid the fair value of her stock

104.The merger that creates the greatest number of antitrust issues is a ____ merger.

Horizontal

 

105.The document that is written evidence of an ownership interest in a corporation is an _

Stock certificate___

 

106.When a corporation dissolves, holders of ____ stock have priority in the distribution of corporation assets.

Preferred

 

107.Preferred stock that is entitled to receive only the stated preferred dividend and no other is ____ preferred stock.

 

Non-participating

 

108.Shares that are issued with a face value are

Par value shares

109.A shareholder who holds watered stock is potentially liable to the creditors of the corporation should the corporation become insolvent and unable to meet its obligations.

True

110.The agreement to purchase stock in a future corporation is a pre-incorporation subscription.

True

 

111.The prerogative of existing shareholders to buy new issues of stock in the same proportion as their current holdings is their ____ right.

 Preemptive

 

112.Which of the following section of the Uniform Commercial Code governs the sale of securities

Article 8

 

113.Shareholders have virtually unrestricted access to corporate books and records

 

False

114.Shareholders are entitled to notice when a special meeting is called.

True

 

115.Minority shareholders have the best chance of electing directors in a corporation that uses the ____ method of voting.

Cumulative

 

116.A shareholder who cannot attend a shareholder meeting may give another person the right to vote her shares in that election. This temporary grant of authority is an __

Proxy__ .

 

117.Any money recovered in a successful derivative suit belongs to the shareholder who initiated the suit.

 False

 

118.Instead of giving shareholders a cash dividend, ABC Corporation gave each shareholder 2 shares of a new stock issue for each share of stock the shareholder already owned. This is an example of a Stock Dividend

119.In a closely held corporation, shareholders owe each other substantially the same fiduciary duties that partners owe one another.

True

 

120.Directors may vote on matters in which they have a personal interest.

False

 

121.Directors and shareholders may vote by proxy. 

False

 

122.Directors must be compensated for their services.

 False

123.The business judgment rule protects directors who are loyal and careful from liability for business decisions that result in loss to the corporation.

True

124.Directors are fiduciaries of the corporation and may have liability in both contract and tort.

True

125.The director's duty of loyalty continues after the director's resignation.

True

 

126.A director's duty of care under the business judgment rule is a lower standard that that of professional negligence.

False

 

127.If a director discovers illegal acticity he or she must report the activity or problem, and if the officers of the corporation refuse to take action, the director must resign and notify the appropriate authorities.

True

 

128.. Boards of directors normally have the power to purchase insurance to indemnify directors who are sued personally for corporation-related actions.

True

 

129.LLC combine the limited liability of the partnership and the tax advantages of corporations.

False

130.LLC are taxed as partnerships unless the owners choose to be taxed as a corporation.

True

 

.131. A member of an LLC can never be personally liable for the debts of the LLC.

 False

132.Relative to corporate and partnership law there is not a comparable amount of case law involving LLCs.

True

133.In the majority of states an LLC can be both formed and managed by only one member.

True

 

134.If you form an LLC you are required to have a written operating agreement.

False

135.In a member-managed LLC all members participate in management.

True

136.In a manager-managed LLC, only the manager-members have access to the LLCs books.

False

 

137.An artisan's lien is a special lien that applies exclusively to the liens artist receive on artwork they personally performed.

 False

 

138.Bob voluntarily surrender's a watch that he repaird back to the owner. Bob had a lien on the property for the value of his labor. Bob later re-acquires the property. Bob has now revived his lien since he was able to re-acquire possession of the property.

False

139.A suretyship provides a lien credit a legal interest in the property of the debtor to secure repayment of the loan.

False

 

140.A surety and guarantor have always been treated as the exact same thing.

False

141.A general guarantor's promise is not limited to a single transaction.

True

142.When dealing with and absolute guarantor, the creditor does not have to first attempt to collect from the debtor prior to proceeding against the guarantor.

True

 

143.Modernly, surety and indemnification contracts are the same thing.

False

144.BOTH performance bonds and fidelity bonds are sureties.

True

145.Surety agreements may also be created by operation of law.

True

 

146.The surety relationship requires good faith, but not fair dealing.

False

 

147.A creditor can never be required to give the surety notice that the debtor is in default.

False

 

148.If a credit gets a judgment against the creditor, and then the surety pays the creditor, the surety gets to benefit from the judgement that was obtained by the creditor.

True

149.Subrogation means the substitution of one person in place of another.

True

 

150.Lack of capacity and discharge in bankruptcy are two common defenses that are available to a surety that may be asserted against a creditor

False

151.The Statute of Limitations does not apply to surety contracts.

 False

 

152.The release of the principal always releases the surety.

False

152.A surety will remain liable when the creditor-principal agreement is modified if the surety consents to the modification

Before the modification takes place

At the time the modification takes place

After the modification takes place

 Any of the above

 

153.Bonding companies are usually uncompensated sureties.

 False

154.A surety owes a ____ to the principal for any profits obtained after the surety performs.

Duty to Account

155.Co-sureties share joint and several liability to the creditor

True

 

156.Rod and Todd have joint and several liability as sureties on a loan made to Rod's business by First Bank. Under this agreement, Todd is a

Co-surety

157.A lien for the value of material and labor expended in the construction of buildings and other improvements is a ____ .

Mechanic's lien

 

158.The general contractor is eligible for a mechanic's lien on the real property, but the subcontractors on the project are not.

  False

159.The usual procedure for a party seeking to perfect a mechanic's lien to file or record a ____ in the office of the county in which deeds to real estate are recorded.

Notice of lien

160.State law determines whether or not a mortgage will have priority over a mechanic's lien.

True

 

161.The owner may be liable for more than the contract price even if they follow the statutory procedures.

 False

 

 

162.If a judgment for dollar damages is not paid, the judgment creditor may apply for a ____

Writ of Execution

 

163.____ is a proceeding by which a plaintiff seeks to reach the assets of the defendant that are in the hands of a third party.

Garnishment

 

164.Corporations must include the terms "corporation" or "company" or "incorporated" or "limited" in their names.

 True

 False

 

165.The "weighted average method" refers to

 

a way of voting for directors that protects the rights of minority shareholders.

 

A way of distributing dividends in closely held corporations

 

A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger.

 

A way of resolving antitrust issues when competitor corporations merge.


166.Once a corporation has been dissolved and the remaining assets of the corporation have been distributed to the shareholders, a creditor of the corporation may be able to sue the former shareholders on the corporate debt.

 True

 False

 

167.The merger of two corporations that results in the surviving corporation expanding its products or markets is a _____________merger.

 

Conglomerate

 

Market extension

 

Horizontal

 

Vertical

 

168.State laws regulating the sale of securities within the state are called red herring laws.

 True

 False

 

169.Participating preferred stock allows holders to trade their preferred shares for common shares when the trading price reaches a specified target.

 True

 False

 

170.Directors have no personal liability for illegally declared dividends.

 True

 False

 

171.Mike owned 10,000 shares in Texas Equipment that had a par value of 10. As part of a financial reorganization, Texas Equipment now records Mike as having 20,000 shares with a par value of 5. This is an example of a _____________.

 

Stock dividend

 

Stock repurchase

 

Ex dividend split

 

Stock split

172.Minority shareholders have the best chance of electing directors in a corporation that uses the ______method of voting.

 

Proxy

 

Cumulative

 

Non-cumulative

 

Straight

173.Shareholders are taxed on the value of the stock they receive in stock dividends

 True

 False

174.Stock that is issued and then repurchased by a corporation is watered stock.

 True

 

 False

 

 

175.Which of the following statements about cash dividends is false?

 

Cash dividends become a debt of the corporation once they are declared.

 

Directors have personal liability for illegally declared dividends

 

Shareholders who receive illegal cash dividends may be forced to return them to the corporation.

 

The cash may come from any source, including the corporation's capital stock.

176.Officers of a corporation are responsible for carrying out the policies set by the board of directors.

 True

 False

177.The merger of two businesses in the same field that reduces the number of competitors is a _________________merger

 

Conglomerate

 

Vertical

 

Horizontal

 

Consolidation

178.Tom was the minority shareholder in a closely held corporation. Despite massive profits, no dividends were ever declared. The corporation did, however, pay extremely large salaries and bonuses to the officers of the corporation, who were also the majority shareholders. The majority shareholders of this corporation are guilty of _______________.

 

Ultra vires acts

 

Quo warranto acts

 

Oppressive conduct

 

Embezzlement

 

 

 

179.Dominant shareholders in closely held corporations who exploit their control of the corporation to benefit themselves at the expense of minority shareholders are guilty of

 

Ultra vires acts

 

Quo warranto acts

 

Oppressive conduct

 

Unfair trade practices.

180.To protect instate investors, most states have statutes regulating the sale of stocks and other securities within the state. These state statutes are referred to as ________________laws.

 

Blue sky

 

Asset protection

 

Investment trust

 

White knight

181.PaperCo makes paper products from recycled materials. If PaperCo acquires the recycling plant from which it buys most of its raw materials, the acquisition would be a ______________merger.

 

Horizontal

 

Vertical

 

Conglomerate

 

Market product extension

182.A shareholder's right to dissent from a proposed merger and have his shares purchased by the corporation is the right of preemption.

 True

 False

183.The articles of incorporation are drawn up at the first organizational meeting of the corporation.

 True

 False

184.The merger of two corporations that results in the surviving corporation expanding its products or markets is a _____________merger.

 

Conglomerate

 

Market extension

 

Horizontal

 

Vertical

 

185.Alice bought 10,000 shares of ABC Corporation that had a par value of 10 a share. To pay for her shares, Alice gave ABC 45,000 in cash and a piece of real property that she said was worth 55,000. In fact, the land appraised for only 20,000. The stock that Alice bought from ABC Corporation is ______________ stock.

 

Treasury

 

Watered

 

Non-par

 

Non-participating

 

186.Corporate bond holders

 

Have an equity interest in the corporation.

 

Are entitled to receive dividends when dividends are declared.

 

Participate in the distribution of corporate assets when the corporation dissolves.

 

Are entitled to be paid a specified rate of interest for a set period of time.

187.Which of the following statements about cash dividends is false?

 

Cash dividends become a debt of the corporation once they are declared.

 

Directors have personal liability for illegally declared dividends

 

Shareholders who receive illegal cash dividends may be forced to return them to the corporation.

 

The cash may come from any source, including the corporation's capital stock.

188.ABC Corporation has been dissolved. After paying all its creditors, ABC will make a cash distribution to its shareholders. Of the following, which shareholders will have priority in the distribution?

 

Shareholders who own un-exercised warrants.

 

Shareholders who own preferred stock

 

Owners of common stock who had title to the shares 180 days before the last ex-dividend date.

 

All current owners of common stock.

 

189.Which of the following usually provides an investor the least protection from personal liability for the debts of the business?

 

General Partnership

 

Limited Partnership

 

LLC

 

Corporation

190.A limited partner has liability to the full extent of his or her capital contribution.

 True

 False

 

 

191.Which business entity has the following characteristics: owners are normally professionals engaged in selling their services; owners have both limited liability for the debts of the entity and limited liability for the contracts and torts of the other owner-professionals; the entity is organized under state law; profits are taxed only at the owner level?

 

General partnership

 

Limited partnership

 

Limited Liability Partnership

 

Limited Liability Company

 

192.In a limited partnership, each limited partner has an equal right to participate in the management of the business.

 True

 False

 

193.Which of the following is recognized as a disadvantage to doing business as an LLC?

 

Existing court decisions addressing LLC issues and formation are relatively undeveloped, which may lead to legal uncertainty when making business decisions.

 

Individual members of the LLC can never bind the LLC in a valid and enforceable contract.

 

Compared to other business entities, the LLC is taxed more heavily by the IRS.

 

An LLC requires the participation of several owners, which can sometimes complicate day-to-day business decisions.

193.All of the following are functions of an LLC's Operating Agreement, except:

 

To set forth rules concerning voting rights for members of the LLC.

 

To indemnify members of the LLC from liability for any unlawful acts.

 

To make rules concerning the transfer of interests in the LLC.

 

To address circumstances in which the LLC would dissolve.

194An LLC where a single person or select group has the power to manage is a ____________________LLC.

 

Manager-managed

 

Member-managed

 

Proprietary

 

Subchapter S

195.In a Limited Partnership, a limited partners risk personal liability for partnership debts when __________.

 

The limited partner offers to sell his or her interest in the partnership.

 

The limited partner expresses his or her opposition to a decision made by the general partner.

 

The limited partner becomes overly involved in partnership affairs.

 

The limited partner decides to contribute significant personal assets as capital to the partnership.

196.Limited Partnerships offer a convenient way for professional and family-owned enterprises to do business.

 True

 False

197.ABC Corporation has a $150,000 open line of credit with Local Bank. Alice, the president of ABC, promised Local Bank that she will be liable if ABC defaults on any or all of the draws it takes against its line of credit. Under this agreement, Alice is a __________________.

 

Special guarantor

 

General guarantor

 

Co-principal

 

Co-surety

198.A(n) _______ is a legal proceeding accompanying an action in court by which a plaintiff may acquire a lien on a defendant's property as a security for the payment of any judgment that the plaintiff may recover.

 

Attachment.

 

Sheriff's sale.

 

Meeting of creditors.

 

Discharge in bankruptcy.

 

 

 

199.A surety owes a _______ to the principal for any profits obtained after the surety performs.

 

Duty to account.

 

Debt.

 

Duty to discharge.

 

Percentage interest.

200.If the principal does not default, the surety never becomes liable to the creditor.

 True

 False

201.State courts have the power to order that real property be sold to satisfy a mechanic's lien.

 True

 False

 

 

202.A surety who only guarantees collection is entitled to notice.

 True

 False

203Contracts of suretyship are legally indistinguishable from contracts of indemnity.

 True

 False

204.A ________ promises to be liable to the creditor only in the event that the surety refuses to perform and thereby defaults.

 

Debtor.

 

Co-surety.

 

Subsurety.

 

Obligee.

205.Lack of capacity and discharge in bankruptcy are two common defenses that are available to a surety that may be asserted against a creditor.

 True

 False

206.Subrogation means the substitution of one person in place of another.

 True

 False

207.In a Limited Partnership, a limited partners risk personal liability for partnership debts when __________.

 

The limited partner offers to sell his or her interest in the partnership.

 

The limited partner expresses his or her opposition to a decision made by the general partner.

 

The limited partner becomes overly involved in partnership affairs.

 

The limited partner decides to contribute significant personal assets as capital to the partnership.

               

208.Which business entity has the following characteristics: the entity is organized under state law; the owners must declare to the state whether the organization will be managed by the owners or by persons hired by the owners; owners have limited liability for the debts of the entity; both profits and losses pass through to the owners?

 

General Corporation

 

Limited Liability Company (LLC)

 

General partnership

 

Limited Liability Partnership (LLP)

 

 

 

209.A limited partner risks personal liability when he or she actively participates in the management of partnership affairs.

 True

 False


210.Absent an agreement otherwise, the members of an LLC have a statutory right to

 

approve a merger

 

dissolve the LLC

 

inspect the books and records of the LLC

 

all of the above are statutory rights

 

211.Which of the following statements about the operation of a member-managed LLC is false?

 

Articles of organization must be filed with the state as part of the application process.

 

The application must state that it is to be a member-managed LLC.

 

Only the managing members have access to the books and records of the LLC

 

Any member of the LLC may bind the LLC on a contract.

212.In which of the following business organization do the losses as well as the profits pass through to the owners?

 

LP

 

LLC

 

General corporation

 

Both a and b

213.When considering whether a partner has breached his or her fiduciary duties to the partnership, courts are likely to consider all of the following, except:

 

Specific language of the Partnership Agreement.

 

Applicable state partnership statutes.

 

Prior court decisions.

 

The partner's personal net worth.

 

 

214.A creditor can assign a general guarantor's promise to a new creditor for value.

 True

 False

 

           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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