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Rights, Duties, Legal Obligations, and Authority of Owners and Management

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Business Structure (Selection of a Business Entity- Right

Question 1 of 38

1

What is the most likely effect if a court pierces the corporate veil?

Select one of the following:

  • A. The corporation's shareholders, officers, and directors can be assigned liability.

  • B. The corporation can be held liable for acts of the directors.

  • C. The corporation can lose its tax-exempt status.

  • D. The corporation can be held liable for acts of nonofficer employees of the corporation.

Explanation

Question 2 of 38

1

Under the Uniform Partnership Act, which of the following statements is (are) correct regarding the effect of the assignment of an interest in a general partnership?
I. The assignee is personally responsible for the assigning partner's share of past and future partnership debts.
II. The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership.

Select one of the following:

  • A. I only

  • B. II only

  • C. Both I and II

  • D. Neither I nor II

Explanation

Question 3 of 38

1

To which of the following rights is a stockholder of a public corporation entitled?

Select one of the following:

  • A. The right to have annual dividends declared and paid

  • B. The right to vote for the election of officers

  • C. The right to a reasonable inspection of corporate records

  • D. The right to have the corporation issue a new class of stock

Explanation

Question 4 of 38

1

When a partner in a general partnership lacks actual or apparent authority to contract on behalf of the partnership, and the party contracted with is aware of this fact, the partnership will be bound by the contract if the other partners:

Select one of the following:

  • A. ratify the contract.

  • B. amend the partnership agreement.

  • C. ratify the contract or amend the partnership agreement.

  • D. None of the answer choices are correct.

Explanation

Question 5 of 38

1

The business judgment rule is a rule that immunizes corporate:

Select one of the following:

  • A. management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith but are not within the power of the corporation or the authority of management to make.

  • B. management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.

  • C. shareholders from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of shareholders to make.

  • D. shareholders from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith but are not within the power of the corporation or the authority of shareholders to make.

Explanation

Question 6 of 38

1

Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell Lark's interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission to the partnership, Ward:

Select one of the following:

  • A. acquired only the right to receive Ward's share of DSJ profits.

  • B. has the right to participate in DSJ's management.

  • C. is personally liable for partnership liabilities arising before and after being admitted as a partner.

  • D. must contribute cash or property to DSJ to be admitted with the same rights as other partners.

Explanation

Question 7 of 38

1

Bixler obtained an option on a building he believed was suitable for use by a corporation he and two other individuals were organizing. After the corporation was successfully promoted, Bixler met with the board of directors, who agreed to acquire the property for $200,000. Bixler deeded the building to the corpor¬ation and the corporation began business in it. Bixler’s option contract called for the payment of only $155,000 for the building and he purchased it for that price. When the directors later learned that Bixler paid only $155,000, they demanded the return of Bixler’s $45,000 profit. Bixler refused, claiming the building was worth far more than $200,000 both when he secured the option and when he deeded it to the corporation. Which of the following statements correctly applies to Bixler’s conduct?

Select one of the following:

  • A. It was improper for Bixler to contract for the option without first having secured the assent of the board of directors.

  • B. If, as Bixler claimed, the building was fairly worth more than $200,000, Bixler is entitled to retain the entire price.

  • C. Even if, as Bixler claimed, the building was fairly worth more than $200,000, Bixler nevertheless must return the $45,000 to the corporation.

  • D. In order for Bixler to be obligated to return any amount to the corporation, the board of directors must establish that the building was worth less than $200,000.

Explanation

Question 8 of 38

1

Which of the following statements is correct concerning liability when a partner in a general partnership commits a tort while engaged in partnership business?

Select one of the following:

  • A. The partner committing the tort is the only party liable.

  • B. The partnership is the only party liable.

  • C. Each partner is jointly and severally liable.

  • D. Each partner is liable to pay an equal share of any judgment.

Explanation

Question 9 of 38

1

Kroll, Inc., a partner in JKL Partnership, assigns its interest in the partnership to Trell, who is not made a partner. After the assignment, Trell asserts the rights to:
I. receive Kroll's share of JKL's profits and
II. inspect JKL's books and records.
Trell is correct as to which of the rights?

Select one of the following:

  • A. I only

  • B. II only

  • C. I and II

  • D. Neither I nor II

Explanation

Question 10 of 38

1

Which of the following statements is (are) usually correct regarding general partners' liability?
I. All general partners are jointly and severally liable for partnership torts.
II. All general partners are liable only for those partnership obligations they actually authorized.

Select one of the following:

  • A. I only

  • B. II only

  • C. Both I and II

  • D. Neither I nor II

Explanation

Question 11 of 38

1

In a general partnership, which of the following acts must be approved by all the partners?

Select one of the following:

  • A. Dissolution of the partnership

  • B. Admission of a partner

  • C. Authorization of a partnership capital expenditure

  • D. Conveyance of real property owned by the partnership

Explanation

Question 12 of 38

1

The apparent authority of a partner to bind the partnership in dealing with third parties:

Select one of the following:

  • A. will be effectively limited by a formal resolution of the partners of which third parties are aware.

  • B. will be effectively limited by a formal resolution of the partners of which third parties are unaware.

  • C. would permit a partner to submit a claim against the partnership to arbitration.

  • D. must be derived from the express powers and purposes contained in the partnership agreement.

Explanation

Question 13 of 38

1

What is the doctrine under which a corporation is made liable for the torts of its employees, committed within the scope of their employment?

Select one of the following:

  • A. Respondeat superior

  • B. Ultra vires

  • C. Estoppel

  • D. Ratification

Explanation

Question 14 of 38

1

For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholders' derivative suit in the name of the corporation?

Select one of the following:

  • A. To compel payment of a properly declared dividend

  • B. To enforce a right to inspect corporate records

  • C. To compel dissolution of the corporation

  • D. To recover damages from corporate management for an ultra vires management act

Explanation

Question 15 of 38

1

Which of the following rights is a holder of a public corporation's cumulative preferred stock always entitled to?

Select one of the following:

  • A. Conversion of the preferred stock into common stock

  • B. Voting rights

  • C. Dividend carryovers from years in which dividends were not paid, to future years

  • D. Guaranteed dividends

Explanation

Question 16 of 38

1

Under the Revised Uniform Limited Partnership Act (RULPA), which of the following statements is correct regarding limited partnerships?

Select one of the following:

  • A. Limited partners may lose limited liability if they participate in management activities.

  • B. Limited partnerships may legally exist without filing a certificate of limited partnership.

  • C. Limited partners have the same rights, responsibilities, and authority as general partners.

  • D. Limited partners may contribute cash only and may not contribute services as their capital contributions.

Explanation

Question 17 of 38

1

Food Corp. owned a restaurant called The Ambers. The corporation president, T.J. Jones, hired a contractor to make repairs at the restaurant, signing the contract, “T.J. Jones for The Ambers.” Two invoices for restaurant repairs were paid by Food Corp. with corporate checks. Upon presenting the final invoice, the contractor was told that it would not be paid. The contractor sued Food Corp. Which of the following statements is correct regarding the liability of Food Corp.?

Select one of the following:

  • A. It is not liable because Jones is liable.

  • B. It is not liable because the corporation was an undisclosed principal.

  • C. It is liable because Jones is not liable.

  • D. It is liable because Jones had authority to make the contract.

Explanation

Question 18 of 38

1

The owners of a limited liability company are known as which of the following?

Select one of the following:

  • A. Partners

  • B. Members

  • C. Stockholders

  • D. Shareholders

Explanation

Question 19 of 38

1

A partner's interest in specific partnership property is:

Select one of the following:

  • A. assignable to the partner's individual creditors.

  • B. subject to attachment by the partner's individual creditors.

  • C. both assignable to and subject to attachment by the partner's individual creditors.

  • D. neither assignable to nor subject to attachment by the partner's individual creditors.

Explanation

Question 20 of 38

1

Which of the following statements best states the purpose of cumulative voting?

Select one of the following:

  • A. To assure the continuance of incumbent directors

  • B. To allow minority shareholders to gain representation on the board of directors

  • C. To allow for the election of one-third of the board of directors each year

  • D. To assure that a majority of shares voted elects the entire board of directors

Explanation

Question 21 of 38

1

Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a part¬ner. After the assignment, Bean asserts the rights to:
I. participate in the management of TLC.
II. Cobb’s share of TLC’s partnership profits.
Bean is correct as to which of these rights?

Select one of the following:

  • A. I only

  • B. II only

  • C. I and II

  • D. Neither I nor II

Explanation

Question 22 of 38

1

The president of a company has signed a $10 million contract with a construction company to build a new corporate office. Which of the following corporate documents sets forth the scope of authority under which this transaction is governed?

Select one of the following:

  • A. Certificate of incorporation

  • B. Charter

  • C. Bylaws

  • D. Proxy statement

Explanation

Question 23 of 38

1

Which of the following actions is required to ensure the validity of a contract between a corporation and a director of the corporation?

Select one of the following:

  • A. An independent appraiser must render to the board of directors a fairness opinion on the contract.

  • B. The director must disclose the interest to the independent members of the board and refrain from voting.

  • C. The shareholders must review and ratify the contract.

  • D. The director must resign from the board of directors.

Explanation

Question 24 of 38

1

Smith was an officer of CCC Corp. As an officer, the business judgment rule applied to Smith in which of the following ways?

Select one of the following:

  • A. Because Smith is not a director, the rule does not apply.

  • B. If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.

  • C. If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, but CCC may elect to reimburse Smith for any damages Smith paid.

  • D. If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, and CCC is prohibited from reimbursing Smith for any damages Smith paid.

Explanation

Question 25 of 38

1

Which of the following corporate actions is subject to shareholder approval?

Select one of the following:

  • A. Election of officers

  • B. Removal of officers

  • C. Declaration of cash dividends

  • D. Removal of directors

Explanation

Question 26 of 38

1

Which of the following statements is correct regarding the apparent authority of a partner to bind the partnership in dealings with third parties? The apparent authority:

Select one of the following:

  • A. must be derived from the express powers and purposes contained in the partnership agreement.

  • B. will be effectively limited by a formal resolution of the partners of which third parties are unaware.

  • C. may allow a partner to bind the partnership to representations made in connection with the sale of goods.

  • D. would permit a partner to submit a claim against the partnership to arbitration.

Explanation

Question 27 of 38

1

Under the Revised Uniform Partnership Act (RUPA), which of the following have the right to inspect current partnership books and records?

Select one of the following:

  • A. Employees

  • B. Former partners

  • C. Inactive partners

  • D. Transferees of partners' interests

Explanation

Question 28 of 38

1

Which of the following acts is most likely to cause a court to pierce the corporate veil?

Select one of the following:

  • A. Failure to designate a registered agent in the articles of incorporation (charter)

  • B. Retention of excess capital

  • C. Failure to conduct a significant portion of business in the chartering state

  • D. Using corporate assets for the owner's personal purposes

Explanation

Question 29 of 38

1

Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when a partner commits a negligent act?

Select one of the following:

  • A. All of the partners

  • B. The supervisor of the negligent partner

  • C. All of the partners other than the negligent partner

  • D. All of the partners other than the supervisor of the negligent partner and the negligent partner

Explanation

Question 30 of 38

1

Which of the following parties is liable to repay an illegal distribution to a corporation?

Select one of the following:

  • A. A director not breaching his or her duty in approving the distribution and the corporation is solvent.

  • B. A director not breaching his or her duty in approving the distribution and the corporation is insolvent.

  • C. A shareholder not knowing of the illegality of the distribution and the corporation is solvent.

  • D. A shareholder not knowing of the illegality of the distribution and the corporation is insolvent.

Explanation

Question 31 of 38

1

Hughes and Brody start a business as a closely held corporation. Hughes owns 51 of the 100 shares of stock issued by the firm and Brody owns 49 shares. One year later, the corporation decides to sell another 200 shares. Which of the following types of rights would give Hughes and Brody a preference over other purchasers to buy shares to maintain control of the firm?

Select one of the following:

  • A. Shareholder derivative rights

  • B. Preemptive rights

  • C. Cumulative voting rights

  • D. Inspection rights

Explanation

Question 32 of 38

1

The corporate veil is most likely to be pierced and the shareholders held personally liable if:

Select one of the following:

  • B. the shareholders have commingled their personal funds with those of the corporation.

  • C. an ultra vires act has been committed.

  • D. a partnership incorporates its business solely to limit the liability of its partners.

  • A. the corporation has elected S corporation status under the Internal Revenue Code.

Explanation

Question 33 of 38

1

Which of the following circumstances may permit the piercing of the corporate veil of a closely held corporation and thus may cause its shareholders to be held personally liable?
I. The corporation is thinly capitalized.
II. The corporation borrows money from a shareholder without giving the shareholder a security interest in corporate assets.

Select one of the following:

  • A. I only

  • B. II only

  • C. Both I and II

  • D. Neither I nor II

Explanation

Question 34 of 38

1

Frey Corp. has 1,000 shares of issued and outstanding common stock. Frey’s articles of incorporation permit a stockholder who owns 5% or more of the outstanding stock or who has owned the stock for longer than six months to inspect Frey’s books and records. Ace, who has owned 25 shares of Frey stock for four months, wants to inspect the books and records. Under the Revised Model Business Cor¬poration Act, which of the following statements is correct regarding Ace’s right to inspect the books and records?

Select one of the following:

  • A. Ace must wait two months before being allowed to inspect the books and records.

  • B. Ace must purchase an additional 25 shares of Frey stock before being allowed to inspect the books and records.

  • C. Ace may, after giving five days’ written notice, inspect the books and records to determine the value of Frey stock.

  • D. Ace may, after giving five days’ written notice, inspect the books and records to provide a list of Frey stockholders to Ace’s broker.

Explanation

Question 35 of 38

1

Which of the following corporate shareholder rights is enforceable by means of a derivative suit?

Select one of the following:

  • A. Compelling payment of properly declared dividends

  • B. Enforcing access to corporate records

  • C. Recovering damages from a third party

  • D. Protecting preemptive rights

Explanation

Question 36 of 38

1

The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as the:

Select one of the following:

  • A. clean hands doctrine.

  • B. full disclosure rule.

  • C. responsible person doctrine.

  • D. business judgment rule.

Explanation

Question 37 of 38

1

Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Trent will generally be able to collect the judgment from:

Select one of the following:

  • A. partnership assets only.

  • B. the personal assets of Eller, Fort, and Owens only.

  • C. Eller’s personal assets only after partnership assets are exhausted.

  • D. Eller’s personal assets only.

Explanation

Question 38 of 38

1

Under the Revised Model Business Corporation Act, which of the following actions by a corporation would entitle a stockholder to dissent from the action and obtain payment of the fair value of his or her shares?
I. An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it alters or abolishes a preferential right of the shares
II. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the stockholder is entitled to vote on the plan

Select one of the following:

  • A. I only

  • B. II only

  • C. Both I and II

  • D. Neither I nor II

Explanation

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