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Self-Test Chapter 10

Shareholders can be held liable for

full payment for watered stock received.

A Certified Public Accountant, sits on the board of directors of three corporations. Has she violated her duty of loyalty?

Only if she refrains from voting on issues which concern more than one of the corporations.

A corporation is created

by statutory authorization.

Stock warrants are used to implement

the preemptive right.

The "Business judgment rule"

applies to actions of the directors.

Tim owns 100 shares of ABC Corporation. The corporation makes a new issue of 10,000 shares. According to his share certificate, Tim is entitled to purchase an additional 100 shares at the time of the new issue. This is an example of

preemptive rights.

A share of stock with a stated par value of $10, which is sold and issued initially for $8, is an example of

watered stock

A prudent business person will insist upon a

a written partnership agreement; however, where there is no agreement or where the agreement fails to address a specific issue, terms will be supplied by the UPA.

A corporation can be what types of corporations at the same time?

a foreign corporation, which is one operating in a state that is different from the one which the corporation was organized and a domestic corporation which operates in the state it was organized. Example, a corporation organized in Tennessee and operating in Texas is a domestic corporation in Tennessee - but is a foreign corporation in Texas.

A debenture is what type of corporate obligation and who is the holder of the corporate debenture?

It is an unsecured corporate obligation; and the possessor of the unsecured corporate obligation is an unsecured creditor of the corporation.

A corporation may be incorporated

in more than one state.

A de facto corporation is one that

has not complied with statutory rules but operates as a corporation.

If a limited partnership were to participate in the operation of the partnership in any way

the limited partner would become jointly and severally liable along with the general partner, for all partnership debt.

Each of the partners in a general partnership

bears personal tax liability in proportion to the partnership income received by him or her.

The Uniform Partnership was formulated by the

National Conference of Commissioners on Uniform State Laws.

Stock split is similar to a stock dividend

since each increases the total number of outstanding shares without distributing corporate assets.

For purposes of federal litigation, a corporation is deemed

to be a citizen of the state where it has its principal place of business as well as of the state where it is incorporated.

Each partner in a general partnership is an

agent of the partnership for purposes of conducting partnership business.

Corporations can be found guilty of criminal acts,

and have the capacity to sue and be sued in civil actions and can be prosecuted for violation of a criminal statute, such as RICO.

A corporation is a citizen of the state where it is incorporated

as well as any state where it does sufficient business to establish minimum contacts with that state.

A partnership generally is treated

as an aggregate for purposes of taxation and as a separate entity for purposes of litigation.

A domestic corporation

a corporation chartered in the forum state.

A foreign corporation

may require a certificate of authority to do business in states where it is not chartered.

If the organizers of a small corporation anticipate losses during the first two to three years of operation, which of the following options will provide the best tax treatment for shareholders in the usual situation?

Chapter S election

Rachael and Cori form a partnership. Rachel contributes $75,000 to the partnership, and Cor contributes $25,000. At the end of the first year, the business realizes a profit of $10,000. Since no agreement concerning distribution of profits was made, how much will each receive?

Each will receive $5,000 because when no agreement is present, they need to follow the terms of UPA.

What is not a duty of a director?

to sign contracts on behalf of the corporation

An advantage of incorporation is

perpetual existence, limited liability and corporations are separate taxing entities.

Under the Revised Uniform Limited Partnership Act, a limited partner may not

supervise employees of the limited partnership.

A public corporation

is one created by government to administer government purposes.

A director is most likely to be found personally liable for

the failure to supervise the president's actions.

Cumulative voting is a term that applies to the

election of directors.

The "business judgment rule"

applies to actions of the directors.

The business entity that typically provides the most flexibility in terms of management policy

is the sole proprietorship.

Holders of fractional shares of stock and holders of scrip certificates have what types of voting rights within the corporate structure?

Fractional share is entitled to a fractional voting right if the corporation is liquidated. Scrip certificates do not entitle the holder to the same voting rights.

A partnership may not be a shareholder in an

"S" corporation.

Officers are always

agents of the corporation.

Corporate directors and officers generally owe no direct duty to

individual shareholders of the corporation.

Treasury stock

is never granted voting rights.

The right of a shareholder to force the corporation to buy his or her stock following a merger

is called appraisal rights.

The duration of a corporation may be

perpetual.

A shareholder derivative action may be initiated in response to

negligence by management which injures the corporation.

A corporation sometimes is treated as a person within the meaning of

federal constitution.

A corporation may be subjected to

criminal charges.

A close corporation may restrict the rights of shareholders to transfer stock by means

of shareholder agreements.

Maria and Lilly form a partnership. If Maria sells her partnership interest to Allen, Allen will

not receive all of the benefits and burdens of partnershp status when the sale is consummated, unless a new partnership agreement is signed between all the partners.

Resolution to merge with another corporation

requires more than a majority vote.

Each of the partners in a general partnership

has joint and several liability for all partnership debt.

If the members of a limited partnership fail to provide a basis for making distributions of profit to partners, the Revised Uniform Limited Partnership Act

provides for distributions according to each partner's capital contribution.

A four-lawyer firm incorporated. They did not elect to be a Chapter S corporation. At the end of the first year, they show a taxable income of $64,000. They have decided that they each will remove $5,000 from the corporation. They should

declare bonuses of $5,000 each.

Joe, Brian, and Nolan form a partnership to operate a movie theater franchise. The partnership realizes a profit in the first year of operation. Under general partnership rules and assuming that all profit is distributed to the partners, they will receive

the same amount as all other partners.

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