LES 305 - Chapter 17

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Which of the following is true of a sole proprietorship?
a. A separate tax return must be filed.
b. It is not a business entity.
c. There is no personal liability for the owner.
d. none of the above
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Terms in this set (76)
Which of the following is true of a sole proprietorship?
a. A separate tax return must be filed.
b. It is not a business entity.
c. There is no personal liability for the owner.
d. none of the above
b. It is not a business entity.
Which of the following is not a method for forming a partnership?
a. by agreement
b. by estoppel
c. by implication
d. by transfer
d. by transfer
Evidence of sharing profits is prima facie evidence of partnership existence unless the profits are:
a. wages or rent.
b. not shared equally.
c. income.
d. all of the above
a. wages or rent.
A partnership by estoppel:
a. is the same as a partnership by implication.
b. results when third parties are led to believe a partnership exists.
c. is the same as a joint venture.
d. none of the above
b. results when third parties are led to believe a partnership exists
Partners' personal assets:
a. cannot be reached by partnership creditors.
b. cannot be reached by partnership creditors unless partnership assets are exhausted.
c. can only be reached by personal creditors.
d. none of the above
b. cannot be reached by partnership creditors unless partnership assets are exhausted.
Unanimous consent of the partners is required for:
a. confession of a judgment.
b. borrowing money in a trading partnership.
c. signing checks.
d. none of the above
a. confession of a judgment.
Partnership property:
a. is always personal property.
b. is owned by the partners as tenants in partnership.
c. can be pledged to a partner's personal creditor.
d. all of the above
b. is owned by the partners as tenants in partnership.
A, B, and C are partners in a real estate firm. B has just died. B's widow:
a. owns one-third of all the partnership land.
b. is a tenant in partnership with A and C.
c. can force the sale of the partnership property.
d. none of the above
d. none of the above
A partner's interest:
a. is the same as the partnership property.
b. cannot be attached by creditors.
c. cannot be transferred.
d. none of the above.
d. none of the above.
Transfer of a partner's interest:
a. is void.
b. results in dissolution of the partnership.
c. relieves the partner of liability.
d. makes the transferee a partner.
e. none of the above
b. results in dissolution of the partnership.
For income tax purposes, a partnership: a. files a return and pays taxes. b. is an entity. c. has no taxes. d. none of the abovec. has no taxes.Dissolution: a. is the same as termination. b. can result from a limited partner leaving the partnership. c. can result from the death of a partner. d. all of the abovec. can result from the death of a partner.A limited partnership: a. requires at least one general partner. b. can be created by implication. c. must be run by the limited partners. d. all of the abovea. requires at least one general partner.Which of the following is not required for the certificate of limited partnership (under RULPA)? a. names of the limited partners b. capital contributions of the partners c. the profit-sharing arrangement d. None of the above are required.d. None of the above are required.Limited partners have liability: a. for the full amount of partnership debts. b. only for the amount of their contribution. c. for the negligent acts of the general partner. d. none of the aboveb. only for the amount of their contribution.Limited partners: a. can use their name in the partnership name. b. can contribute management services to the partnership. c. cannot advise the general partner. d. none of the aboved. none of the aboveThe assignment of limited partnership interests: a. is prohibited by the ULPA. b. may be a sale of securities subject to federal regulation. c. is liberally permitted under the Internal Revenue Code. d. none of the aboveb. may be a sale of securities subject to federal regulation.Which is the proper order for distribution of assets upon dissolution of a limited partnership? a. outside creditors; distributions owed to partners; capital contributions; remainder split according to distribution agreement b. outside creditors; limited partners' profits; limited partners' capital; general partners' advances; general partners' profit; general partners' capital c. limited partners' capital; outside creditors; limited partners' advances; general partners' capital and profits d. none of the abovea. outside creditors; distributions owed to partners; capital contributions; remainder split according to distribution agreementWhich of the following is not required for the articles of incorporation? a. names of incorporators b. capital stock structure c. names of board members d. All of the above are required.c. names of board membersIn a novation by the board of a pre-incorporation contract involving the corporation, the promoter, and a third party: a. the corporation is released from liability. b. the promoter is released from liability. c. the promoter is made secondarily liable. d. none of the aboveb. the promoter is released from liability.In a ratification by the board of a pre-incorporation contract involving the corporation, the promoter, and a third party: a. the corporation is released from liability. b. the promoter is released from liability. c. the promoter is made secondarily liable. d. none of the abovec. the promoter is made secondarily liable.The corporate veil can be pierced when: a. there is only one shareholder in the corporation. b. the corporation was formed to avoid personal liability. c. the corporation has only preferred stock. d. none of the aboved. none of the aboveWatered shares result: a. when a purchaser does not pay full market value for the shares. b. when a purchaser does pay more than par value for the shares. c. in personal liability for the shareholders. d. none of the abovec. in personal liability for the shareholders.The business judgment rule holds directors liable for: a. errors in business judgment. b. their mistakes. c. failure to obtain necessary information for making decisions. d. none of the abovec. failure to obtain necessary information for making decisions.A director who usurps a corporate opportunity: a. will owe his/her corporation the profits from the opportunity. b. will not owe the profits to the corporation so long as the venture was disclosed in advance. c. has violated the business judgment rule. d. none of the abovea. will owe his/her corporation the profits from the opportunity.Which of the following shareholders would qualify for access to the corporate books and records? a. a shareholder who owns 5 percent of any class of stock b. a shareholder who owns 5 percent of all the outstanding stock of a corporation c. a shareholder who has owned stock for six months d. All of the above shareholders qualify.d. All of the above shareholders qualify.A shareholder proxy is: a. good until revoked. b. not subject to any securities laws. c. a transfer of a right to vote. d. none of the abovec. a transfer of a right to vote.Transfer restrictions: a. must be noted on the stock to be valid. b. are generally valid only in family-owned corporations. c. cannot be used to satisfy SEC restrictions. d. none of the abovea. must be noted on the stock to be valid.A corporate dissolution: a. cannot result from an agreement. b. results when a corporation does not hold an annual meeting. c. can begin with a board resolution. d. none of the abovec. can begin with a board resolution.A Subchapter S or S Corporation is: a. a special class of close corporation under the MBCA. b. an IRS tax treatment option for corporations owned by a limited number of shareholders. c. a not-for-profit corporation. d. none of the aboveb. an IRS tax treatment option for corporations owned by a limited number of shareholders.Hank Greenberg was the head of: a. the SEC. b. Citigroup. c. AIG. d. BP.c. AIG.Which of the following cannot be used to pierce the corporate veil? a. inadequate capitalization b. alter ego theory c. formation of the corporation to avoid personal liability d. All of the above theories can be used.c. formation of the corporation to avoid personal liabilityWhich of the following activities will cause a limited partner to lose his limited liability status? a. being employed by the general partner as an employee b. managing the firm with the general partner c. consulting with or advising the general partner d. All of the above will result in the loss of limited liability status.b. managing the firm with the general partnerWhen shareholders get to vote on executive compensation it is referred to as what? a. Pay-to-play b. Say-on-pay c. Day-of-pay d. Play-on-paydayb. Say-on-payPooling agreements are: a. illegal as against public policy. b. the same as voting trusts. c. valid if filed with the corporation's secretary. d. none of the aboved. none of the aboveA limited liability company: a. can be created informally. b. does not have the pass-through feature of income and losses. c. is exclusive to the United States. d. none of the aboved. none of the aboveOwners of a limited liability company: a. have unlimited liability for contracts entered into by the LLC. b. can transfer their membership as a personal property interest. c. cannot assume any management responsibilities. d. all of the aboveb. can transfer their membership as a personal property interest.Which of the following forms of business organizations does not have the pass-through feature of income and losses? a. partnership b. limited partnership c. S corporation d. corporationd. corporationA joint venture: a. is a partnership limited in scope. b. is a limited liability company. c. must be incorporated to be recognized. d. none of the abovea. is a partnership limited in scope.What conduct will cost a limited partner his/her limited liability status? a. engaging in the management of the business b. allowing his/her name to be used in the business name c. failure to file the limited partnership agreement d. All of the above will result in a loss of limited liability status.d. All of the above will result in a loss of limited liability status.A limited liability partnership (LLP): a. is a statutory creature. b. is the same as a limited partnership. c. is the same as a LLC. d. all of the abovea. is a statutory creature.Which of the following forms of business structure provides limited liability for the personal assets of the owners? a. sole proprietorship b. general partnership c. LLC d. partnership by implication e. All of the above provide limited liability.c. LLCThe directors of Kmart, Inc. voted several years ago to approve a new marketing plan that involved endorsements by Martha Stewart of Kmart home products such as linens, paint and decorations. Marketing studies have shown that Martha Stewart was not the right match for endorsements for Kmart's customer base. Kmart is now in Chapter 11 bankruptcy. Its shareholders believe the Martha Stewart decision was the cause of the company's demise. a. The shareholders have a cause of action against the directors for violation of the business judgment rule. b. The shareholders have a cause of action against the directors for violation of the corporate opportunity doctrine. c. The shareholders can have the court order the directors removed for cause. d. The directors of Kmart are protected under the business judgment rule. e. none of the aboved. The directors of Kmart are protected under the business judgment rule.In which of the following forms of doing business does the death of one of the owners cause dissolution? a. partnership b. S Corporation c. C Corporation d. closely-held corporation e. nonprofit corporationa. partnershipWhich of the following is a requirement under Sarbanes-Oxley? a. The majority of the board of directors must be independent. b. No inside officers can serve on the board of directors. c. Lawyers must blow the whistle on their corporate clients engaged in fraud. d. all of the abovea. The majority of the board of directors must be independent.A corporation is said to have double taxation. What is meant by this statement? a. The corporation pays double the tax rate of individuals. b. The corporation pays taxes on its income and its shareholders pay taxes on their dividends from the corporation. c. both a and b d. none of the aboveb. The corporation pays taxes on its income and its shareholders pay taxes on their dividends from the corporation.Which of the following forms of business structure has the easiest means of transfer of ownership interests? a. LLCs b. LLPs c. Subchapter S corporations d. C corporationsd. C corporationsJim Braun has been a partner in a real estate investment partnership with Alicia Kaynes for 10 years. When the real estate market took a downward turn, one of their investments in a strip mall became a cash drain. Jim refused to contribute any more cash and withdrew from the partnership. Alicia was left to manage the property. Before she could sell it, Alicia had put in $125,000 into the strip mall property. Following the sale, Alicia demanded one-half of the $125,000 from Jim. Jim said he is not liable because he left the partnership. a. Jim is correct; he withdrew and his liability ended. b. Alicia is correct; Jim owes her his share of what she paid. c. Neither is correct; how much Jim owes depends on when he withdrew. d. none of the aboveb. Alicia is correct; Jim owes her his share of what she paid.Grace Owen formed a corporation with three of her friends for purposes of operating a catering company. Grace used her own checking account to deposit the client payments and to make distributions of the corporation's profits to her three friends, who together owned 50% of the shares, with Grace owning the remainder of the shares. Grace promised her friends "no meetings, no formalities, we'll just run the catering business." Several wedding guests at a reception Grace's company catered became ill. Grace had not purchased insurance. The guests brought suit to recover their medical bills and other damages from Grace and her three friends. Grace says she has no personal liability for the bad food that resulted in their illness. a. Grace is correct; their suit should be against the corporation. b. Grace is incorrect because of the veil and alter ego theory. c. Grace is liable, but her friends are not. d. none of the aboveb. Grace is incorrect because of the veil and alter ego theory.Under Sarbanes-Oxley, which of the following is true? a. Companies must have a separate code of ethics for financial reporting. b. Boards of directors are not subject to the act's provisions. c. The act does not cover publicly traded companies. d. both b and ca. Companies must have a separate code of ethics for financial reporting.The CEO of Citigroup announced a $8 billion write-down for the company because of bad loans. This announcement followed a previous announcement of a $5 billion write-down three quarters earlier. The board asked him to step down. a. The board does not have the authority to remove a CEO. b. The shareholders must approve the removal of a CEO. c. The CEO is elected by the shareholders. d. none of the aboved. none of the aboveRoche Holding and AstraZeneca have agreed to work together to share research data and fund joint research projects so that they can speed up the process for getting approved drugs to the market. Which of the following best describes the relationship between these two corporations? a. They are a partnership with full liability for the work that they do. b. They have merged. c. They have created a joint venture. d. There is no legal business structure here.c. They have created a joint venture.American Greetings, a family-owned corporation, wished to take the company private, and the family shareholders made an offer to purchase the shares of all non-family members. The family owns 10% of the company's shares, but has 50% of the voting power. The board refused to approve the offer for the shares because the price was too low. Which of the following is correct? a. The approval of the board is not required for the family purchase of shares. b. The board's failure to approve the transaction means that the acquisition cannot be done without dissenting shareholders. c. The approval of the board cannot be obtained until the family uses its votes to restructure the board with directors friendly to its proposal. d. Those with a minority interest cannot acquire other shares.b. The board's failure to approve the transaction means that the acquisition cannot be done without dissenting shareholders.The shareholders of Beazer Homes USA filed suit against the directors for the compensation plan that the Board approved for officers that provided the officers with bonuses despite the losses the company experienced and the continuing declines in sales of homes. Which of the following is correct about the suit? a. Shareholders are not permitted to sue their own directors. b. Absent fraud or illegality, the shareholders have no rights against the directors. c. The shareholders will need to establish a violation of the business judgment rule. d. Unless the shareholders were harmed directly, they have no right to bring suit or recover.c. The shareholders will need to establish a violation of the business judgment rule.Several retirement funds that own shares in News Corp., Inc., have filed suit against Rupert Murdoch, the chairman of the board and CEO of News Corp., alleging that Mr. Murdoch had the board approve the purchase of his daughter's company for $675 million. Part of the purchase deal included putting Murdoch's daughter on the News Corp. board. Which would be the best theory for recovery by the retirement funds? a. Insider trading b. Violation of the corporate opportunity doctrine c. Violation of the business judgment rule d. Breach of fiduciary dutyc. Violation of the business judgment ruleAnn Archer purchased shares from XYZ Corp. for $10. The par value of the shares is $5. What is the amount of water per share in the shares? a. $0 b. $5 c. $10 d. $1a. $0John Bloomberg and Erick Ashman have been working together to earn money by doing yard work in residential areas. John collects the payments and has purchased the equipment the two use, including a lawn mower, edger, and trimmers. After deducting expenses for gasoline, repairs, and insurance, John gives one-half of the net to Erick. The two have no agreement about their relationship. Which of the following is correct? a. John and Erick have a general partnership. b. John and Erick have a limited partnership. c. John and Erick have a joint venture. d. John and Erick have no business structure because they have no agreement.a. John and Erick have a general partnership.Becca Franklin and Suzanne Peterson formed an LLC as co-owners and managers. The LLC made $275,000 after expenses last year. There are no provisions in their operating agreement on how profits are to be split. What amount will Becca declare on her income tax return from the LLC? a. $137,500 b. the full $275,000 c. nothing, because the LLC reports that income and pays the taxes d. the LLC must retain at least half of the $275,000 and Becca reports half of $137,500a. $137,500Becca Franklin and Suzanne Peterson formed an LLC as co-owners and managers. The LLC made $275,000 after expenses last year. There are no provisions in their operating agreement on how profits are to be split. What amount would Becca declare on her income tax return if Becca and Suzanne had formed a general partnership and there was no provision in their partnership agreement on how profits are to be split? a. $137,500 b. the full $275,000 c. nothing, because the general partnership reports that income and pays the taxes d. the general partnership must retain at least half of the $275,000 and Becca reports half of $137,500a. $137,500Becca Franklin and Suzanne Peterson formed an LLC as co-owners and managers. The LLC made $275,000 after expenses last year. There are no provisions in their operating agreement on how profits are to be split. What amount would Becca declare on her income tax return if Becca and Suzanne had formed a Subchapter S corporation and there was no provision in their agreement on how profits are to be split? a. $137,500 b. the full $275,000 c. nothing, because the Subchapter S corporation reports that income and pays the taxes d. the Subchapter S corporation must retain at least half of the $275,000 and Becca reports half of $137,500a. $137,500Becca Franklin and Suzanne Peterson formed an LLC as co-owners and managers. The LLC made $275,000 after expenses last year. There are no provisions in their operating agreement on how profits are to be split. Becca Franklin and Suzanne Peterson have formed a general partnership. The partnership, BFSP Dental, sells used dental equipment. Tragically, Suzanne is killed in an auto accident. At the time of the accident, BFSP has two dental chairs ($50,000 each) and four high-powered drills ($30,000 each). What happens to the partnership as a result of Suzanne's death? a. Becca has the right to continue the partnership. b. The partnership is dissolved. c. There is right of survivorship in general partnerships, so Becca owns the business in full. d. The partnership will need to go through a reorganization.b. The partnership is dissolved.Becca Franklin and Suzanne Peterson have formed a general partnership. The partnership, BFSP Dental, sells used dental equipment. Tragically, Suzanne is killed in an auto accident. At the time of the accident, BFSP has two dental chairs ($50,000 each) and four high-powered drills ($30,000 each). Suzanne's husband says that he just wants to take possession of one of the dental chairs and two of the drills. Which of the following is correct? a. Suzanne's husband has a right to one-half of the partnership inventory. b. Suzanne's husband has no right in the partnership or its inventory since the right of survivorship leaves Becca with the business. c. The chairs and drills belong to BFSP and cannot be taken by Suzanne's husband. d. After the business is restructured, Suzanne's husband can have the chair and drills.c. The chairs and drills belong to BFSP and cannot be taken by Suzanne's husband.Greg Knowles owns a business, Clean and Paint. Clean and Paint has 47 employees, equipment worth $350,000, and signed contracts for work that total $450,000. Tragically, Greg has a massive heart attack and passes away. Greg leaves behind his wife and three children. Which of the following is correct? a. The equipment will be sold, the business liquidated, and proceeds distributed first to the employees. b. The business could be liquidated or continued by Greg's heirs. c. The business is dissolved and cannot continue. d. The employees now own the business.b. The business could be liquidated or continued by Greg's heirs.Eggington Enterprises, Inc., made $22,000,000 in profits in 2016. Eggington paid $3,000 per share to its shareholders. Jeff Goldstein owns one share of Eggington. Which of the following is true? a. Eggington pays taxes on the $22,000,000 and Jeff does not need to pay on his dividend distribution. b. Eggington pays taxes only on the amounts not distributed to the shareholders. c. Eggington does not owe taxes because it is incorporated. d. Eggington pays taxes on the $22,000,000 and Jeff pays taxes on his $3,000 in dividends.d. Eggington pays taxes on the $22,000,000 and Jeff pays taxes on his $3,000 in dividends.Jack Weston, the CEO of Evans, Inc., along with Evans' CEO, Jason Stiller, used non-GAAP numbers to develop the earnings statements for Evans for 2016. The result was that the earnings for Evans were 16% higher in the financial reports than they actually were. Executive compensation at Evans is tied to earnings, and Jack and Jason's bonuses for 2016 were 26% higher than in 2015 because of the jump in earnings that were later discovered to be fabricated using non-GAAP methods. Which of the following is correct? a. As long as the shareholders approved the pay packages for Jack and Jason, there is no action that they can take on the compensation. b. Under Dodd-Frank, Jack and Jason will be required to pay back the extra compensation they received as a result of the falsified earnings. c. Under Dodd-Frank, the auditors are liable for the falsified earnings, not the CEO or CFO. d. both a and cb. Under Dodd-Frank, Jack and Jason will be required to pay back the extra compensation they received as a result of the falsified earnings.Which of the following is true about LLPs? a. There is limited liability for the LLP as well as all partners. b. There is limited liability for the LLP only. c. There is limited liability for the LLP and for those partners not involved in the negligent acts. d. The liability in an LLP is the same as the liability in limited partnerships.c. There is limited liability for the LLP and for those partners not involved in the negligent acts.Which of the following is true about the composition of boards of corporations covered by Sarbanes-Oxley? a. All board members must be independent. b. All audit committee members must be independent. c. Independence is defined as not having current contracts with the corporation. d. both b and cb. All audit committee members must be independent.Andy, Tim, Roy, and Adrian are partners in a real estate firm. Adrian has just died. Adrian's widow: a. only receives only the value of the partner's interest. b. is a tenant in partnership with Andy, Tim and Roy. c. can force the sale of the partnership property. d. owns one-fourth of all the partnership land.a. only receives only the value of the partner's interest.Melissa wants to form an entity to start her new business. Which of the following forms of business structure has the easiest means of transfer of ownership interests should she decide to go public? a. LLPs b. Profit corporations c. LLCs d. Subchapter S corporationsb. Profit corporationsChris has a great idea for a new company and approached Daryl about possibly partnering in the company. Daryl thinks the idea is great, but does not have time to be a part of the management team. While Chris seems knowledgeable about the business, Daryl is also worried about becoming personally liable if the company fails. What type of business structure would be best for Daryl and Chris to agree on? a. Sole Proprietorship. b. Corporation. c. General Partnership. d. Limited Partnership.d. Limited Partnership.The Winston family owns a chain of restaurants in California by partnership. Due to liability concerns, they want to be protected from unlimited liability but still maintain discretion in the operations. They do not want to make their share of stock open to the public so they can maintain management control. What type of corporation would be best for them? a. Publicly held corporation. b. Professional corporation. c. There is not a type of corporation that would provide these benefits. d. Close corporation.d. Close corporation.GTS, Inc. has developed a new product and would like to build a new facility to run the production. They need money to do this and are looking for a source of debt financing. Which of the following would meet their needs? a. Common Stock. b. Issuing Bonds. c. Cumulative Stock. d. Preferred Stock.b. Issuing Bonds.Clay, Devin and Elliott decide to go into business together and open a bowling alley in their hometown. They have invested $100,000 each and all 3 want to share in the management decisions, however they do not want to have unlimited liability. Which business structure would be best for them? a. General Partnership. b. Public Corporation. c. Limited Partnership. d. Limited Liability Company.d. Limited Liability Company.Jordan has just purchased 50 shares of stock in Kolman, Inc. The stock gives Jordan the right to vote at stockholder's meetings but does not guarantee a dividend and does not have priority in receiving dividends if they are paid. What type of stock does Jordan hold? a. Preferred Stock. b. Bonds. c. Preferred Cumulative Stock. d. Common Stock.d. Common Stock.Dr. Citrin had an oral agreement with Dr. Mehta for Mehta to work in Citrin's medical office and to see his patients when he was on vacation. The oral agreement included a compensation provision that Citrin would receive 30 percent of any fees collected by Mehta. While Citrin was on vacation, Mehta saw a patient of Dr. Citrin, misdiagnosed the problem, and the patient died. The heirs of the patient sued Dr. Citrin and Dr. Mehta, claiming that they were partners, and that Dr. Citrin is liable for the actions of Dr. Mehta. Which of the following statements is correct? a. Dr. Citrin is not liable under the doctrine of respondeat superior. b. Dr. Citrin is not liable because Mehta performed a medical act that Dr. Citrin did not approve. c. Dr. Citrin is not liable on the basis that he and Mehta were not partners. d. Dr. Citrin is not liable because Mehta was his agent, stepping into his shoes only when he was on vacation.c. Dr. Citrin is not liable on the basis that he and Mehta were not partners.Four surgeons conducted their medical practices through a general partnership they owned, which obtained a $1.5 million loan from Enterprise Bank. The loan was secured by personal guarantees of the four doctors, each for $375,000. The partners have an agreement in writing that they will all equally liable for any debts of the partnership. Two doctors then moved away. When the partnership failed to pay the remaining loan balance of $500,000, Enterprise moved to enforce the personal guarantees by the two remaining doctors and won a judgment. Those two doctors contended that they were only liable for one-quarter of the outstanding balance. Who is liable for the judgment? a. All four doctors are equally liable for the judgment because they signed personal guarantees. b. The general partnership is liable, not the doctors. c. All four doctors are liable, but the two remaining doctors will likely have to pay for a higher percentage of the judgment. d. The two remaining doctors are liable for the judgment because they signed personal guarantees.d. The two remaining doctors are liable for the judgment because they signed personal guarantees.