09 Business Structure

Question 1

Define “joint venture.”

Answer 1

A one-shot general partnership

Question 2

List the actions included under the authority of a director on the board of directors.

Answer 2

Borrowing money
Selling corporate stock
Hiring and firing officers
Declaring dividends
Making other distributions
Setting salaries of employees and themselves
Proposing major organic changes for shareholder approval

Question 3

Define “sole proprietorship.”

Answer 3

A single-owner business

Question 4

Define “general partnership.”

Answer 4

An association of two or more persons to carry on as co-owners a business for profit

Question 5

Define “limited partnership.”

Answer 5

A partnership with at least one general partner and one limited partner

Question 6

Defined “limited liability partnership (LLP).”

Answer 6

A partnership that protects partners from liability for other partners’ torts

Question 7

Define “limited liability limited partnership (LLLP).”

Answer 7

A limited partnership where no partner need be generally liable

Question 8

List the instances when corporate distributions are considered illicit.

Answer 8

If they render a corporation: Equity insolvent or Bankruptcy insolvent.

Question 9

List the events that terminate a sole proprietorship.

Answer 9

When sole owner dies, retires, or sells the business

Question 10

List the general causes for a “dissociation” of a general partnership.

Answer 10

Notice of a partner’s desire to dissolve
Death of a partner
Bankruptcy of a partner
Expulsion of a partner

Question 11

What happens upon dissociation of a general partnership?

Answer 11

Either:
That partner’s interest is bought out or
The partnership is wound up.

Question 12

List the categories of corporate dissolution.

Answer 12

1. Voluntary
2. Involuntary by:
   a. Administratively by secretary of state
   b. Judicially by courts, in:
   i. Actions by attorney general
   ii. Actions by shareholders
   iii. Action by creditors
   iv. Where judgments are unpaid

Question 13

List the major protections of shareholders in an organic change.

Answer 13

Procedures requiring director and shareholder approval
Appraisal rights

Question 14

What are the management rights of a partner in a general partnership?

Answer 14

The right to share equally in management

Question 15

What is the condition under which general partners may use partnership property?

Answer 15

Only for partnership purposes

Question 16

What actions are available to creditors of individual partners?

Answer 16

Creditors may get a judicial charging order but may not seize partnership property.

Question 17

Who authorizes corporate distributions?

Answer 17

The board of directors, not shareholders

Question 18

What is a partner’s right to payment?

Answer 18

A partner is generally not entitled to be paid for work for the partnership.

Question 19

List the duties that partners owe each other.

Answer 19

Duty of loyalty
Duty of care

Question 20

List the basic corporate shareholder rights.

Answer 20

To vote for directors
To properly inspect corporate records
To have financial priorities respected
To exercise appraisal rights
To file derivative lawsuits
To exercise preemptive rights

Question 21

List the duties of directors and officers of a corporation.

Answer 21

Duty of attention
Duty of care
Duty of loyalty

Question 22

Describe the business judgment rule.

Answer 22

Courts refuse to second guess decisions of directors absent a showing of bad faith or gross abuse of discretion.

Question 23

True or False: The basis of general partnership authority is based on agency law.

Answer 23

True. It is based on agency law.

Question 24

List the conditions under which a partnership may still be bound if a partner acts without authority.

Answer 24

Apparent authority existed or
The Partnership ratifies the act.

Question 25

Under what condition is a partnership generally liable for the partners’ torts?

Answer 25

When torts are committed within the scope of the partners’ employment or authority

Question 26

Describe the corporate pyramid.

Answer 26

Shareholders elect directors who set the broad policies of the firm and select officers who run the business day to day.

Question 27

What entity is responsible for the business and affairs of a corporation?

Answer 27

The board of directors

Question 28

Describe the concept of delectus personae.

Answer 28

General partners may veto others’ attempt to join as new partners.

Question 29

For what tort liabilities are partners in a limited liability partnership responsible?

Answer 29

Partners are liable for torts committed by themselves or those they supervise.

Question 30

Define “watered stock.”

Answer 30

Stock issues for less than par value or less than amount authorized by the board.

Question 31

How do partners share profits and losses?

Answer 31

Equally (absent agreement to the contrary)

Question 32

Define “corporation.”

Answer 32

An artificial legal entity whose owners typically enjoy limited liability.

Question 33

Define “Subchapter S corporation.”

Answer 33

A form of corporation that eliminates double taxation if certain requirements are met

Question 34

What is the most common type of corporation form?

Answer 34

Most corporations are Subchapter S corporations.

Question 35

What is the maximum number of shareholders in a Subchapter S Corporation?

Answer 35

100 shareholders

Question 36

List the requirements for a Subchapter S corporation.

Answer 36

Domestic corporation
All shareholders consent
No more than 100 shareholders
All shareholders must be individuals estates or certain exempt organizations or trusts; and
Only one class of stock

Question 37

Define “limited liability company (LLC).”

Answer 37

A company that allows owners to gain liability-limiting advantages of corporate form while enjoying single taxation.

Question 38

What formation forms do not require a formal filing?

Answer 38

Sole proprietorship
General partnership

Question 39

List the items generally required in articles of incorporation.

Answer 39

Name indicating a corporate form
Number of authorized shares
Address of registered office
Name of registered agent
Names and addresses of incorporators

Question 40

List the steps in organizing a corporation.

Answer 40

File articles of incorporation with secretary of state
Hold an organizational meeting
Draft and adopt by-laws
Obtain certificates of authority to do business

Question 41

What tests should be met before corporate shares are issued?

Answer 41

Quality tests
Quantity tests

Question 42

List the conditions under which promoters may profit in deals with a corporation.

Answer 42

Informed approval by majority of owners or
Informed approval by majority of board.

Question 43

Who is responsible for the operation of a general partnership?

Answer 43

All partners have equal vote, absent agreement to contrary.

Question 44

List the “extraordinary” actions that require general partnership unanimity to be approved.

Answer 44

Admitting a new partner
Assigning partnership property
Disposing of goodwill
Doing any act making it impossible to carry on ordinary business

Question 45

List the operating forms of a limited liability corporation (LLC).

Answer 45

Owner managed
Manager managed

Question 46

Describe the corporate triangle.

Answer 46

Shareholders elect directors who make broad policy and select officers who run things day to day.

Question 47

What is meant by “piercing the corporate veil?”

Answer 47

Imposing personal liability upon shareholders under particular circumstances.

Question 48

What is the rationale for “piercing the corporate veil”?

Answer 48

To prevent the corporate entity from being used to defeat public convenience, justify wrong, commit fraud, or protect crime.

Question 49

List the reasons for piercing the corporate veil.

Answer 49

Commingling of funds
Diversion of corporate assets to personal use
Failure to maintain corporate formalities
Failure to adequately capitalize

Question 50

How is a partner’s account balance in a partnership determined?

Answer 50

Contribution + Share of profits - Share of liabilities = Account balance

Question 51

List the items for which partners are reimbursed.

Answer 51

Payments made for partnership
Liabilities incurred on behalf of partnership
Advances made beyond agreed contribution

Question 52

Who is responsible for the operation of a sole proprietorship?

Answer 52

The sole proprietor makes all decisions.