Business Organizations

Question 1

True or False.

A corporation is liable for actions beyond its powers.

Answer 1

TRUE.

A corporation is liable for actions beyond its powers (also know as “ultra vires”).

Question 2

True or False.

A limited partner who permits their name to be used in the name of the partnership or in connection with the business is liable to creditors who give credit without actual knowledge that they are not a general partner.

Answer 2

TRUE.

Note: Limited partnership interests are considered to be securities and must be registered with the SEC unless an exemption applies.

Question 3

WHAT is a type of right a corporate shareholder is entitled to?

Answer 3

THE approving of dissolution

i.e. Shareholders rights include: (1) approving charter amendments, (2) disposition of all or substantially all of the corporation’s assets, (3) mergers and consolidations, and (4) dissolutions

Note: Shareholders’ do not have the right to manage the corporation or its business

Question 4

WHAT contacts must an LLC maintain in the state where it was formed?

Answer 4

(A) An agent for service of process

(B) An office

Note: These requirements are the same as for limited partnerships and corporations

Question 5

WHAT is a required action for a contract between a director and a corporation to be considered a valid contract?

Answer 5

The director MUST disclose the interest to the independent members of the board and refrain from voting

i.e. This protects the corporation against self-dealing

NOTE: Conflicting-interest transactions are permissible in many cases

Question 6

True or False.

General partners may admit additional general partners without the unanimous consent of the limited partners.

Answer 6

FALSE.

General partners may NOT admit additional general partners without the unanimous consent of the limited partners.

i.e. General partners may NOT do so without unanimous written consent or ratification by the limited partners

Question 7

True or False.

A person may be a general and limited partner in the same partnership at the same time.

Answer 7

TRUE.

i.e. A person may own a limited partnership interest in the same partnership in which they are a general partner

Question 8

WHAT may a limited partner provide as “capital contribution” to a Limited Partnership?

Answer 8

Cash, other property, or services

i.e. this results in the limited partner having an intangible personal property right

Question 9

WHEN may a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation formation?

Answer 9

WHEN the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter

Question 10

True or False.

A stock split is considered a distribution from assets or capital

Answer 10

FALSE

A stock split is NOT considered an asset or capital distributions

Question 11

HOW long is a partner liable for post-dissociation contracts?

Answer 11

Up to 2 years if third parties reasonably believe that they are still a partner

Note: A partner has the power, but not necessarily the right, to dissociate at any time, subject to payment of damages if the dissociation is wrongful

Question 12

WHO has the right to inspect partnership books and records under the Revised Uniform Partnership Act (RUPA)?

Answer 12

Inactive partners

Question 13

WHAT is a Partnership “At-Will?”

Answer 13

Partnership entered into by agreement; however the agreement was silent as to the duration of the partnership or its purposes

Question 14

WHAT is considered a “necessary conditions” for a corporation to achieve a successful voluntary dissolution?

Answer 14

A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote

Note: Dissolution is effective when filed with the secretary of state

Question 15

True or False.

Unless the partnership agreement states otherwise, profits and losses are shared in proportion to their relative capital contributions

Answer 15

FALSE.

Unless the partnership agreement states otherwise, profits and losses are shared equally

Note: Unless agreed otherwise, losses are also shared in the same proportion as profits

Question 16

True or False.

Debt holders have an ownership interest in a corporation.

Answer 16

FALSE.

Common shares represent an ownership interest in the corporation; however Debt holders have NO ownership interest in a corporation (they have claims on the corporation’s assets)

Question 17

WHAT is a “Respondeat superior?”

Answer 17

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

i.e. Respondeat superior = Latin for “let the master answer”

Note: For this doctrine to apply, the wrongs must be committed within the scope of the agency

Question 18

WHAT act would cause a court to pierce the corporate veil?

Answer 18

Using corporate assets for the owner’s personal purposes

Question 19

True or False.

Treasury stock may be distributed as a stock dividend.

Answer 19

TRUE

Treasury stock may be distributed as a stock dividend

i.e. Treasury stock have the status of authorized but unissued shares that may be used for stock dividends

Question 20

WHAT is the order of settlement for partnership accounts?

Answer 20

A. Creditors (including all partner-creditors)

B. Partners for unpaid distributions (i.e., declared but not paid)

C. Partners for the return of their contributions

D. Partners for remaining assets (i.e., undistributed profits) in the proportions in which they share distributions

Question 21

WHAT is the primary tax purpose of the fictitious name statutes?

Answer 21

TO protect creditors

Note: It has little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance