Business Structure CRFF MCQ

Question 1

for a corporation to dissolve,

Answer 1

the board of directors votes upon a resolution proposing dissolution and can be approved by a majority of a quorum

All shareholders must be notified of the resolution to dissolve.

Question 2

Section 10.05 of the Model Business Corporation Act: corporation’s board of directors may adopt amendments to the corporation’s articles of incorporation without shareholder approval if

Answer 2

(4) only one class of shares outstanding: (a) to change each issued and unissued authorized share of the class into a greater number of whole shares of that class; or (b) to increase the number of authorized shares of the class to the extent necessary to permit the issuance of shares as a share dividend;
(5) to change the corporate name by substituting the word “corporation,” “incorporated,” company,” “limited,” or the abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name.

Question 3

Model Business Corporation Act:

The articles of incorporation must authorize:

Answer 3

(1) one or more classes or series of shares that together have unlimited voting rights, and
(2) one or more classes or series of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.

MAY authorize one or more classes or series of shares that have special, conditional, or limited voting rights, or no right to vote

Question 4

Articles of Incorporation must include

Answer 4

the name of the corporation,
the name and address of a person or entity who is authorized to accept service of process and official notices on behalf of the corporation (registered agent) and
names of the incorporators.

Articles of Incorporation MAY include names of the initial directors, the purpose of the corporation, par value of stock and more.

Question 5

Business Judgment rule,

Answer 5

officers and directors will not be liable for acts which involve their business judgment as long as they acted in good faith and were not grossly negligent

Question 6

Model Business Corporation Act permits the authorization of stocks with varying degrees of

Answer 6

dividend rights,
voting rights, and
rights to assets on dissolution

Question 7

A shareholder of the corporation does not have

Answer 7

a vested property right resulting from any provision in the articles of incorporation,

including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.

Question 8

A shareholder may not commence or maintain a derivative proceeding unless the shareholder:

Answer 8

(1) was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one who was a shareholder at that time; and,
(2) fairly and adequately represents the interests of the corporation in enforcing the right of the corporation.

Question 9

No shareholder may commence a derivative proceeding until:

Answer 9

(1) a written demand has been made upon the corporation to take suitable action; and
(2) 90 days have expired from the date the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the 90 day period

Question 10

Extraordinary transactions between corporations involve three steps.

Answer 10

(mergers, consolidations, sale of all assets)

1. board of directors of each corporation meets and decides on the action, then makes a recommendation to shareholders.
2. shareholders vote, and unless the article or bylaws of the corporation provide otherwise, the recommended action must be approved by majority vote of the shareholders.
3. dissenting shareholders have appraisal rights, meaning that they may demand to be paid the value of their shares immediately prior to the transaction

Question 11

A corporation must hold a meeting of shareholders

Answer 11

annually at a time stated in or fixed in accordance with the bylaws.

Question 12

A corporation must notify shareholders of the date, time, and place of each annual and special shareholders’ meeting

Answer 12

no fewer than 10 nor more than 60 days before the meeting date.

Question 13

Unless the Act or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.

Answer 13

A shareholder may waive any notice required by the Act, the articles of incorporation, or bylaws before or after the date and time stated in the notice.

The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.

Question 14

An appointment of a proxy is effective

Answer 14

when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the corporation authorized to tabulate votes.

An appointment is valid for 11 months unless a longer period is expressly provided in the appointment form.

An appointment of a proxy is revocable unless the appointment form or electronic transmission states that it is irrevocable and the appointment is coupled with an interest.

Question 15

No dividend distribution may be made if, after giving it

Answer 15

(1) the corporation would not be able to pay its debts as they become due in the usual course of business; or
(2) the corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

Question 16

“pierce the corporate veil”

Answer 16

A creditor may hold management of a corporation liable as partners (or as a sole proprietor) if corporation is not sufficiently capitalized.

defendant completely dominated the business to the extent that the corporation had no separate mind, will or existence of its own.

defendant used the control to commit fraud or other wrong or to violate a statutory or other legal duty.

also known as the “alter ego” doctrine

Question 17

A purchaser of stock which has been assigned a par value

Answer 17

must pay at least par, or be liable to creditors for the difference.

One who purchases stock knowing that par has not been paid will similarly be liable.

Question 18

A subscription for shares entered into before incorporation

Answer 18

is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.

Question 19

The board of directors may determine the payment terms of subscription for shares that were entered into before incorporation, unless

Answer 19

the subscription agreement specifies them.

Question 20

A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless

Answer 20

the subscription agreement specifies otherwise.

Question 21

If a subscriber defaults in payment of money or property under a subscription agreement,

Answer 21

the corporation may collect the amount owed as any other debt.

Question 22

limited liability company (LLC) is a form of business offering limited liability to its owners who are usually referred to as

Answer 22

members.

Question 23

LLCs are organized under

and treated as

Answer 23

“articles of organization,” or “the rules of organization” and are generally treated like partnerships for tax purposes.

Question 24

An operating agreement is used to establish LLC

Answer 24

rules
governing the
membership, management, operation and distribution of income of the company,

Question 25

LLC income and deductions

Answer 25

attributed to each member and reported on that member’s tax return

Question 26

A Limited Liability Company (LLC) is a relatively new business structure allowed by

Answer 26

state statute.

Question 27

LLCs are popular because,

Answer 27

similar to a corporation, owners have limited personal liability for the debts and actions of the LLC.

Question 28

Other features of LLCs are more like a

Answer 28

partnership, providing management flexibility and the benefit of pass-through taxation.

Question 29

Ownership of an LLC

Answer 29

members

most states do not restrict ownership

may include individuals, corporations, other LLCs and foreign entities

no maximum number of members

Most states also permit “single member” LLCs, those having only one owner.

Question 30

types of businesses that generally cannot be LLCs

Answer 30

banks and insurance companies

Question 31

Corporations can continue forever, whereas an LLC

Answer 31

may dissolve when a member dies or files for bankruptcy

Question 32

An LLLP

Answer 32

limited liability limited partnership

a limited partnership (LP) that registers under state law so the general partner will have limited liability, similar to the limited partners

The LLLP form primarily is used to convert an existing limited partnership previously created under state law.

Question 33

Under section 301 of the Revised Uniform Limited Liability Company Act, a member is

Answer 33

not an agent of a limited liability company solely by reason of being a member.

Question 34

member’s actual authority to act for an LLC

Answer 34

will depend “fundamentally on the operating agreement” (which is generally in writing, but may be oral).

General agency law is applicable as well.

Question 35

A newly admitted partner is liable for pre-existing partnership debts

Answer 35

only to the extent of funds contributed by the new partner

Question 36

An assignee of a partnership interest

Answer 36

is entitled to the assignor’s profits and surplus

but does not become a substitute partner, and

has no right to manage the partnership or to examine its books and records

Question 37

Under the Revised Uniform Partnership Act, the death of a partner

Answer 37

no longer causes the partnership to automatically dissolve.

The deceased partner’s heirs do not become partners in the partnership

remaining partners may have rights to buy out the deceased partner’s share

Question 38

Upon dissolution of a partnership,

Answer 38

partners no longer have actual express authority to bind the partnership

except with respect to winding up the business.

Each partner will still possess a residual of apparent authority to bind the partnership.

Exercising such authority to bind the partnership will be wrongful as among the partners, but will be binding on the partners and the partnership as against third parties.

Question 39

If partners in a partnership have no agreement as to the sharing of losses,

Answer 39

losses will be shared in the same manner as profits.

Question 40

When a partner in a partnership commits negligence in the course of partnership business,

Answer 40

the partners and the partnership are jointly and severally liable for injuries or damages proximately caused by the negligent conduct

Question 41

Under Section 302 of the Uniform Limited partnership Act (2001), a limited partner does not have the right or the power as a limited partner

Answer 41

to act for or bind the limited partnership.

Question 42

Under Section 303, an obligation of a limited partnership, whether arising in contract, tort, or otherwise,

Answer 42

is not the obligation of a limited partner.

Question 43

A limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for an obligation of the limited partnership

Answer 43

solely by reason of being a limited partner.

Question 44

under Section 305, a limited partner does not have

Answer 44

any fiduciary duty to the limited partnership or to any other partner solely by reason of being a limited partner.

Question 45

formation of a limited partnership requires compliance with certain statutory formalities, including

Answer 45

1. designating and maintaining an agent for service of process,
2. annual delivery to the state current reports, and
3. delivering to local filing offices of a certificate stating the name of the limited partnership, the name and the street and mailing address of each general partner, including whether the limited partnership is a limited liability limited partnership.

Question 46

The most recent version of the Uniform Limited partnership Act (2001) permits the use of a limited partner’s name

Answer 46

in the partnership name

Question 47

The name of a limited partnership

Answer 47

may contain the name of any partner.

Question 48

The name of a limited partnership that is not a limited liability limited partnership

Answer 48

must contain the phrase “limited partnership” or the abbreviation “L.P.” or “LP” and may not contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.”.

may not substitute the designation of “Corporation.”

Question 49

The name of a limited liability limited partnership

Answer 49

must contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.” and must not contain the abbreviation “L.P.” or “LP.”

may not substitute the designation of “Corporation.”

Question 50

Section 111 of the Limited Partnership Act (2001), which addresses “Required Information,” provides: A limited partnership shall maintain at its designated office the following information:

Answer 50

(1) a current list showing the full name and last known street and mailing address of each partner, separately identifying the general partners, in alphabetical order, and the limited partners, in alphabetical order;
(2) a copy of the initial certificate of limited partnership and all amendments to and restatements of the certificate, together with signed copies of any powers of attorney under which any certificate, amendment, or restatement has been signed;
(3) a copy of any filed articles of conversion or merger;
(4) a copy of the limited partnership’s federal, state, and local income tax returns and reports, if any, for the three most recent years;
(5) a copy of any partnership agreement made in a record and any amendment made in a record to any partnership agreement.

Question 51

limited partnership duration

Answer 51

has a perpetual which is a change from previous law.

Question 52

Pship and corp

Answer 52

Both are subject to federal securities laws

Question 53

Only corp (not pship)

Answer 53

issues stock

Question 54

The Uniform Partnership Act, in Section 102, states: A person has notice of a fact if the person:

Answer 54

(1) knows of it;
(2) has received a notification of it; or,
(3) has reason to know it exists from all of the facts known to the person at the time in question.

Question 55

The Uniform Partnership Act provides that an association of two or more persons who carry on as co-owners a business for profit will be treated as a partnership, whether or not the persons intend to form a partnership. There is no presumption of a partnership in the following instances:

Answer 55

(1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership even if the co-owners share profits made by the use of the property.
(2) A person receives a share of the profits of a business where the profits were received in payment: (i) of a debt by installments or otherwise; (ii) for services as an independent contractor or of wages or other compensation to an employee; (iii) of rent.

Question 56

In the absence of an agreement among partners on the division of profits,

Answer 56

profits will be divided equally regardless of which partner has contributed more capital, more labor or more expertise

Question 57

Under the (Revised) Uniform Partnership Act, a partnership agreement may not:

Answer 57

(1) unreasonably restrict the right of access to books and records;
(2) eliminate the duty of loyalty (but, the partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty, if not unreasonable);
(3) unreasonably reduce the duty of care;
(4) eliminate the obligation of good faith and fair dealing under (but the partnership agreement may prescribe reasonable standards by which the performance of the obligation is to be measured); or,
(5) vary the power to dissociate as a partner under (except to require the notice to be in writing)

Question 58

Section 204 of the Uniform Partnership Act states: (a) Property is partnership property if acquired in the name of:

Answer 58

(1) the partnership; or
(2) one or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership but without an indication of the name of the partnership.

Question 59

(b) Property is presumed to be partnership property

Answer 59

if purchased with partnership assets, even if not acquired in the name of the partnership.

Question 60

(c) Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets,

Answer 60

is presumed to be separate property, even if used for partnership purposes.

Question 61

Bankruptcy or death of a partner results in

Answer 61

dissociation, but not necessarily dissolution.

Question 62

A partnership is dissolved, and its business must be wound up,

Answer 62

upon the occurrence of the partnership’s having notice from a partner of that partner’s express will to withdraw immediately as a partner, or on a later date specified by the partner

Question 63

In general, a partnership continues after dissolution

Answer 63

only for the purpose of winding up its business.

The partnership is terminated when the winding up of its business is completed.

no filing or other formality is required

Question 64

At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner,

Answer 64

may waive the right to have the partnership’s business wound up and the partnership terminated.

In that event the partnership resumes carrying on its business as if dissolution had never occurred, any liability incurred by the partnership or a partner after the dissolution and before the waiver is determined as if dissolution had never occurred.

Question 65

Dissociation by a partner’s death or bankruptcy

Answer 65

results in a buyout of the partner’s interest rather than automatic dissolution of the partnership.

This is a change from prior law.

Question 66

A partnership may by agreement

Answer 66

alter the events which, under RUPA, cause automatic dissolution.

Question 67

RUPA provides default procedures for buyout rights in a dissolved partnership

Answer 67

in the event such procedures are not covered in the partnership agreement.

Question 68

RUPA has moved toward

Answer 68

the separate entity theory for partnerships,

which is a change from prior law

Question 69

Under the Uniform Limited Partnership Act (2001) a limited partnership

Answer 69

1. is an entity distinct from its partners.
2. is the same entity regardless whether its certificate states that the limited partnership is a limited liability limited partnership.
3. may be organized under the ULPA for any lawful purpose,
4. has a perpetual duration

Question 70

In a general partnership, against the third party seeking recovery

Answer 70

partners are jointly and severally liable, along with the partnership, for partnership obligations.

any partner could be held liable for 100% of the claim

Question 71

The Uniform Partnership Act (“Revised Act” or “RUPA”)

Answer 71

gives supremacy to the partnership agreement in most situations.

series of “default rules” that govern the relations among partners in situations they have not addressed in a partnership agreement.

primary focus is the small, informal, partnership

achieve simplicity for state law purposes, particularly in matters concerning title to partnership property.

entity approach, but aggregate approach retained for some purposes, (i.e. partners’ joint and several liability)

Question 72

violation of “fictitious name” statutes

Answer 72

doing business under a fictitious name without filing with state authorities

Question 73

(Revised) Uniform Partnership Act basic principles of partnership by estoppel

Answer 73

Estoppel is “Liability of Purported Partner.”

No duty of denial,

not liable unless consent to the representation

repeated failure to object is evidence of consent

Question 74

assignment is effective

Answer 74

immediately,

binding on the obligor when the obligor has been given notice

assignable even not qualified as negotiable

Question 75

When a proprietorship or a partnership pays an employee a percentage of profits as part of the employee’s compensation,

Answer 75

this alone is not sufficient to change the employee’s status to that of a partner

Question 76

Regarding a distribution in kind, SECTION 402 of the Uniform Partnership Act provides:

Answer 76

a partner has NO right to receive, and
may NOT be required to accept,
a distribution in kind

Question 77

A partnership is dissolved

Answer 77

whenever one of the general partners is changed.

may dissolve partnership simply by withdrawing

Question 78

A general partnership can be formed

Answer 78

by agreement of the partners

or, in some cases, by simply acting like a partnership.

Question 79

A limited partnership is formed

Answer 79

by compliance with applicable state laws

Question 80

In a limited partnership, profits and losses

Answer 80

are divided based on the partners’ capital contributions.

Question 81

Limited partners’ losses and liabilities are limited

Answer 81

to their capital contributions.

Question 82

general partner losses and liabilities

Answer 82

are unlimited

Question 83

when a limited partnership is dissolved

Answer 83

General and limited partners share in the priority for distribution of assets

Question 84

Limited partners may not withdraw capital contributions if

Answer 84

it would harm the interest of a creditor

Question 85

joint venture operates similarly to a partnership in many ways,

Answer 85

fiduciary duty among members of the venture,
unlimited liability, and
rights of the joint venturers to participate in management.

Question 86

A joint venture is not typically required

Answer 86

to file papers or certifications with the state in which it operates.

Question 87

exception to the similarity between joint ventures and partnerships

Answer 87

no apparent authority or agency relationship among joint venturers, as there is among partners