Chapter 14 Flashcards
1) A(n) __________ is any change in the ownership of an organization that changes the legal existence of the organization.
A) arbitration B) rescission C) restitution D) dissolution E) extradition
D) dissolution
2) Which of the following statements is true of closely held business organizations?
A) Closely held organizations are free from all legal liabilities to their shareholders, which is the primary reason for this corporate form being used. B) Shareholders of closely held organizations can transfer their ownership without interfering with the organization’s management. C) Closely held organizations are only owned by a large number of persons. D) Closely held organizations are only owned by the government. E) A family-operated business is an example of a closely held business organization.
E) A family-operated business is an example of a closely held business organization.
3) One of the most significant creation-related issues to consider when selecting a business’s organizational form is __________.
A) the organization’s policies B) the target demographic for the services or products of the organization C) how much time it will take to create a particular organization D) how many people are recruited annually by the organization E) the cost of creation
C) how much time it will take to create a particular organization
4) The crucial issue with the continuity factor of a business’s organizational form is __________.
A) its management style B) the average age of the employees working for the business C) the method by which the business can be dissolved D) the method adopted by the business to reach its customers E) the control exercised by its managers
C) the method by which the business can be dissolved
5) Which of the following is true when determining the taxation of a business organization?
A) A single tax is not always better than a double tax. B) Taxation is never a critical factor when selecting the form of a business organization. C) There are no advantages when an organization is subject to the double tax. D) There are no advantages when an organization is subject to the single tax. E) Double taxation cannot be avoided by selecting a different form of organization.
A) A single tax is not always better than a double tax.
6) The use of sole proprietorships is very limited because __________.
A) there is no formal documentation process for its creation B) it gives limited control to the proprietor C) it is the most expensive business organization to create D) multiple owners cannot create a proprietorship E) it is the hardest business organization to create
D) multiple owners cannot create a proprietorship
7) A characteristic of a sole proprietorship is that __________.
A) it is the hardest business organization to create B) it can be created by multiple owners C) it is not possible to transfer ownership of the organization D) it can be publicly held E) it is the most expensive business organization to create
C) it is not possible to transfer ownership of the organization
8) Which of the following forms of organization must record a certificate with pertinent information in the county where the organization has its principal place of business and file additional copies inevery community in which the organization conducts business or has an office?
A) Limited partnership B) Sole proprietorship C) S corporation D) Limited liability company E) Corporation
A) Limited partnership
9) In a(n) __________, the shareholders are taxed only on income distributed.
A) limited partnership B) corporation C) limited liability company D) sole proprietorship E) S corporation
B) corporation
10) The creation of a(n) __________ is automatic based on business conduct and is modified by agreement.
A) limited partnership B) corporation C) general partnership D) sole proprietorship E) S corporation
C) general partnership
11) Which of the following makes a sole proprietorship a less desirable form of organization?
A) The creation of sole proprietorship is expensive and requires formal documentation. B) A proprietorship’s business activity may be more stable than a proprietor’s willingness to remain actively involved in the business. C) A proprietor may have to share his or her voice of control and responsibility for the business’ success with the other acting members of the organization. D) Sole proprietorships are the hardest forms of organization to create. E) Sole proprietorships are subject to double taxation.
B) A proprietorship’s business activity may be more stable than a proprietor’s willingness to remain actively involved in the business.
12) Which of the following is an advantage of a sole proprietorship?
A) A sole proprietor is personally obligated for the debt of the proprietorship. B) A sole proprietorship is not taxed as an organization. C) In a sole proprietorship, liability is shared with many partners. D) A sole proprietorship is the least expensive business organization to create. E) A sole proprietorship’s business activity may be more stable than the proprietor’s willingness to remain actively involved in the business.
D) A sole proprietorship is the least expensive business organization to create.
13) Jonathan intends to have maximum control over his decisions in his business. Which of the following forms of business organizations is most likely to give Jonathan total control over his business decisions?
A) Sole proprietorship B) Partnership C) Corporation D) S corporation E) Limited liability company
A) Sole proprietorship
14) One advantage of a partnership is that __________.
A) it is dissolved anytime a partner ceases to be a partner, regardless of whether the reason is withdrawal or death B) each partner’s liability is unlimited C) partners are taxed on their share of the partnership’s profits, whether the profits are distributed or not D) only a limited number of persons can be partners E) it may operate in more than one state without obtaining a license to do business
E) it may operate in more than one state without obtaining a license to do business
15) Which of the following forms of organization is most easily formed with minimal costs?
A) Limited liability partnership B) General partnership C) Corporation D) S corporation E) Limited liability company
B) General partnership
16) Which of the following is the basic difficulty of owning a minority interest in a closely held corporation?
A) There is no ready market for the minority stock should a shareholder desire to dispose of it. B) Stockholders with a minority interest have no rights in a closely held corporation. C) Buy and sell agreements to own a minority interest are not allowed in a closely held corporation. D) Minority shareholders have unlimited personal liability for the obligations of a closely held corporation. E) Minority shareholders risk losing more than their investment amount.
A) There is no ready market for the minority stock should a shareholder desire to dispose of it.
17) Technically, a(n) __________ is an agent appointed by a shareholder for the purpose of voting the shares.
A) officer B) director C) proxy D) arbitrator E) signatory
C) proxy
18) In a corporation, __________ elect members of the board of __________, who set the objectives and goals of the corporation.
A) officers; shareholders B) directors; officers C) arbitrators; proxies D) shareholders; directors E) proxies; shareholders
D) shareholders; directors
19) While selecting a name for a partnership, if the name is other than that of the partners, the partners must give notice as to their actual identity under the state’s __________.
A) fictitious-name certification law B) annexed-name statute C) suppositious-name law D) fictitious-name rule E) assumed-name statute
E) assumed-name statute
20) Which of the following statements is true of a general partnership?
A) Unlike proprietorships, partnerships are taxable entities. B) Each partner in a general partnership has an equal voice in the firm's affairs, unless the agreement provides to the contrary. C) A general partnership must have at least one controlling partner. D) All partners in a general partnership have only limited liability for their organization’s debts. E) A general partnership is not dissolved if there is a change in the partners.
B) Each partner in a general partnership has an equal voice in the firm’s affairs, unless the agreement provides to the contrary.
21) To prevent problems that may arise when a partner dies or withdraws from a partnership, the articles of partnership should include a(n) __________.
A) buy and sell agreement B) escrow instruction C) establishment clause D) commerce clause E) interest agreement
A) buy and sell agreement
22) Which of the following statements is true of managerial control in a general partnership?
A) It is mandatory that each partner have an equal voice in a firm's affairs. B) Partners may agree to divide control in such a way as to make controlling partners and minority partners. C) The differences in the degree of control do not affect a business’s success. D) The possibility of deadlock is higher when there is a greater number of partners and an odd number of them. E) An oral partnership agreement must include language governing issues of managerial control.
B) Partners may agree to divide control in such a way as to make controlling partners and minority partners.
23) Which of the following statements is true of liability of partners in a general partnership?
A) Partners have limited liability for an organization’s debts. B) Partners’ personal assets, which are not associated with the partnership, may not be claimed by the creditors. C) From a creditor’s perspective, the liability of each partner extends only to a pro rata share. D) A partner who has to pay beyond his pro rata share will have to make use of his future buyout interest. E) A partner is jointly and severally liable for the partnership's obligations.
E) A partner is jointly and severally liable for the partnership’s obligations.
24) Which of the following is a disadvantage of general partnerships?
A) They have a high cost of formation. B) They are tax-paying entities. C) They are subject to more governmental supervision than corporations. D) They need to obtain a license if they wish to operate in more than one state. E) They will be dissolved when a partner leaves the partnership.
E) They will be dissolved when a partner leaves the partnership.
25) Which of the following is a characteristic of partnerships?
A) They cannot operate in more than one state without obtaining a license to do so. B) They are generally subject to more regulation and governmental supervision than a corporation. C) They may not use any word in the name that would imply the existence of a corporation. D) They are the least expensive form of business organization. E) They allow an unlimited number of people to become partners.
C) They may not use any word in the name that would imply the existence of a corporation.
26) A corporation created under the authority of a foreign country may be called a(n) __________.
A) imported corporation B) offshore corporation C) alien corporation D) distant corporation E) external corporation
C) alien corporation
27) Which of the following statements is true of corporations?
A) A corporation’s organizational structure changes whenever a shareholder sells his or her stock. B) The law treats a corporation's existence as indistinguishable from its owners' status as shareholders. C) In comparison with proprietorships, corporations are easier to form. D) In contrast to a partnership, corporations are usually formed to have perpetual existence. E) Corporations do not have to pay income taxes on their profits.
D) In contrast to a partnership, corporations are usually formed to have perpetual existence.
28) As a creature of state legislative bodies, a __________ is much more complex to create and to operate than other forms of businesses.
A) sole proprietorship B) partnership C) limited partnership D) corporation E) limited liability partnership
D) corporation
29) __________ are the individuals who apply for a corporate charter.
A) Incorporators B) Arbitrators C) Mediators D) Officers E) Directors
A) Incorporators
30) A corporation is created by a state issuing a/an __________ upon the application of individuals known as __________.
A) certificate; directors B) letter of incorporation; shareholders C) charter; incorporators D) license; officers E) article of incorporation; partners
C) charter; incorporators
31) In a closely held corporation, the majority shareholders __________.
A) have no influence on management B) can control the election of a board of directors C) cannot be employed by the corporation D) have the same impact on policy as minority stockholders E) bring derivative suits on behalf of the corporation
B) can control the election of a board of directors
32) In a closely held corporation, a __________ may be brought by a minority shareholder on behalf of a corporation if the majority is acting illegally or oppresses the rights of the minority shareholders.
A) derivative suit B) preemption suit C) petit suit D) dissolution suit E) termination suit
A) derivative suit
33) If Joan, a minority shareholder in the closely held corporation Back Alley Bricks, brings a derivative lawsuit on behalf of the corporation, challenging a contract the corporation made with Brandon, an officer and majority shareholder, who has the burden to prove the contract was made in good faith?
A) Joan B) All minority shareholders in the corporation C) All majority shareholders in the corporation D Brandon) E) All directors and officers of the corporation
D Brandon
34) , they When organizations are owned by a few persons are called __________.
A) publicly held B) legally held C) closely held D) openly held E) overtly held
C) closely held
35) When courts find that a corporate organization is being misused, the corporate entity can be disregarded. This has been called __________.
A) cracking the corporate shell B) piercing the corporate veil C) breaking the corporate shield D) breaching the corporate defense E) rupturing the corporate law
B) piercing the corporate veil
36) The __________ may be used to pierce the corporate veil and impose personal liability upon corporate officers, directors, and stockholders.
A) alter-ego theory B) negligent conduct theory C) Med-Arb theory D) corporate envelopment theory E) corporate doppelganger theory
A) alter-ego theory
37) Which of the following entities is a taxable entity?
A) A general partnership B) A limited liability partnership C) A limited liability company D) A corporation E) A sole proprietorship
D) A corporation
38) Which of the following is an advantage of the corporate form of organization?
A) License fees and franchise taxes are not assessed against corporations. B) Control of a corporation may be held by those with a minority of the investment. C) The cost of forming and maintaining a corporation is minimal. D) A corporation need not be qualified in all states where it is conducting local or intrastate business. E) Corporate income is not subject to double taxation.
B) Control of a corporation may be held by those with a minority of the investment.
39) Which of the following is the disadvantage of the corporate form of organization?
A) Control of a corporation may be held by those with a minority of the investment. B) Ownership may be divided into many unequal shares. C) Shareholders’ liabilities are limited to their investments. D) The organization cannot have perpetual existence. E) Corporate income may be subject to double taxation.
E) Corporate income may be subject to double taxation.
40) Which of the following organizational forms allows members to continue the business of the dissolved organization, rather than cease operations, in the event of a death or withdrawal of a member?
A) S corporation B) Limited liability company C) Sole proprietorship D) Partnership E) Corporation
B) Limited liability company
41) Which of the following has a perpetual existence, so long as the number of shareholders is limited?
A) Limited partnership B) Partnership C) Limited liability company D) Sole proprietorship E) S corporation
E) S corporation
42) Organizers must file articles of organization with the state official to form which of the following?
A) Limited partnership B) General partnership C) Limited liability company D) Sole proprietorship E) Limited liability partnership
C) Limited liability company
43) Which of the following is essential if limited partners are to be assured of their limited liability?
A) Substantial compliance with all the technical requirements of the limited partnership law B) Signing an agreement according to the limited liability law to dissolve a partnership whenever a member withdraws C) Using a limited partner's surname in a partnership's name D) Including a limited commerce clause in the partnership agreement E) Participation in an organization's management
A) Substantial compliance with all the technical requirements of the limited partnership law
44) With regard to limited partners, which of the following statements is true?
A) They may assign their interest to another without dissolving the partnership. B) They can always have their surnames used in the partnership's name. C) They cannot act as guarantors of the partnership’s obligations. D) They can control operations of the limited partnership. E) They cannot vote on the change of the partnership’s name.
A) They may assign their interest to another without dissolving the partnership.
45) Under the Revised Uniform Limited Partnership Act (RULPA), if a limited partner’s name is used in a firm’s name and there is no general partner with the same name, that partner __________.
A) does not get his or her contribution returned when the partnership dissolves B) cannot advise the general partner C) will become personally liable to unsuspecting creditors D) must actively participate in management activities to retain his or her limited liability E) cannot receive any of the partnership’s profits
C) will become personally liable to unsuspecting creditors
46) With regard to an S corporation, which of the following statements if true?
A) It is the official designation for a corporation with less than 500 employees. B) It need not file an information return with the Internal Revenue Service since it does not pay any taxes. C) It must have more than 100 shareholders. D) It does not pay any taxes. E) It is the least expensive form of organization to create.
D) It does not pay any taxes
47) One critical attribute of a non-profit organization is that __________.
A) all employees are unpaid B) it has tax-exempt status C) it is limited to 100 shareholders D) it must return its profits to its owners E) yearly filings to the Internal Revenue Service (IRS) are not required
B) it has tax-exempt status
48) A limited liability company is created through filing __________ with a state official.
A) articles of confederation B) articles of incorporation C) articles of organization D) articles of association E) articles of integration
C) articles of organization
49) The owners of limited liability companies are called __________.
A) shareholders B) partners C) proprietors D) members E) directors
D) members
50) Which of the following statements is true regarding the continuity of limited liability companies (LLCs)?
A) In an LLC, only the government can dictate when the company can be dissolved and when the company can continue operations. B) Membership in LLCs is limited to individuals. C) In an LLC, a business organization cannot be an owner. D) The remaining members of a dissolved LLC can decide to continue to the business rather than wind it up. E) An LLC dissolves when the number of shareholders falls below 100.
D) The remaining members of a dissolved LLC can decide to continue to the business rather than wind it up.
51) In a limited liability company, the transferability of a member’s interest __________.
A) is restricted in the fashion of a partner B) is not subject to any restrictions C) depends on the number of shareholders in the company D) depends on the profitability of the company E) is similar to the free transferability of a corporate shareholder
A) is restricted in the fashion of a partner
52) An employer who must pay for an employee’s tort under __________ may legally sue the employee for reimbursement.
A) frolic and detour B) the scope of employment C) the business judgment rule D) the concept of sustainability E) respondeat superior
E) respondeat superior
53) The issue of holding businesses __________ has been emphasized by the Enron, WorldCom, and Tyco scandals in the beginning of this century.
A) civilly liable B) “under a microscope” C) criminally liable D) to a “higher standard” E) socially responsible
C) criminally liable
54) With regard to corporations, which of the following statements is correct?
A) Sole proprietorships and corporations are now being treated as taxable entities if they generate more than $100,000 in revenue. B) In comparison to corporations, sole proprietorships are becoming harder to create. C) Corporations are considered legal persons under the law and may undertake activities like individuals, such as buying and selling property. D) Public attention is moving away from the formation of benefit corporations. E) Shareholders are losing interest and are becoming less active
C) Corporations are considered legal persons under the law and may undertake activities like individuals, such as buying and selling property.
55) A corporate form that requires directors to ensure the corporation confers a public benefit is called a _________.
A) benefit corporation B) non-profit corporation C) limited partnership D) public corporation E) sole proprietorship
A) benefit corporation
56) Which of the following is a significant trend in corporate organization and control?
A) The inclusion of personal privacy rights for corporations B) The emergence of benefit corporations C) A decline in the use of deferred prosecution agreements by the federal government D) An increase in the restrictions on sole proprietorships E) An increase in managerial control for limited partners
B) The emergence of benefit corporations
57) Which of the following statements is true of benefit corporations?
A) They are the only type of corporation not treated as individuals. B) They are not treated as taxable entities even though they have shareholders. C) They are formed through the use of deferred prosecution agreements. D) They combine the positive aspects of a limited liability company and a partnership to form an organization that is designed to give the maximum profits to the owners of the organization. E) They combine aspects of non-profit and profit organizations in a way intended to permit a business to make a profit while pursuing explicit, socially oriented goals.
E) They combine aspects of non-profit and profit organizations in a way intended to permit a business to make a profit while pursuing explicit, socially oriented goals.
58) Which of the following is a criticism of benefit corporations?
A) They are not treated as taxable entities even though they have shareholders. B) They may be more accountable to shareholders. C) They offer essentially the same social benefits as a corporation. D) They are the only type of corporation not treated as individuals. E) They are exempt from all forms of taxation.
C) They offer essentially the same social benefits as a corporation.
