R6 M5 - Business Structures: Part II

Question 1

What is fiduciary duties?

Answer 1

The responsibility to act solely in the interest of another party.

For example, lawyers have a fiduciary duty to act in the best interest of their clients.

Question 2

John is a director of Crayola, Inc. As a corporate director, John is:

A. A principal
B. An agent
C. A fiduciary
D. A trustee.

Question 3

What are the steps that must take place for a corporation to be voluntarily dissolved?

Answer 3

1. Board Resolution
   A majority of the board of directors must put forth a resolution for a voluntary dissolution.
2. Notice
   The corporation must let all shareholders know what is happening even though some can’t vote on that decision.
3. Shareholder Approval
   The change must be approved by a majority of the shares (not unanimous) voted at the meeting.
4. Filing of Articles
   Document to put it into action and be filed with the state

Question 4

Which of the following must take place for a corporation to be voluntarily dissolved?

A.	Amendment of the certificate of incorporation.

B.	Unanimous vote of the stockholders.

C.	Approval by the officers of a resolution to dissolve.

D.	Passage by the board of directors of a resolution to dissolve.

Answer 4

Choice “D” is correct. For a corporation to dissolve, the directors must adopt a resolution recommending dissolution.

Choice “A” is incorrect. To dissolve, the certificate of incorporation need not be amended; rather, a certificate of dissolution must be executed and filed.

Choice “B” is incorrect. Generally, fundamental corporate changes such as dissolution need only be approved by a majority of the outstanding shares.

Choice “C” is incorrect. The officers are not required to approve resolutions for fundamental corporate changes. Approval is required from the board of directors and the stockholders.

Question 5

What does unanimous mean?

Answer 5

They all agree not one person disagree.

Question 6

The limited liability of the shareholders of corporation (limited liability protects the shareholder meaning what they invested may be lost not their personal assets that is not invested in the corporation) can be disregarded (ignored) if the shareholders:

Answer 6

If the issue of stocks is undercapitalized, fraudulently done and your personal asset is mixed with that of the corporation. This is known as corporate veil.

Question 7

What is the governing document for a Corporation and an LLC?

Answer 7

Article of incorporation - C corporation
Article of organization - LLC

Question 8

What is an operating agreement?

Answer 8

An agreement between members of an LLC

Question 9

What is voting trust agreement?

Answer 9

Shareholder gives his voting rights to another shareholder/ trustee to vote a certain way.

Question 10

Texas Cat Chow Inc. has only four shareholders. Each shareholder will have the right to approve:
A. The declaration of corporate dividends.
B. An amendment to the corporation’s articles of incorporation changing the duration for which the corporation was formed.
C. The hiring of an officer.
D. All of the answer choices are correct.

Answer 10

Choice “B” is correct. Shareholders have the right to vote on all fundamental corporate changes, including amendments to the articles of incorporation.

Choice “A” is incorrect. Directors have the sole discretion to declare dividends.

Choice “C” is incorrect. The hiring of officers is a right that the directors have.

Choice “D” is incorrect as it includes “C” and “A”, both of which are incorrect per the above explanations.

Question 11

Donovan, a partner of Monroe, Lincoln and Washington, is considering selling all or part of his interest in the partnership. The partnership agreement is silent on the matter. Donovan can:

A.	Sell part but not all of his partnership interest without the consent of the other partners.
B.	Sell his entire partnership interest and confer partner status upon the purchaser, even without the consent of the other partners.
C.	Sell his partnership interest, but only with the consent of his fellow partners.
D.	Sell all of his partnership interest without causing dissolution.

Answer 11

Choice “D” is correct. A partner’s interest in his or her partnership is defined as the partner’s right to receive profits and surplus. This interest is fully assignable without the approval of the other partners. Such an assignment does not transfer the partner’s management rights and does not cause a dissolution.

Choice “A” is incorrect. A partner may sell all or part of his partnership interest.

Choice “B” is incorrect. A transferee does not become a partner without the consent of all other partners.

Choice “C” is incorrect. A sale of an interest (i.e., the right to receive profits and surplus) can be made without the consent of fellow partners.