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Q:
____________________ is a term for profits kept by a corporation for reinvestment.
A. Added earnings
B. Retained earnings
C. Approved income
D. Added profit
E. Saved profit
Q:
______________________ references the liability of corporations for torts and crimes committed by their agents during the scope of their employment.
A. Stare decisis
B. Res ipsa loquitur
C. Respondeat superior
D. Absoluta respond
E. None of these
Q:
Which is false about a corporation?
A. Corporations cannot exist separately from their shareholders
B. Corporations are legal entities
C. Corporations have rights under the Fifth Amendment to the U.S. Constitution
D. Corporations can sue or be sued by others
E. Corporations are subject to state incorporation statutes
Q:
A(n) ____________________ is a document a corporation files with the state explaining its organization.
A. certificate of organization
B. articles of incorporation
C. proof of incorporation
D. proof of capitalization
E. establishment of corporation
Q:
Which of the following is generally true regarding management of a corporation?
A. Shareholders do not participate in corporate management.
B. Shareholders elect a board of directors.
C. The board of directors selects officers to manage the day-to-day business of the corporation.
D. Shareholders do not participate in corporate management, shareholders elect a board of directors, and the board of directors selects officers to manage the day-to-day business of the corporation.
E. Shareholders do not participate in corporate management and shareholders elect a board of directors, but shareholders select officers to manage the day-to-day business of the corporation.
Q:
In regard to the board of directors of a corporation, German law is similar to the U.S. in that a one-tier board system is in effect.
Q:
A dissolution of a corporation must be voluntary.
Q:
Federal securities law does not require that target corporations assist aggressors in any way.
Q:
Aggressors often try to win the favor of a few institutional investors that own large block of shares.
Q:
A merger requires shareholder approval, but a consolidation does not.
Q:
A type of takeover in which the aggressor corporation offers the target shareholders a price above their stock's current market value is a leverage buyout.
Q:
A hostile takeover is when the management of the target corporation objects to the takeover.
Q:
A shareholder can sue a director or officer if the shareholder feels that the director or officer has caused harm to the business by violating a fiduciary duty.
Q:
A shareholder may not be held personally liable to a corporation for receiving watered stock.
Q:
In most states, a corporation's bylaws can negate preemptive rights.
Q:
Consolidations today are rare.
Q:
Directors and officers have a fiduciary duty of care.
Q:
Directors and officers are self-dealing when they make decisions that violate their corporate duty of loyalty.
Q:
An individual director or officer may not personally benefit from decisions made by the board of directors.
Q:
Corporations have rights under the U.S. Constitution.
Q:
Directors can be removed from their positions for cause, which is failing to perform a required duty.
Q:
Shareholders are directly responsible for the daily management of a corporation.
Q:
Shareholders may not be held personally liable for a defective corporation's actions.
Q:
The articles of incorporation determine who has the power to amend the corporate bylaws after the first organizational meeting.
Q:
A certificate of incorporation provides the rules and regulations that govern a corporation's internal management.
Q:
Nonresident aliens may not be shareholders of an S corporation.
Q:
A promoter begins the corporate creation and organization process and, raises capital for the new corporation.
Q:
A corporation must be incorporated in the state in which it has its principal place of business.
Q:
State incorporation statutes do not require corporations to indicate in the name of the corporation.
Q:
A corporation is considered alien in states in which it conducts business but is not incorporated.
Q:
Closely held corporations generally offer stock for sale to the general public.
Q:
An S corporation has the tax status of a partnership.
Q:
Corporations have implied powers.
Q:
A corporation commits ultra vires when it acts beyond its express and implied powers.
Q:
Most corporations are nonprofit corporations.
Q:
Shareholders of a corporation can freely transfer their corporate shares.
Q:
A corporation must be dissolved if over 50% of the shareholders die.
Q:
Dividends are profits that a corporation keeps.
Q:
Corporations have only those powers that states grant them.
Q:
A franchisor is the owner of a trade name or trademark who is a party to an arrangement whereby another party sells goods or services under the trade name or trademark.
Q:
A franchise is a business arrangement between an owner of a trade name or trademark and a person who sells goods or services under the trade name or trademark.
Q:
In U.S. law, corporations are legal entities and have rights under the Constitution.
Q:
Corporations generally provide unlimited transferability of ownership interest.
Q:
Cooperatives must be incorporated.
Q:
An association between two or more persons or corporations created for a specific business undertaking is a joint stock company.
Q:
An S corporation is a corporation that is taxed like a partnership.
Q:
A general corporation may only have up to 210 shareholders while an S corporation cannot have more than 75 shareholders.
Q:
An S corporation is an unincorporated business that is taxed like a partnership with the limited liability of a corporation.
Q:
Qualification is a process that allows limited liability companies to register in additional states in which they want to operate.
Q:
Members of the board of directors of a corporation are elected by shareholders.
Q:
Officers of a corporation are hired by the shareholders.
Q:
Corporate income is taxed twice.
Q:
A limited partnership and a limited liability partnership refer to the same type of business organization.
Q:
A legal entity formed by issuing stock to investors, who are the owners is a limited partnership.
Q:
Shareholders of a corporation own that corporation.
Q:
In a partnership, income of the business is personal income and business losses can be deducted from taxes.
Q:
In most cases, a partnership can be inherited.
Q:
A partnership in which the partners divide profits and management responsibilities is a limited partnership.
Q:
A limited partnership agreement in which the partners share management responsibilities equally but some partners are limited in regards to the amount of profit distribution to which they are entitled.
Q:
The sole proprietor has complete control of the management of the business and keeps all the profits from the business.
Q:
A sole proprietor is considered a separate legal entity.
Q:
A voluntary association between two or more people who co-own a business for profit is called a corporation.
Q:
Describe a franchise that is a distributorship and give an example of a distributorship.
Q:
Suzanne wants to open a legal litigation support business and market to attorneys for their needs in court preparation such as copying, preparation of exhibits, and the service of subpoenas. She expects to hire three employees to assist her. Assuming she has sufficient funding, what type of business forms would you encourage her to adopt and why?
Q:
A business in which one person is in control of the management and profits is a partnership.
Q:
List the advantages and disadvantages of a sole proprietorship form of business.
Q:
Set forth the disadvantages of forming a corporation.
Q:
Brice just finished a residence in internal medicine and wants to go into practice with Horace and Joyce. Brice tells you that while he needs to practice with other physicians for call coverage and for other reasons, he does not want to be personally liable should the other physicians be found guilty of malpractice. You discuss various incorporation options with him, but he tells you that he would like to form a partnership. What business forms would you recommend to him and why?
Q:
Define a joint venture and set forth two differences under the law between a joint venture and a partnership.
Q:
Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slips on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is true regarding any agency relationships between Craig and Melinda?
A. They were both agents of each other.
B. Neither was the agent of the other.
C. They were agents of each other for contracts only.
D. They were agents of each other for finances only.
E. They were agents of each other for insurance purposes only.
Q:
Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slips on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady who was angry because she did not win the prize for the best honey jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is true regarding the liability of Craig and Melinda for the fair?
A. Each party can be held responsible for the liability of the other.
B. Craig is solely responsible because he was charged with handling security.
C. The party who obtained the business license is solely responsible.
D. Under state law, neither party is generally exposed to liability in this type of project.
E. Under state law, it is generally required that the parties agree on the issue of liability prior to starting the project and file a copy of the liability agreement with the appropriate state agency.
Q:
Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slips on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is true regarding management rights in regard to the project?
A. Unless an agreement gives one party greater management responsibilities, Craig and Melinda would share equal management for the task for which they have come together.
B. For this type of project, generally state law requires that responsibilities of management be specifically assigned in writing to one of the parties.
C. For this type of project, generally state law requires that responsibilities of management be specifically assigned to one of the parties; but the assignment may be oral.
D. In the absence of an agreement between the parties, the party who filed for the business license for the project is charged with management responsibilities.
E. Regardless of any agreement existing between the parties, the party who filed for the business license for the project is charged with management responsibilities.
Q:
Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. Will Molly likely be held liable to Fred?
A. Yes, but only if Suzette has officially filed for bankruptcy protection.
B. Yes, but only if Suzette is insolvent.
C. Yes, because the cookies had her name on them.
D. No, because she was a franchisor.
E. It is unclear and depends on whether she exercised too much authority in the day-to-day affairs of Suzette's business.
Q:
Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. Is Molly correct that she was entitled to cancel all franchise agreements?
A. No, she was not entitled to cancel any franchise agreements.
B. No, while she was arguably justified in canceling Suzette's franchise agreement, she was not justified in canceling other franchise agreements because no breach of the other franchise agreements had occurred.
C. No, she could only cancel all franchises after a judgment was entered against her, and that had not yet occurred.
D. Yes, because a personal service type of franchise was involved, she could cancel all the franchises at will.
E. Yes, she can cancel the franchises but only if she can establish that her profits were less than had been expected.
Q:
Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slips on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is the type of business organization that best fits Craig and Melinda's project?
A. A partnership
B. A double proprietorship
C. A business trust
D. A joint venture
E. A distributorship
Q:
Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. Is Wally correct that forming a corporation would likely result in to double taxation?
A. Yes, because the corporation would be required to pay tax on its profits, and the shareholders would also be required to pay taxes on dividends.
B. No, Wally is incorrect because all businesses are taxed in the same manner.
C. No, Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 10 shareholders.
D. No, Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 75 shareholders.
E. Yes, Wally is correct but only because his proposal does not involve a writing and the filing of paperwork with the secretary of their state.
Q:
Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. What type of arrangement, if any, would avoid double taxation for the endeavor of Wally and Sally?
A. An S corporation
B. A limited liability company
C. A corporation
D. An S corporation, a limited liability company, and a corporation
E. An S corporation and a limited liability company, but not a corporation
Q:
Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. What type of arrangement did Molly make with her friends?
A. A franchise that was a production-style business operation
B. A franchise that was a distributorship
C. A franchise that was a manufacturing arrangement
D. A franchise that was a manufacturing distributorship
E. A joint venture
Q:
Peanut Allergy. Kitty, who had a love of baking, decided to open her own bakery. She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership. Unfortunately, Kitty had not paid attention in business law class. She proceeded, with little thought, to simply open her business called Kitty's Baking. Bobby came in to order some cookies for his girlfriend, Bitsy, who was allergic to peanuts. Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts. Kitty told him not to worry because she would make up a special batch just for him. Kitty had hired some assistants because she was so busy. She told an assistant, Cathy, to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order. Cathy, however, forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts. Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car. Bitsy became violently ill, vomited in Bobby's car, and had to have her stomach pumped. Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Bobby and Bitsy, Kitty discussed with her parents her problems with the bakery. Kitty's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. Which of the following is true regarding Kitty's statement that she had no personal liability?
A. She was correct.
B. She was correct only if she can establish that she has paid all her business taxes on time.
C. She was correct only if she can establish that she has at least 5 employees.
D. She was incorrect.
E. She was incorrect unless she signed an agreement with a financial institution in order to get a loan for the business and agreed in the document that she would not accept personal liability for any losses.
Q:
Peanut Allergy. Kitty, who had a love of baking, decided to open her own bakery. She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership. Unfortunately, Kitty had not paid attention in business law class. She proceeded, with little thought, to simply open her business called Kitty's Baking. Bobby came in to order some cookies for his girlfriend, Bitsy, who was allergic to peanuts. Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts. Kitty told him not to worry because she would make up a special batch just for him. Kitty had hired some assistants because she was so busy. She told an assistant, Cathy, to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order. Cathy, however, forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts. Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car. Bitsy became violently ill, vomited in Bobby's car, and had to have her stomach pumped. Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Bobby and Bitsy, Kitty discussed with her parents her problems with the bakery. Kitty's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. Which of the following would be a form of business organization for Kitty and her parents such that her parents could invest but not participate in management?
A. General partnership
B. Limited partnership
C. Managed partnership
D. Combined partnership
E. Family-based partnership