Leg/Soc–Chapter 9 – Flashcards

1. A shareholder derivative suit is brought by a minority shareholder, but any recovery inures to the corporation.

2. Corporations are artificial persons created under the law of a state.

3. In general, the creditors of a corporation cannot reach the personal assets of the shareholders to satisfy the corporation's obligations.

4. Closely held corporations face the loss of limited liability through application of the doctrine known as piercing the corporate veil.

5. In a limited partnership, the limited partners manage the business and are personally liable for all losses.

6. In a limited liability company, the owners are referred to as interest holders.

7. Corporations incur the disadvantage of double taxation.

8. A partnership offers limited liability to its owners.

9. Sole proprietors are mutual agencies.

10. Carey, the owner of a corporation, uses the business checking account to pay his personal bills. He also makes business deals knowing the business cannot pay the invoices. If he is sued by one of his creditors, which of the following courses of action is most likely to be taken by the court? A. Pierce the corporate veil. B. Apply the business judgment rule. C. Terminate the corporation. D. Impose the Rochdale Principles.

Which of the following legal doctrines will the court apply if the owners of a corporation fail to maintain a formal legal separation between their business and their personal financial affairs? A. Respondeat superior B. Piercing the Corporate Veil C. The Business Judgment Rule D. The Rochdale Principles

Which of the following is a feature of a corporation? A. Double taxation B. Unlimited liability C. Definite duration D. Prohibition of tax-deductible fringe benefits

An s corporation pays double tax on its income.

Which of the following is true of the partnership form of business? A. The vast majority of partnership agreements are written. B. An assignee of a partnership interest has the right to participate in control and enjoys the status of partner. C. The partners are not personally liable for the partnership's obligations should it default. D. Events in the private lives of the partners can seriously impact the business venture.

Which of the following statements is true of the sole proprietorship form of business organization? A. Legal filings are required to establish a sole proprietorship. B. A sole proprietorship is a separate legal entity. C. The owner of a sole proprietorship is not personally liable for all obligations of the business. D. A sole proprietorship is not a taxable entity.

Which of the following statements is true of a limited liability partnership? A. It is taxed like a general partnership. B. No annual filings or fees are required. C. To bring a limited liability partnership into existence, the owners file articles of organization with the state. D. It is more like a limited liability company than a general partnership.

Which of the following is true of limited liability companies? A. The management structure of a limited liability company is extremely rigid. B. A single-member limited liability company cannot be treated as a corporation. C. The operating agreement of a limited liability company is most likely to be in the oral form. D. To create a limited liability company, the owner(s) must file articles of organization with the state.

Which of the following refers to a business venture that has no legal existence apart from the owner? A. Corporation B. Limited liability company C. Sole proprietorship D. Partnership

The Securities Act of 1933 seeks to ensure full disclosure of all material facts about the investment opportunity to offerees before they invest.

Which of the following is true of the Securities Act of 1933? A. It guarantees the economic merits of any investment opportunity. B. It prohibits full disclosure of all material facts about the investment opportunity to offerees before they invest. C. It forbids any interstate offering of a new security until a registration statement has been filed with and approved by the Securities and Exchange Commission. D. The Securities and Exchange Commission has repealed the 1933 Act's prescribed relationship between solicitation or sales of a security and the registration process.

According to the 1933 Act, during the _____ period, no sales are permitted but a limited amount of solicitation is allowed. A. shelf registration B. waiting C. prefiling D. posteffective

Identify the correct statement about the Securities Act of 1933. A. It allows interstate offering of a new security until a registration statement has been filed with and approved by the Securities and Exchange Commission. B. It ensures partial disclosure of material facts about the investment opportunity to offerees. C. It does not guarantee the economic merits of any investment opportunity. D. It gives the Securities and Exchange Commission the power to suspend trading if it suspects price manipulation.

Which of the following statements is true of the Securities Act of 1934? A. It allows interstate offering of a new security until a registration statement has been filed with and approved by the Securities and Exchange Commission. B. It ensures partial disclosure of material facts about the investment opportunity to offerees. C. It guarantees the economic merits of any investment opportunity. D. It gives the Securities and Exchange Commission the power to suspend trading if it suspects price manipulation.

Under the 1933 Act, a draft prospectus is included with the filed registration statement. This is known as a _____ prospectus. A. greenmail B. red herring C. crown jewel D. blue sky

_____ defense refers to a resistance tactic in which the target's management uses corporate cash to buy back the tender offeror's current stake, with a significant premium to "go away." A. Greenmail B. Crown jewel C. Poison pill D. Golden parachute

The _____ defense against a takeover involves the target company selling off its most attractive assets. A. greenmail B. crown jewel C. poison pill D. golden parachute

Where mergers or direct acquisitions fail, a takeover can be attempted.

Which of the following is a management's takeover defense strategy that gives current shareholders a tender offer-triggered right to buy additional stock at a discount, thus diluting the hostile bidder's shares? A. Golden parachute B. Greenmail C. Poison pill defense D. Crown jewel defense

_____ refers to the severance pay packages the target's officers may have negotiated to protect themselves in the event of a takeover. A. Greenmail B. Golden parachutes C. Crown jewels D. Poison pill

In the context of the capital structure of corporations, equity capital has a short-term horizon.

Which of the following statements is true of the formation of partnerships? A. Partnership accounting systems are the least expensive of all the business forms. B. The partnership form generally requires a number of annually recurring events such as state filings or statutorily mandated meetings of owners. C. The vast majority of partnership agreements are written. D. The co-owners of a partnership must intend to join in the sharing of risks and rewards via the active conduct of business.

Which of the following statements about corporations is true? A. A promoter files articles of incorporation with the state government to create a corporation. B. When a corporation's liabilities exceed its assets, its creditors can reach the personal assets of the shareholders. C. A corporation need not establish books of accounts. D. When an employee or director commits a tort or crime while conducting corporate business, the corporation is not liable for the consequences.