Module 25: Business Structure – Flashcards

5. A partnership agreement must be in writing if a. Any partner contributes more than $500 in capital. b. The partners reside in different states. c. The partnership intends to own real estate. d. The partnership's purpose CANNOT be completed within one year of formation.

9. Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell Lark's interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission to the partnership, Ward a. Acquired only the right to receive Ward's share of DSJ profits. b. Has the right to participate in DSJ's management. c. Is personally liable for partnership liabilities arising before and after being admitted as a partner. d. Must contribute cash or property to DSJ to be admitted with the same rights as the other partner.

11. The apparent authority of a partner to bind the partnership in dealing with third parties a. Will be effectively limited by a formal resolution of the partners of which third parties are aware. b. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. c. Would permit a partner to submit a claim against the partnership to arbitration. d. Must be derived from the express powers and purposes contained in the partnership agreement.

16. Under the Revised Uniform Partnership Act, in which of the follow9ing cases will property be deemed to be partnership property? I. A partner acquires property in the partnership name. II. A partner acquires title to it in his/her own name using partnership funds. III. Property owned previously by a partner is used in the partnership business. a. I only. b. I and II only. c. II only. d. I, II, and III.

17. Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership agreement that states, "no partner may withdraw for a period of five years." Under the Uniform Partnership Act, what is the result of Wind's withdrawal? a. Wind's withdrawal causes a dissolution of the partnership by operation of law. b. Wind's withdrawal has NO bearing on the continued operation of the partnership by the remaining partners. c. Wind's withdrawal is NOT effective until Wind obtains a court-ordered decree of dissolution. d. Wind's withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement.

18. Dowd, Elgar, Frost, and Grant formed a general partnership. Their written partnership agreement provided that the profits would be divided so that Dowd would receive 40%; Edgar, 30%; Frost, 20%; and Grant, 10%. There was no provision for allocating losses. At the end of its first year, the partnership had losses of $200,000. Before allocating losses, the partners' capital account balances were: Dowd, $120,000; Elgar, $100,000; Frost, $75,000; and Grant, $11,000. Grant refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. After losses were allocated to the partners' capital accounts and all liabilities were paid, the partnership's sole asset was $106,000 in cash. How much would Elgar receive on dissolution of the partnership? a. $37,000 b. $40,000 c. $47,500 d. $50,000

19. Which of the following statements is correct with respect to a limited partnership? a. A limited partner may not be an unsecured creditor of the limited partnership. b. A general partner may not also be a limited partner at the same time. c. A general partner may be a secured creditor of the limited partnership. d. A limited partnership can be formed with limited liability for all partners.

24. Mandy is a limited partner in a limited partnership in which Strasburg and Hua are the general partners. Which of the following may Mandy do without losing limited liability protection? I. Mandy acts as an agent of the limited partnership. II. Mandy votes to remove Strasburg as a general partner. a. I only. b. II only. c. Both I and II. d. Neither I nor II.

29. Riewerts, Morgan and Stonk form a limited partnership. Riewerts is the one general partner. Which of the following events will cause this limited partnership to be dissolved? I. Riewerts dies and is survived by the other two partners. II. Morgan dies leaving Riewerts and Stonk. III. Riewerts takes out personal bankruptcy. IV. Stonk takes out personal bankruptcy. a. I only. b. I and II only. c. I and III only. d. III and IV only.

30. Which of the following is NOT true of a joint venture? a. Each joint venturer is personally liable for the debts of a joint venture. b. Each joint venturer has the right to participate in the management of the joint venture. c. The joint venturer owe each other fiduciary duties. d. Death of a joint venturer dissolves the joint venture.

33. Which of the following is NOT characteristic of the typical limited liability company? a. Death of a member (owner) causes it to dissolve unless the remaining members decide to continue the business. b. All members (owners) are allowed by law to participate in the management of the firm. c. The company has, legally, a perpetual existence. d. All members (owners) have limited liability.

42. Which of the following is NOT considered to be an advantage of the corporate form of doing business over the partnership form? a. A potential perpetual and continuous life. b. The interests in the corporation are typically easily transferable. c. The managers in the corporation and shareholders have limited liability. d. Persons who manage the corporation are not necessarily shareholders.

44. A corporation as a separate legal entity can do which of the following? a. Contracts in its own name with its own shareholders. b. Contract in its own name with its own shareholders only if a majority of its shareholders agree that such contract can be made. c. Contract in its own name with third parties. d. Both a. and c. are correct.

52. Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership? a. Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters. b. Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interests are automatically exempt from those requirements. c. Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership. d. A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper government body.

57. Promoters of a corporation which is NOT yet in existence a. Are persons that form the corporation and arrange for capitalization to help begin the corporation. b. Are agents of the corporation. c. Can bind the future corporation to presently made contracts they make for the future corporation. d. Are shielded from personal liability on contracts they make with third parties on behalf of the future corporation.

58. Johns owns 400 shares of Abco Corp. Cumulative preferred stock. In the absence of any specific contrary provisions in Abco's Articles of Incorporation, which of the following statements is correct? a. Johns is entitled to convert the 400 shares of preferred stock to a like number of shares of common stock. b. If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco. c. If Abco declares a dividend on its common stock, Johns will be entitled to participate with the common stock shareholders in any dividend distribution made after preferred dividends are paid. d. Johns will be entitled to vote if dividend payments are in arrears.

60. An owner of common stock will NOT have any liability beyond actual investment if the owner a. Paid less than par value for stock purchased in connection with an original issue of shares. b. Agreed to perform services that were worth less than par value for the corporation in exchange for original issue par value shares. c. Purchased treasury shares for less than par value. d. Failed to pay the full amount owed on a subscription contract for no-par shares.

70. Corporations generally have which of the following powers without shareholder approval? I. Power to acquire their own shares. II. Power to make charitable contributions. III. Power to make loans to directors. a. I only. b. I and II only. c. II and III only. d. I, II, and III.

75. The officers of West Corporation wish to buy some used equipment for West Corporation. The used equipment is actually owned by Parks, a director of West Corporation. For this transaction to NOT be a conflict of interest for Parks, which of the following is (are) required to be true? I. Parks sells the used equipment to West Corporation in a contract that is fair and reasonable to the corporation. II. Parks' ownership of the used equipment is disclosed to the shareholders of West who approve it by majority vote. III. Parks' ownership of the used equipment is disclosed to the board of directors, who approve it by a majority vote of the disinterested directors. a. Any one of I, II, or III. b. I and II are both required. c. I and III are both required. d. All three of I, II, and III are required.

76. The following are two statements concerning a fiduciary duty in a corporation. I. Officers and directors of a corporation owe a fiduciary duty to that corporation. II. Majority shareholders of a corporation can owe a fiduciary duty to the minority shareholders. Which of the statements is (are) correct? a. I only. b. II only. c. Both I and II. d. Neither I nor II.

82. Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will BEST satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation? a. A merger of Trend into Acorn, whereby Trend shareholder receive cash or Acorn shares. b. A sale of all the assets of Trend, outside the regular course of business, to Acorn for cash. c. An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares. d. A cash tender offer, whereby Acorn acquires at least 90% of Trends' shares, followed by a short-form merger of Trend into Acorn.

85. Under the Revised Model Business Corporation Act, which of the following actions by a corporation would entitle a stockholder to dissent from the action and obtain payment of the fair value of his/her shares? I. An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it alters or abolishes a preferential right of the shares. II. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the stockholder is entitled to vote on the plan. a. I only. b. II only. c. Both I and II. d. Neither I nor II.

88. The limited liability of a stockholder in a closely held corporation may be challenged successfully if the stockholder a. Under-capitalized the corporation when it was formed. b. Formed the corporation solely to have limited personal liability. c. Sold property to the corporation. d. Was a corporate officer, director, or employee.

93. Which of the following statements is a general requirement for the merger of two corporations? a. The merger plan must be approved unanimously by the stockholder of both corporations. b. The merger plan must be approved unanimously by the boards of both corporations. c. The absorbed corporation must amend its articles of incorporation. d. The stockholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan.

96. When a consolidation takes place under the law of corporations, which of the following is true? a. Two or more corporations are joined into one new corporation. b. All assets are acquired by the new corporation. c. The new corporation is liable for the debts of each of the old corporations. d. All of the above are true.

97. When a corporation elects to be a Subchapter S corporation, which of the following statements is (are) true regarding the federal tax treatment of the corporation's income or loss? I. The corporation's income is taxed at the corporate level and not the shareholders' level. II. The shareholders report the corporation's income on their tax returns when the income is distributed to them. III. The shareholders report the corporation's income on their tax returns even if the income is not distributed to them. IV. The shareholders generally report the corporation's loss on their tax returns. a. I only is true. b. II only is true. c. III only is true. d. III and IV only are true.