Test #6

Name: ID:

Email:

Test #6

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

The principal forms of business organization are:

a.	sole proprietorships, joint ventures, and corporations.
b.	unincorporated associations, partnerships, and corporations.
c.	unincorporated associations, limited partnerships, and corporations.
d.	sole proprietorships, partnerships, and corporations.

A sole proprietorship is taxed:

a.	on a personal and corporate level.
b.	only on the corporate level.
c.	only on the personal level.
d.	none of the above.

A major disadvantage of the sole proprietor is:

a.	no organizational fees.
b.	sole proprietor obtains all the profits.
c.	personal liability for debts.
d.	sole proprietor is free to make all business decisions.

The people in a corporation responsible for the management of the business are:

a.	officers.
b.	shareholders.
c.	directors.
d.	employees.

Under which organizational structure would the death of the owner have no legal effect?

a.	a partnership
b.	a corporation
c.	a sole proprietorship
d.	all of the above

Partners who hold themselves out as partners, or allow others to do so, although they are not partners in fact, are:

a.	general partners.
b.	silent partners.
c.	secret partners.
d.	nominal partners.

In determining whether a partnership exists, which of the following factors is not evidence of a partnership?

a.	shared profits
b.	co-ownership of property
c.	equal control of the business
d.	shared losses

Dissolution of a partnership:

a.	ends the right of the partnership to exist as a going concern.
b.	is followed by a winding-up period.
c.	reduces the authority of the partners.
d.	all of the above.

Beatrice withdrew from a partnership but failed to notify any of the other partners except Tom who did not have an opportunity to notify the other partners. Simultaneous to Beatrice's notifying Tom, Susan, another member of the partnership, made an authorized contract with a third party. Regarding that contract made by Susan, Beatrice is:

a.	not bound because she had withdrawn from the firm.
b.	bound because she failed to notify Susan of her withdrawal.
c.	not bound because withdrawal from the partnership caused its dissolution.
d.	bound because one may not withdraw from a partnership without the consent of one's partners.

10.

In the absence of an express agreement permitting continuation of the business by the surviving partners, they must wind up the business and account for the share of any partner who has:

a.	withdrawn.
b.	died.
c.	been expelled.
d.	all of the above.

11.

In a partnership of four physicians, a decision to buy an office copier for the partnership must be approved by:

a.	all of the partners.
b.	at least three of the partners.
c.	at least two of the partners.
d.	one partner.

12.

A partner has no implied authority to:

a.	confess a judgment against the partnership.
b.	bind the partnership by a contract of suretyship.
c.	submit a partnership controversy to arbitration.
d.	all of the above.

13.

When the capital of a partnership is distributed upon dissolution, who receives first payment?

a.	creditors
b.	a partner for repayment of loans made to the firm
c.	a partner for an equal share of the firm property
d.	none of the above

14.

Torts of one partner for which all partners of the firm are liable include all of the following except:

a.	fraud.
b.	trespass.
c.	negligence.
d.	all of the above.

15.

Which statement correctly describes the liability of an incoming partner for already existing firm debts?

a.	personal liability
b.	personal liability for a proportionate share of the debts
c.	limited liability
d.	limited liability even if the incoming partner promises to pay already existing debts

16.

A public corporation is a corporation:

a.	whose stock is bought and sold on national stock exchanges.
b.	that holds exhibitions open to the public.
c.	established for governmental purposes and to exercise the powers of government.
d.	formed to conduct free educational lectures that anyone may attend.

17.

A corporation that does business in the state in which it was created is called a(n):

a.	domestic corporation.
b.	foreign corporation.
c.	alien corporation.
d.	home corporation.

18.

The phrase "piercing the corporate veil" refers to:

a.	the ignoring by courts of the corporate entity in order to do justice.
b.	the technique of getting past the receptionist to see the purchasing manager of the corporation.
c.	inspecting the books of the corporation.
d.	learning the identity of the shareholders of the corporation.

19.

What is not a correct statement concerning promoters?

a.	They generally are active before the corporation is formed.
b.	They are agents of the corporation.
c.	They are fiduciaries with respect to the corporation and its shareholders.
d.	They are liable for any torts that they commit while promoting the corporation.

20.

What is not a correct statement concerning the incorporation process?

a.	Each application is reviewed by the legislature.
b.	It is essentially a matter of filing the correct papers and fees with the designated government official.
c.	Most applications are rejected.
d.	The incorporators must prove to be of good moral character.

21.

Perpetual succession with respect to a corporation means that the corporate:

a.	charter states that the corporation is to last indefinitely.
b.	charter states that the corporation shall last for a stated number of years.
c.	charter states that the corporation shall last for a stated number of years, with a right to extend the corporate existence indefinitely.
d.	existence is not affected by changes in stock ownership regardless of whether the charter states that the corporation is to exist indefinitely or for a limited period of time.

22.

When two corporations merge:

a.	their separate existences cease, and a new corporation is formed.
b.	one of the corporations absorbs the other.
c.	the liabilities of the two merging corporations are eliminated.
d.	a new charter is needed.

23.

A successor enterprise is not subject to the contract obligations of the former business if:

a.	one corporation is absorbed by another through merger.
b.	a corporation merely purchases the assets of another business.
c.	two or more corporations consolidate.
d.	none of the above.

24.

When an individual owns a share of stock in a corporation, that individual:

a.	has an ownership interest in the corporation.
b.	is a creditor of the corporation.
c.	generally has no voting rights.
d.	is in possession of a debt security.

25.

A shareholder does not:

a.	qualify as a member of the corporation.
b.	own any specific property of the corporation.
c.	have a fractional interest in the total property of the corporation.
d.	all of the above.

26.

Which of the following statements is not true of common stock?

a.	It is ordinary stock that has no preferences.
b.	It entitles the holder to share in corporate profits in the form of dividends.
c.	It entitles the holder to participate in the distribution of capital upon dissolution.
d.	It is ordinarily nonvoting.

27.

Ownership of shares of stock may be transferred by any of the following methods except:

a.	delivery of the stock endorsed by its owner in blank.
b.	delivery of a notice of intent to transfer.
c.	delivery of the stock endorsed by its owner to a specified person.
d.	delivery of the certificate and a separate power of attorney executed by the owner.

28.

Straight voting:

a.	increases the voting power of minority shareholders.
b.	is the normal method for shareholder voting on corporate matters.
c.	restricts each shareholder to one vote, regardless of the number of shares owned.
d.	all of the above.

29.

Cumulative voting:

a.	decreases the voting power of minority shareholders.
b.	is a form of voting trust.
c.	generally is required or allowed in the election of corporate directors.
d.	is a right given to participating preferred shareholders.

30.

When the corporation has the right to sue for damages and refuses to do so, and the shareholders sue on behalf of the corporation:

a.	recovery belongs to the shareholders.
b.	the action is derivative, and recovery belongs to the corporation.
c.	shareholders may sue without showing that the directors have refused to sue.
d.	the lawsuits may not involve salaries paid to majority shareholders.

31.

Regular meetings of shareholders are:

a.	held at the time and place set forth in a notice given to all shareholders.
b.	held at the time and place prescribed by the articles of incorporation or the bylaws.
c.	called by the directors.
d.	limited to the election of directors.

32.

A valid meeting of the voting shareholders of a corporation requires the presence of a:

a.	quorum.
b.	forum.
c.	majority.
d.	voting majority.

33.

Eligibility for membership on a board of directors is determined by all of the following except:

a.	statute.
b.	certificates of filing.
c.	articles of incorporation.
d.	bylaws.

34.

Directors are shielded from liability for informed business decisions made in good faith and in the best interest of the corporation by the:

a.	prudent-director rule.
b.	business-judgment rule.
c.	reasonable-director rule.
d.	good-faith rule.

35.

What is not part of the presumptions of the business-judgment rule concerning directors?

a.	that the decision they reached was profitable to the corporation
b.	that they acted on an informed basis
c.	that they acted in good faith
d.	that they acted in the honest belief that the action taken was in the best interest of the corporation

36.

When a corporation has violated a statute designed to protect health or the environment:

a.	the corporation alone will be liable.
b.	corporate officers may be held liable.
c.	corporate officers alone will be held liable.
d.	the shareholders may be held liable.

37.

A corporation may be prosecuted and convicted of:

a.	crimes that involve specific intent.
b.	errors in judgment.
c.	operating without a charter.
d.	all of the above.

38.

When officers, directors, employees, and agents incur reasonable legal expenses while acting on behalf of a corporation, the corporation often will:

a.	ratify them.
b.	not compensate them.
c.	indemnify them.
d.	none of the above.

39.

The means by which stockholders may seek to protect themselves against corporate actions to which they object include all of the following except:

a.	voting in new directors.
b.	bringing legal action.
c.	voiding the charter.
d.	calling a special stockholders' meeting.

40.

Under traditional agency principles, corporations may not be held liable for torts committed by:

a.	shareholders.
b.	management personnel.
c.	employees.
d.	agents.

Essay

41.

John was driving his car in a careless way, failing to drive as a reasonably prudent person would under the driving conditions. Ramona was crossing the street in a careless way, failing to cross as a reasonably prudent person would. John struck and injured Ramona with the car John was driving. At the trial, it was found that John was 80 percent at fault and Ramona was 20 percent at fault. The injuries sustained amounted to $75,000. Explain how much, if any, recovery Ramona would receive.

42.

Gerwin's daughter Mary was seeking a position as an associate attorney with Baker, Charles & Dixon, a large metropolitan law firm. The firm, after several meetings with Mary over a two-month period, made Mary an offer of employment on January 15.

Mary accepted the offer that day and immediately left for Cape Cod to celebrate without telling Gerwin or anyone else about her new job. Two days later, Gerwin sent Baker a letter in which she offered to give Baker all of her legal business (approximately $40,000 per year) if Baker would hire Mary. After Gerwin learned that Mary already had been hired by Baker, Gerwin refused to transfer her business to Baker. Baker has brought suit against Gerwin on the grounds that a valid contract exists between them. How will the case be decided?

43.

I have a contract to sell my condo to Peggy for $98,000. Jerry offers me $100,000. I then sell the condo to Jerry. After calling me, threatening me and my dog Jenny (she actually poked my dog with a stick for 7 hours strait though my fence while standing on my property). Peggy then buys another condo from Marc for $99,000. List all parties, duties, rights, discharges. Are there any breaches and damages, by whom and what type? (answer in box or on paper)