174. Directors are under a to conduct themselves on behalf of the corporation as a reasonably prudent person in
the conduct of personal business affairs.
a. duty of reasonability
b. duty of profit
c. duty of management
d. duty of morality
e. none of the other choices are correct
175. The business judgment rule:
a. is applied when directors of a corporation act negligently
b. protects directors and managers of a corporation who have made honest mistakes in judgment
c. is used by courts to impose strict liability on directors and managers when violated
d. protects directors and managers of a corporation who have made honest mistakes in judgment and is used by
courts to impose strict liability on directors and managers when violated
e. none of the other choices
176. A board of directors‘ fiduciary duty of loyalty requires that:
a. directors are morally upstanding people in their personal lives
b. directors do whatever is necessary to make a profit
c. directors place the interests of the corporation before their own interests
d. directors place their own interests before the interests of the corporation
e. none of the other choices are correct
177. requires that directors of a corporation place the interests of the corporation before their own interests.
a. fiduciary duty of loyalty
b. duty of care
c. fiscal duty of loyalty
d. real duty of loyalty
e. preferential duty
178. requires that directors of a corporation place the interests of the corporation before their own interests.
a. preferential duty
b. duty of care
c. fiscal duty of loyalty
d. real duty of loyalty
e. none of the other choices are correct
179. Which of the following is not true about corporate directors?
a. the initial board is often specified in the articles of incorporation
b. directors are subject to a fiduciary duty of loyalty
c. directors must always act to preserve the corporation
d. directors may be removed from office for breach of duty
e. all of the other choices are true
180. Which of the following is not true about corporate directors?
a. the initial board is often specified in the articles of incorporation
b. directors are subject to a fiduciary duty of loyalty
c. directors must report to the president
d. directors may be removed from office for breach of duty
e. none of the other choices
181. In Storetrax.com v. Gurland, where Gurland, the founder of Storetrax.com, was removed as president but denied
severance pay and sued for that, the appeals court held that he was:
a. not due severance pay because he was a board member and that was a conflict of interest
b. not due severance pay because he breached his obligation to the company while an officer and board
member so lost the right to such compensation
c. due the severance pay promised because there was no conflict of interest in his role as a board member and
his compensation
d. due severance pay promised as other members of the board breached their obligation to follow the bylaws of
the company, so they could be personally liable to Gurland
e. none of the other choices
182. In Storetrax.com v. Gurland, where Gurland, the founder of Storetrax.com, was removed as president but denied
severance pay and sued for that, the appeals court held that he was:
a. not due severance pay because he was a board member and that was a conflict of interest
b. not due severance pay because he breached his obligation to the company while an officer and board
member so lost the right to such compensation
c. due severance pay promised as other members of the board breached their duties and so would be removed
from the board in favor of control being vested in Gurland
d. due severance pay promised as other members of the board breached their obligation to follow the bylaws of
the company, so they could be personally liable to Gurland
e. none of the other choices
183. In Storetrax.com v. Gurland, where Gurland, the founder of Storetrax.com, was removed as president but denied
severance pay and sued for that, the appeals court held that he was:
a. protected by “safe harbor” because he gave the company sufficient notification of the imminence of a lawsuit
b. not protected by “safe harbor” because he failed to give the company sufficient notification of the imminence
of a lawsuit
c. protected by “sufficient notification” because he gave the company sufficient notification of the imminence of
a lawsuit
d. not by “sufficient notification” because he failed to give the company sufficient notification of the imminence
of a lawsuit
e. not allowed to sue the company because he was on the board of directors
184. In Storetrax.com v. Gurland, where Gurland, the founder of Storetrax.com, was removed as president but denied
severance pay and sued for that, the appeals court held that he was:
a. not allowed to sue the company because he was on the board of directors
b. not protected by “safe harbor” because he failed to give the company sufficient notification of the imminence
of a lawsuit
c. protected by “sufficient notification” because he gave the company sufficient notification of the imminence of
a lawsuit
d. not by “sufficient notification” because he failed to give the company sufficient notification of the imminence
of a lawsuit
e. none of the other choices are correct
185. A corporation’s board of directors hires to run the business.
a. specialists
b. lay persons
c. managers
d. supervisors
e. directors
186. The termination of a corporation:
a. is conducted in two phases: dissolution and winding up
b. prevents the corporation from taking on any new business
c. may be brought about either voluntarily or involuntarily
d. is conducted in two phases: dissolution and winding up, and prevents the corporation from taking on any new
business
e. is conducted in two phases: dissolution and winding up, and prevents the corporation from taking on any new
business and may be brought about either voluntarily or involuntarily
187. Dissolution of a corporation:
a. may be voluntary or involuntary
b. is always voluntary
c. is never voluntary
d. cannot be voluntary in some states
e. cannot be involuntary in some states
188. Dissolution of a corporation:
a. cannot be involuntary in some states
b. is always voluntary
c. is never voluntary
d. cannot be voluntary in some states
e. none of the other choices are correct
189. There are two types of dissolution of a corporation:
a. abstract and remote
b. real and abstract
c. voluntary and involuntary
d. finite and indefinite
e. none of the other choices
190. There are two types of dissolution of a corporation:
a. abstract and remote
b. real and abstract
c. federal and state
d. finite and indefinite
e. none of the other choices
191. A(n) of a corporation involves approval of the shareholders and the board of directors.
a. involuntary
b. voluntary
c. immediate
d. unwarranted
e. abstract
192. The process of settling the accounts and liquidating the assets of a corporation is called:
a. termination
b. certification
c. transference
d. dissolution
e. none of the other choices
193. Involuntary dissolution of a corporation is usually caused by:
a. bankruptcy
b. an act of Congress
c. fraud in the establishment of the corporation
d. bankruptcy or fraud in the establishment of the corporation
e. bankruptcy or fraud in the establishment of the corporation or an act of Congress
194. Many states now allow groups of doctors in practice together to form a particular legal entity allowed by statute
called:
a. a limited liability company
b. a cooperative
c. a professional corporation
d. a limited partnership
e. a physician association
195. Many states now allow groups of doctors in practice together to form a particular legal entity allowed by statute
called:
a. a limited liability company
b. a cooperative
c. a physician association
d. a limited partnership
e. none of the other choices
196. Professional corporations are now allowed:
a. in all states
b. in about half the states
c. in some states
d. in a few of the more business friendly states
e. none of the other choices are correct
197. A limited liability company:
a. is taxed like a partnership
b. has the liability of a corporation
c. is taxed like a corporation
d. is taxed like a partnership and has the liability of a corporation
e. is taxed like a corporation and has the liability of a corporation
198. A limited liability company:
a. is chartered by the Securities and Exchange Commission
b. has the liability of a corporation
c. is taxed like a corporation
d. is chartered by the Securities and Exchange Commission and has the liability of a corporation
e. is taxed like and has the liability of a corporation
199. A is a business organization that is treated like a corporation for liability purposes but like a partnership for
federal tax purposes.
a. limited liability company
b. limited liability corporation
c. restricted liability company
d. no liability company
e. nonprofit company
200. A is a business organization that is treated like a corporation for liability purposes but like a partnership for
federal tax purposes.
a. nonprofit company
b. limited liability corporation
c. restricted liability company
d. no liability company
e. none of the other choices are correct
201. The articles of organization filed for a LLC must include:
a. whether it will be managed by its members or by a manager
b. the address of the company or its registered agent
c. whether any members are to be liable for company debts
d. whether it will be managed by its members or by a manager and the address of the company or its registered
agent
e. whether it will be managed by its members or by a manager and the address of the company or its registered
agent and whether any members are to be liable for company debts
202. The articles of organization filed for a LLC must include:
a. whether it will be managed by its members or by a manager
b. the classes of stock to be issued
c. the names and addresses of members
d. whether it will be managed by its members or by a manager and the names and addresses of members
e. whether it will be managed by its members or by a manager, the classes of stock to be issued, and the names
and addresses of members
203. The company name, the address of the company or its registered agent, the names and addresses of company
members and whether any members are to be liable for company debts are all included in a limited liability
company’s:
a. articles of institution
b. articles of organization
c. articles of incorporation
d. articles of sale
e. articles of administration
204. The company name, the address of the company or its registered agent, the names and addresses of company
members and whether any members are to be liable for company debts are all included in a limited liability
company’s:
a. articles of institution
b. articles of administration
c. articles of incorporation
d. articles of sale
e. none of the other choices are correct
205. To create a limited liability company, creators must produce:
a. a corporate charter
b. a partnership agreement
c. nothing; they are like sole proprietorships
d. shares of stock
e. articles of organization
206. To create a limited liability company, creators must produce:
a. a corporate charter
b. a partnership agreement
c. nothing; they are like sole proprietorships
d. shares of stock
e. none of the other choices
207. The relation of the parties taking part in a limited liability company are:
a. there are two or more members
b. members have unlimited liability for business debts
c. the parties have a membership interest in the business
d. there are two or more members and the parties have a membership interest in the business
e. there are two or more members, members have unlimited liability for business debts, and the parties have a
membership interest in the business
208. Most limited liability companies have statues that state that:
a. only one member will be personally liable for the debts of the company
b. no member or manager will be personally liable for the debts of the company
c. no more than two members or managers will be personally liable for the debts of the company
d. all members and managers will be personally liable for the debts of the company
e. none of the other choices are correct
209. Usually the members of a limited liability company:
a. may transfer membership interests without the consent of the other members
b. may not transfer membership interests without the consent of the other members
c. may not know each other
d. must know each other for at least a year before the formation of the company
e. none of the other choices are correct
210. The of a limited liability company establishes the company’s method of management, allocation of profits and
losses among members, restrictions on the transfer of membership interests, and the process to be followed in
dissolving the company.
a. operating agreement
b. licensing agreement
c. management agreement
d. articles of operation
e. charter
211. The of a limited liability company establishes the company’s method of management, allocation of profits and
losses among members, restrictions on the transfer of membership interests, and the process to be followed in
dissolving the company.
a. charter
b. licensing agreement
c. management agreement
d. articles of operation
e. none of the other choices are correct
212. The manager of a limited liability company:
a. must be related to the members
b. must have worked for the company for at least five years
c. need not be a member of the company
d. must be an American citizen
e. must hold a law degree
213. The manager of a limited liability company:
a. must be related to the members
b. must have worked for the company for at least five years
c. must hold a law degree
d. must be an American citizen
e. none of the other choices are correct
214. According to the IRS, a limited liability company must exist:
a. in perpetuity
b. only for ten years
c. only for twenty years
d. for no longer than fifty years
e. none of these
215. Unlike a corporation, a limited liability company is:
a. allowed perpetual life
b. not allowed perpetual life
c. allowed to exist for more than five years
d. not allowed to exist for more than five years
e. none of the other choices are correct
216. In In re 1545 Ocean Avenue, LCC, where the two managers of a real estate development limited liability
company disagreed about the project and one of the managers, King, sued for work to stop and the company to be
dissolved, the appeals court held that:
a. there was sufficient evidence that the LLC could not effectively operate under the operating agreement so
the trial court’s decision to grant King’s requests was correct
b. there was sufficient evidence that the LLC could not effectively operate under the operating agreement so
the trial court’s decision to grant King‘s requests was not correct
c. there was not sufficient evidence that the LLC could not effectively operate under the operating agreement
so the trial court’s decision to grant King’s requests was correct
d. there was not sufficient evidence that the LLC could not effectively operate under the operating agreement
so the trial court’s decision to grant King’s requests was not correct
e. none of the other choices are correct
217. In In re 1545 Ocean Avenue, LCC, where the two managers of a real estate development limited liability
company disagreed about the project and one of the managers, King, sued for work to stop and the company to be
dissolved, the appeals court reversed the trial court’s decision to grant King’s requests because:
a. there was not sufficient evidence that the LLC could not effectively operate under the operating agreement
b. there was sufficient evidence that the LLC could not effectively operate under the operating agreement
c. there was not sufficient evidence that the LLC could effectively operate under the operating agreement
d. the operating agreement specified that one manager could not dissolve the LCC
e. the operating agreement gave King only a 49% share of power, so he could not dissolve the company
218. In In re 1545 Ocean Avenue, LCC, where the two managers of a real estate development limited liability
company disagreed about the project and one of the managers, King, sued for work to stop and the company to be
dissolved, the appeals court reversed the trial court’s decision to grant King’s requests because:
a. the operating agreement gave King only a 49% share of power, so he could not dissolve the company
b. there was sufficient evidence that the LLC could not effectively operate under the operating agreement
c. there was not sufficient evidence that the LLC could effectively operate under the operating agreement
d. the operating agreement specified that one manager could not dissolve the LCC
e. none of the other choices are correct
219. A limited liability company may be terminated:
a. by the retirement of a member
b. by the death of a member
c. by the consent of all members
d. by the expulsion of a member
e. by any of the other choices
220. A potential drawback of sole proprietorships and partnerships is that the parties involved have:
a. limited financial liability
b. only corporate liability
c. unlimited liability
d. partial protection from creditors for business debts
e. only corporate liability and partial protection from creditors for business debts
221. Unlike a corporation:
a. a partnership pays high income taxes on its income
b. a partnership pays no income taxes on its income
c. a partnership cannot lose money in a bankruptcy suit
d. a partnership cannot have more than two partners
e. a partnership has no duty to creditors before investors
222. Double taxation on profits is:
a. a disadvantage to the corporate form of organization
b. an advantage to the corporate form of organization
c. an incentive for governments to lower sales taxes for corporations
d. a driving force behind the trend of businesses moving overseas
e. a clever economic strategy
223. Double taxation on profits is:
a. a clever economic strategy
b. an advantage to the corporate form of organization
c. an incentive for governments to lower sales taxes for corporations
d. a driving force behind the trend of businesses moving overseas
e. none of the other choices are correct
224. Limited liability is:
a. a disadvantage to the corporate form of organization
b. an advantage to the corporate form of organization
c. an incentive for governments to lower sales taxes for corporations
d. a driving force behind the trend of businesses moving overseas
e. a clever economic strategy
225. Limited liability is:
a. a disadvantage to the corporate form of organization
b. a clever economic strategy
c. an incentive for governments to lower sales taxes for corporations
d. a driving force behind the trend of businesses moving overseas
e. none of the other choices are correct
226. Factors that influence the choice of a particular form of business organization may include:
a. capital requirements
b. duration
c. tax rates
d. transferability of interests
e. all of the other choices