56) Which of the following groups is responsible for approving changes in the fundamental
structure of the business?
A) the shareholders
B) the board of directors
C) the corporate officers
D) the financial investors
57) Which of the following is true of shareholders?
A) They can select the board of directors who will set corporate policy.
B) They have direct control over the corporation’s operation.
C) They do not have any right to vote.
D) They are not the owners of the corporation.
58) The day-to-day management of a corporation is carried out by the ________.
A) shareholders
B) board of directors
C) corporate officers
D) financial investors
59) Which of the following best defines the term “proxy”?
A) It is a document that entitles its owner to special preferences relating either to dividends or to
the distribution of assets.
B) It is a document that entitles its owner to vote for a corporation’s board of directors, receive
dividends, and participate in the net assets upon liquidation of the corporation.
C) It is a document authorizing its holder to purchase a stated number of shares of stock at a
stated price, usually for a stated period of time.
D) It is a document by which shareholders can transfer their rights to vote at a shareholders’
meeting to a second party.
60) Which of the following is true of a proxy election for the board of directors of a corporation?
A) Shareholders must vote for a candidate but do not have the option to allow the proxy
committee to vote the shares in any way it sees fit.
B) A biographical sketch of each of the candidates for the board of directors is sent to all
shareholders.
C) Under the National Stock Exchange rules, the proxy committee must use a ballot form to
solicit proxies.
D) The proxy committee sends only preferred shareholders a statement of resolutions on which
the shareholders are to vote.
61) The management of a publicly held corporation effectively controls the election process of
the board of directors because ________.
A) the management typically owns almost all the shares
B) shareholders are scattered across the country and vote by proxy, thus allowing the proxy
committee to vote the shares in any way it sees fit
C) the management rigs the election through the use of fraudulent and nonexistent proxies, thus
increasing the votes for the candidate it has backed to win
D) proxies are typically ignored at the shareholders’ meeting
62) Responsibilities of a corporation’s boards of directors include all but which of the following?
A) authorize or approve the payment of dividends
B) authorize or approve the selection, supervision, and removal of officers
C) authorize or approve the adoption, appeal, or amendment of the corporate bylaws
D) authorize or approve day-to-day corporate management decisions
63) Which of the following is true of officers of a corporation?
A) They are not agents of the corporation.
B) They are appointed and supervised by the shareholders.
C) They are responsible for the actual management of corporate affairs.
D) They do not control the proxy election of the board of directors of the corporation.
64) Whenever the property of one party is placed in the control of another, a(n) ________
relationship exists between the two.
A) intermediary
B) beneficiary
C) judiciary
D) fiduciary
65) The corporate opportunity doctrine ________.
A) prohibits corporate officers and directors from taking personal advantage of opportunities
that, in all fairness, should be given to the corporation
B) requires corporate officers to allow other firms the opportunity to compete in the same market
C) prohibits corporate shareholders from taking personal advantage of opportunities that, in all
fairness, should be given to the corporation
D) requires corporate officers to continually look for opportunities for the corporation to expand
into new markets
66) A potentially troublesome situation occurs when an officer or a director, or a corporation in
which the officer or director has an interest, enters into a transaction with the corporation. This
problem is known as a(n) ________.
A) conflict of authority
B) proxy error
C) error of judgment
D) conflict of interest
67) Under the ________, the courts generally avoid second-guessing corporate executives and let
stand any business decisions made in good faith that are uninfluenced by personal
considerations.
A) business judgment rule
B) corporate opportunity doctrine
C) conflict of interest rule
D) expense item rule
68) The Revised Model Business Corporations Act states that a director is entitled to rely on
information and reports provided or prepared by ________.
A) a committee of directors of which the director is a part, if the committee merits confidence
B) legal counsel or accountants in regard to matters that the director believes are within that
professional’s competence
C) officers of a competing corporation who, the director reasonably believes, are reliable and
competent
D) employees of the Securities and Exchange Commission who are responsible for creating the
proxy rules
69) Formal responsibility for management of a corporation is vested in its board of directors,
who are elected by the shareholders.
70) The shareholders are the owners of the corporation and have direct control over its operation.
71) The proxy process gives management effective control over the election to the board of
directors.
72) Like shareholders, directors of a corporation are allowed to vote by proxy.
73) Unlike directors and shareholders, officers are agents of a corporation.
74) A proxy is a written delegation of authority to cast one’s votes. This authority rests with the
shareholder of a corporation. Explain why the proxy process gives management, and not the
shareholder, effective control over the election of the board of directors or over policy
resolutions.
75) List the functions that the board of directors of a corporation must perform as specified by
the Revised Model Business Corporations Act (RMBCA).
76) Nicolas is the director of Bit Industries, a drill manufacturer. He is also a major shareholder
of Deep Green Corp., a leading landscaping tools manufacturer. Bit undergoes a financial crunch
and finds it difficult to raise money. Nicolas signs up Bit as a supplier of drills to Deep Green
Corp. Having obtained a new client, Bit manages to avoid financial distress. However, Nicolas
has not informed anyone of what he has done. Can this transaction be voided? If yes, on what
grounds can it be voided?
77) A hybrid corporation-partnership similar to a Subchapter S corporation but with far fewer
restrictions is called a ________.
A) transnational company
B) limited liability company
C) private corporation
D) closely held corporation
78) Which of the following is true of a limited liability company?
A) It is taxed as a corporation and not as a partnership.
B) It is taxed under state laws and not under federal laws.
C) Its members cannot exercise any control over the daily management.
D) It can have any number of members.
79) Which of the following is a characteristic of a limited liability company (LLC)?
A) It is a separate legal person (or entity) under state law.
B) It cannot be found civilly liable for violations of law.
C) Its owners are called directors.
D) Its owners are personally liable to third parties for debts of the LLC.
80) A limited liability company is federally taxed as a ________.
A) partnership
B) S corporation
C) C corporation
D) traditional corporation
81) The owners of a limited liability company are called ________.
A) members
B) shareholders
C) officers
D) directors
82) Which of the following is an incorrect statement regarding limited liability company
characteristics?
A) An LLC can sue or be sued.
B) An LLC can be found civilly and criminally liable.
C) LLC members have unlimited liability for LLC debts.
D) The LLC is a separate legal person under state law.
83) How does a limited liability company (LLC) differ from a Subchapter S corporation?
A) An LLC is taxed at a higher rate than a Subchapter S corporation.
B) There is no limit on the number of members in an LLC, whereas a Subchapter S corporation
limits the number of members.
C) An LLC is taxed as a corporation, whereas a Subchapter S corporation is taxed as a
partnership.
D) The liability limit for members of an LLC is higher than that for a Subchapter S corporation.
84) Which of the following is a correct statement regarding the Uniform Limited Liability
Company Act (ULLCA)?
A) The National Conference of Commissioners on Uniform State Law issued the ULLCA.
B) The ULLCA covers the formation, but not the operation and termination, of LLCs.
C) The ULLCA covers the operation, but not the formation and termination, of LLCs.
D) The ULLCA covers the termination, but not the formation and operation, of LLCs.
85) Steps involved in creating a limited liability company include all but which of the following?
A) Choose a state where the LLC will be doing most of its business.
B) Select a name.
C) Deliver articles of organization to the secretary of state.
D) File a partnership agreement with the secretary of state.
86) Which of the following is an incorrect statement regarding the naming of a limited liability
company (LLC)?
A) Selecting a name is an important step in creating an LLC.
B) The words “Incorporated” or “Inc.” must be used in naming an LLC.
C) An LLC name is reserved by filing an application with the secretary of state.
D) In the process of naming an LLC, it is necessary to determine whether the proposed company
name is federally trademarked by another company.
87) Unless an LLC has specified otherwise in its articles of organization, its duration is
________.
A) ten (10) years
B) twenty (20) years
C) the life of the organizer plus 70 years
D) unlimited
88) Unless an LLC has specified otherwise in its articles of ________, its duration is ________,
meaning that it has no specific term.
A) organization; limited
B) incorporation; limited
C) organization; at will
D) incorporation; at will
89) Which of the following is a correct statement regarding financing of the LLC?
A) Members’ contributions to the LLC must be in the form of money.
B) Members’ contributions to the LLC must be in the form of contracts for services.
C) Members’ contributions to the LLC cannot be in the form of intangible property.
D) Members’ contributions to the LLC can be in the form of promissory notes.
90) Members of an LLC should have ________ that outlines responsibilities, voting rights, and
the way the LLC is to be managed, at minimum.
A) an operating agreement
B) a partnership agreement
C) articles of incorporation
D) articles of partnership
91) Issues addressed in an LLC operating agreement include all but which of the following?
A) member responsibilities
B) voting rights
C) management
D) articles of incorporation
92) Which of the following is a recognized advantage of an LLC?
A) Members are not personally liable for the LLC’s debts and obligations.
B) State LLC statutes are not uniform.
C) A foreign LLC may not be treated the same as a domestic LLC.
D) In a member-managed LLC, all decisions are made by a majority, which often causes delay in
decision making.
93) Which of the following is a recognized disadvantage of an LLC?
A) State statutes are not uniform.
B) Members are not personally liable for the LLC’s debts and obligations.
C) The LLC has continuity beyond the death of a member or members.
D) The LLC can include foreign investors.
94) Which of the following is a recognized advantage of an LLC?
A) The LLC can be taxed as a partnership (two or more members) or a corporation.
B) In a member-managed LLC, all decisions are made by a majority, which often causes delay in
decision making.
C) A foreign LLC may not be treated the same as a domestic LLC.
D) Members are personally liable for the LLC’s debts and obligations.
95) The limited liability company (LLC) allows entrepreneurs and small business owners to
enjoy the same limited personal liability that shareholders in a corporation have while retaining
the status of partners in a partnership.
96) Only four states of the United States have adopted all or part of the Uniform Limited
Liability Company Act (ULLCA) as a state statute.
97) Unless a limited liability company has specified otherwise in its articles of organization, its
duration is unlimited or at will, meaning that it has no specific term.
98) Discuss the advantages and disadvantages of limited liability companies (LLCs) over other
forms of business organizations.
99) How can a limited liability company (LLC) be created in the United States?
100) Which of the following is true of the Greek bailout in 2010?
A) The exposure of foreign banks and other institutions was the smallest in France, Germany,
Britain, the Netherlands, Italy, and Belgium.
B) The European Central Bank (ECB) joined with the International Monetary Fund (IMF) to
offer $1 trillion in loan guarantees to Europe’s banks.
C) The private- and public-sector banks and other institutions of Europe and the United States
lent money only to one another.
D) The U.S. dollar fell dramatically, and the euro became a safe haven.