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115. When shareholders get to vote on executive compensation it is referred to as what?
a. Pay-to-play
b. Say-on-pay
c. Day-of-pay
d. Play-on-payday
116. Pooling agreements are:
a. illegal as against public policy.
b. the same as voting trusts.
c. valid if filed with the corporation's secretary.
d. none of the above
117. A limited liability company:
a. can be created informally.
b. does not have the pass-through feature of income and losses.
c. is exclusive to the United States.
d. none of the above
118. Owners of a limited liability company:
a. have unlimited liability for contracts entered into by the LLC.
b. can transfer their membership as a personal property interest.
c. cannot assume any management responsibilities.
d. all of the above
119. Which of the following forms of business organizations does not have the pass-through feature of income and
losses?
a. partnership
b. limited partnership
c. S corporation
d. corporation
120. A joint venture:
a. is a partnership limited in scope.
b. is a limited liability company.
c. must be incorporated to be recognized.
d. none of the above
121. What conduct will cost a limited partner his/her limited liability status?
a. engaging in the management of the business
b. allowing his/her name to be used in the business name
c. failure to file the limited partnership agreement
d. All of the above will result in a loss of limited liability status.
122. A limited liability partnership (LLP):
a. is a statutory creature.
b. is the same as a limited partnership.
c. is the same as a LLC.
d. all of the above
123. Which of the following forms of business structure provides limited liability for the personal assets of the owners?
a. sole proprietorship
b. general partnership
c. LLC
d. partnership by implication
e. All of the above provide limited liability.
124. The directors of Kmart, Inc. voted several years ago to approve a new marketing plan that involved endorsements
by Martha Stewart of Kmart home products such as linens, paint and decorations. Marketing studies have shown
that Martha Stewart was not the right match for endorsements for Kmart's customer base. Kmart is now in
Chapter 11 bankruptcy. Its shareholders believe the Martha Stewart decision was the cause of the company's
demise.
a. The shareholders have a cause of action against the directors for violation of the business judgment rule.
b. The shareholders have a cause of action against the directors for violation of the corporate opportunity
doctrine.
c. The shareholders can have the court order the directors removed for cause.
d. The directors of Kmart are protected under the business judgment rule.
e. none of the above
125. In which of the following forms of doing business does the death of one of the owners cause dissolution?
a. partnership
b. S Corporation
c. C Corporation
d. closely-held corporation
e. nonprofit corporation
126. Which of the following is a requirement under Sarbanes-Oxley?
a. The majority of the board of directors must be independent.
b. No inside officers can serve on the board of directors.
c. Lawyers must blow the whistle on their corporate clients engaged in fraud.
d. all of the above
127. A corporation is said to have double taxation. What is meant by this statement?
a. The corporation pays double the tax rate of individuals.
b. The corporation pays taxes on its income and its shareholders pay taxes on their dividends from the
corporation.
c. both a and b
d. none of the above
128. Which of the following forms of business structure has the easiest means of transfer of ownership interests?
a. LLCs
b. LLPs
c. Subchapter S corporations
d. C corporations
129. Jim Braun has been a partner in a real estate investment partnership with Alicia Kaynes for 10 years. When the
real estate market took a downward turn, one of their investments in a strip mall became a cash drain. Jim refused
to contribute any more cash and withdrew from the partnership. Alicia was left to manage the property. Before she
could sell it, Alicia had put in $125,000 into the strip mall property. Following the sale, Alicia demanded one-half of
the $125,000 from Jim. Jim said he is not liable because he left the partnership.
a. Jim is correct; he withdrew and his liability ended.
b. Alicia is correct; Jim owes her his share of what she paid.
c. Neither is correct; how much Jim owes depends on when he withdrew.
d. none of the above
130. Grace Owen formed a corporation with three of her friends for purposes of operating a catering company. Grace
used her own checking account to deposit the client payments and to make distributions of the corporation’s profits
to her three friends, who together owned 50% of the shares, with Grace owning the remainder of the shares. Grace
promised her friends “no meetings, no formalities, we’ll just run the catering business.” Several wedding guests at a
reception Grace’s company catered became ill. Grace had not purchased insurance. The guests brought suit to
recover their medical bills and other damages from Grace and her three friends. Grace says she has no personal
liability for the bad food that resulted in their illness.
a. Grace is correct; their suit should be against the corporation.
b. Grace is incorrect because of the veil and alter ego theory.
c. Grace is liable, but her friends are not.
d. none of the above
131. Under Sarbanes-Oxley, which of the following is true?
a. Companies must have a separate code of ethics for financial reporting.
b. Boards of directors are not subject to the act’s provisions.
c. The act does not cover publicly traded companies.
d. both b and c
132. The CEO of Citigroup announced a $8 billion write-down for the company because of bad loans. This
announcement followed a previous announcement of a $5 billion write-down three quarters earlier. The board
asked him to step down.
a. The board does not have the authority to remove a CEO.
b. The shareholders must approve the removal of a CEO.
c. The CEO is elected by the shareholders.
d. none of the above
133. Allied Van Lines has structured its company by giving its franchisees stock ownership in the company. On the
stock is the following language:
NOTE: Restrictions apply to ownership of this stock. Only franchisees and employees of Allied Van Lines can own
this stock. In the event of a franchise or employment termination, the stock must first be offered to the Allied Board
for purchase. Is the restriction valid?
134. ABC partnership owns and operates a potato farm in Idaho. A, B, and C are the partners/owners. C is having
significant personal financial problems. Savoy Stores has obtained a judgment against C in the amount of $l2,341.
Savoy knows that ABC is about to harvest its potatoes. When the ABC potatoes are being transported for
processing, Savoy takes one-third of the potatoes to satisfy the debt. A and B object. C claims he is using the
partnership property to satisfy a debt. Can C do this?
135. Alan Freeman is in the process of forming a corporation in order to protect himself from liability in the operation of
his construction/development business. The business is incorporated on November 1, 1986. However, Alan was
anxious to get started on a townhouse development. He signed contracts with subcontractors for the project during
September and October. Discuss Alan's liability before and after incorporation.
136. Utah Light, Inc. has a takeover offer from Cal Corp. Utah Light is experiencing difficulty with earnings and its
share price has dropped from $32 to $19. Cal Corp's offer is for $23 per share. Utah Light's board feels that
because of pending plans and developing assets, it should not accept the offer. Must the board accept the offer?
137. Discuss investors’ concerns regarding CEO compensation.
138. Discuss CEO concerns regarding CEO compensation.
139. Draw a chart comparing the formation, liability, taxation, and management of partnerships, limited partnerships,
corporations, and limited liability companies.
140. American Homes has just waged a successful takeover of Pioneer Homes. There are several minority
shareholders of Pioneer who strongly objected to the merger due to the potential of Pioneer and that their earnings
would be far greater once Pioneer was out of its cash crunch. What rights do these minority shareholders have?
141. Explain when a shareholder has a right to see the books and records of a corporation.
142. List the provisions of Sarbanes-Oxley that affect corporation governance.
143. Roche Holding and AstraZeneca have agreed to work together to share research data and fund joint research
projects so that they can speed up the process for getting approved drugs to the market. Which of the following
best describes the relationship between these two corporations?
a. They are a partnership with full liability for the work that they do.
b. They have merged.
c. They have created a joint venture.
d. There is no legal business structure here.
144. American Greetings, a family-owned corporation, wished to take the company private, and the family shareholders
made an offer to purchase the shares of all non-family members. The family owns 10% of the company’s shares,
but has 50% of the voting power. The board refused to approve the offer for the shares because the price was too
low. Which of the following is correct?
a. The approval of the board is not required for the family purchase of shares.
b. The board’s failure to approve the transaction means that the acquisition cannot be done without dissenting
shareholders.
c. The approval of the board cannot be obtained until the family uses its votes to restructure the board with
directors friendly to its proposal.
d. Those with a minority interest cannot acquire other shares.
145. The shareholders of Beazer Homes USA filed suit against the directors for the compensation plan that the Board
approved for officers that provided the officers with bonuses despite the losses the company experienced and the
continuing declines in sales of homes. Which of the following is correct about the suit?
a. Shareholders are not permitted to sue their own directors.
b. Absent fraud or illegality, the shareholders have no rights against the directors.
c. The shareholders will need to establish a violation of the business judgment rule.
d. Unless the shareholders were harmed directly, they have no right to bring suit or recover.
146. Several retirement funds that own shares in News Corp., Inc., have filed suit against Rupert Murdoch, the
chairman of the board and CEO of News Corp., alleging that Mr. Murdoch had the board approve the purchase of
his daughter’s company for $675 million. Part of the purchase deal included putting Murdoch’s daughter on the
News Corp. board. Which would be the best theory for recovery by the retirement funds?
a. Insider trading
b. Violation of the corporate opportunity doctrine
c. Violation of the business judgment rule
d. Breach of fiduciary duty
147. Ann Archer purchased shares from XYZ Corp. for $10. The par value of the shares is $5. What is the amount of
water per share in the shares?
a. $0
b. $5
c. $10
d. $1
148. John Bloomberg and Erick Ashman have been working together to earn money by doing yard work in residential
areas. John collects the payments and has purchased the equipment the two use, including a lawn mower, edger,
and trimmers. After deducting expenses for gasoline, repairs, and insurance, John gives one-half of the net to
Erick. The two have no agreement about their relationship. Which of the following is correct?
a. John and Erick have a general partnership.
b. John and Erick have a limited partnership.
c. John and Erick have a joint venture.
d. John and Erick have no business structure because they have no agreement.
