1. Corporations must incorporate in the state where their headquarters are located.
a.
True
b.
False
2. A creditor of a sole proprietorship may seek recovery only from business assets of the sole proprietorship, not from
personal assets of the sole proprietor.
a.
True
b.
False
False
Moderate
19-1 Sole Proprietorships
3. A partnership may acquire property in its own name.
a.
True
b.
False
True
Easy
19-2 General Partnerships
4. An S corporation cannot have more than one class of stock.
a.
True
b.
False
True
Moderate
5. If a sole proprietorship operates under a fictitious business name, then that name must be registered with the state.
False
Easy
19–15a Where to Incorporate
a.
True
b.
False
6. In a joint venture, the authority of one member to bind the partnership is more limited than in a general partnership.
a.
True
b.
False
True
Moderate
19-3 Joint Ventures
7. A partnership requires a minimum amount of capital in order to be formed.
a.
True
b.
False
False
Moderate
19-2 General Partnerships
8. Federal law governs the obligations, if any, that members of a limited liability partnership owe to creditors.
a.
True
b.
False
False
Moderate
19-4 Limited Liability Partnerships
9. A corporation that is technically defective but that is formed in good faith and exercises corporate power is known as a
de jure corporation.
a.
True
True
Easy
19-1 Sole Proprietorships
b.
False
10. C corporations are taxed as a pass-through entity.
a.
True
b.
False
False
Moderate
19–11 Income Tax Considerations
11. A shareholder’s right of appraisal only applies to transactions that were initially subject to shareholder approval.
a.
True
b.
False
True
Moderate
19–18c Appraisal Rights
12. Partners owe each other a duty of care but not a duty of loyalty.
a.
True
b.
False
False
Moderate
19–13c Fiduciary Duty
13. States may not impose a higher fiduciary duty upon partners than that set forth in the Revised Uniform Partnership
Act.
a.
True
b.
False
False
Challenging
19-15d Defective Incorporation
14. B corporations have no duty to maximize shareholder value even when there is a change of control.
a.
True
b.
False
True
Challenging
19-9 Benefit Corporations
15. An outside director is a director who lives outside the state of incorporation.
a.
True
b.
False
False
Moderate
19–17a Directors
16. The main issue in CASE 19.3 Burwell v. Hobby Lobby Stores, Inc. (2014) involved a question of whether the
requirements for contraception under the Affordable Care Act (Obamacare) violated the due process rights of Hobby
Lobby Stores.
a.
True
b.
False
False
Challenging
19–17c Shareholders
17. Cumulative voting allows a greater control by the management interests of a corporation.
a.
True
b.
False
False
Moderate
19–13c Fiduciary Duty
18. Any corporation not meeting the requirements for an S corporation is automatically a C corporation.
a.
True
b.
False
True
Challenging
19-7 Corporations
19. The term “appraisal rights” when used in regard to a corporate merger refers to the right of dissenting shareholders to
have corporate property independently appraised.
a.
True
b.
False
False
Moderate
19–18c Appraisal Rights
20. A corporation is a private entity that can be created by a mere handshake, as long as the shareholders have completed
a certificate of incorporation.
a.
True
b.
False
False
Easy
19-7 Corporations
21. An S corporation would likely be used as the corporate form for a business intending to raise money from venture
capitalists.
a.
True
False
Challenging
19–17c Shareholders
b.
False
22. The S-Corporation is the entity of choice that helps venture capitalists raise investment capital.
a.
True
b.
False
False
Moderate
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19–11a Comparing Taxable Entities with Pass-Through Entities
Blooms: Comprehension
23. If a business is operated by a partnership, LLC, or S corporation, then operating losses will be passed through to the
individual partners or shareholders.
a.
True
b.
False
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–11a Comparing Taxable Entities with Pass-Through Entities
Blooms: Comprehension
24. A(n) __________ is created when two or more persons agree to place their money, labor, or skills in a business and to
share the profits and losses.
a.
sole proprietorship
b.
general partnership
c.
S partnership
d.
C corporation
Easy
United States – BUSBROG: – Analytic
19-2 General Partnerships
Blooms: Comprehension
False
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–11a Comparing Taxable Entities with Pass-Through Entities
Blooms: Comprehension
25. In CASE 19.1 Gatz Properties, LLC v. Auriga Capital Corporation (2012), Gatz Properties was the managing
member of Peconic Bay, LLC, controlled by the Gatz family. After failing to dislose material offers for assets
of the LLC, Gatz bought out the minority members’ interests in Gatz Properties LLC for $20,89. The minority
members sued, winning over $800,000 based on Gatz’s breach of fiduciary duties. Gatz appealed. How did the
court rule on appeal on why?
a.
b.
c.
d.
26. __________ is the simplest and most prevalent form of business enterprise in the U.S.
a.
S corporation
b.
Partnership
c.
Sole proprietorship
d.
Joint venture
c
Easy
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-1 Sole Proprietorships
Blooms:Knowledge
27. When directors on a board serve for a fixed term but are not elected all at once it is known as a(n) __________ board.
a.
cumulative
b.
staggered
c.
proxy
d.
inside
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–15 Incorporation
Blooms: Knowledge
28. A member of the board who also serves as an officer is a(n) __________ director.
a.
inside
b.
interested
a
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19–8a Fiduciary Duties
Blooms: Analysis
c.
outside
d.
employed
29. __________ refers to a method by which courts hold shareholders individually liable for claims against a corporation.
a.
Reverse liability
b.
Piercing the corporate veil
c.
Upholding the ethical theory
d.
Unveiling
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–16 Piercing the Corporate Veil of a Corporation or LLC
Blooms: Comprehension
30. Which of the following is true regarding the effect of the death of a partner on a general partnership?
a.
Unless there is an agreement to the contrary, the partnership dissolves upon the death of a partner.
b.
Unless there is an agreement to the contrary, the partnership ceases to exist 10 days after the death of any
partner.
c.
The remaining partners must by operation of law continue the partnership for at least one year.
d.
Within 90 days the remaining partners may elect to continue the partnership.
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-13d Dissolution, Winding Up, and Termination of a General Partnership
Blooms: Comprehension
31. A __________ is a public offer to all the shareholders of a corporation to buy their shares at a stated price.
a.
leveraged buy out
b.
tender offer
c.
target bid
d.
merger
Moderate
United States – BUSBROG: – Analytic
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–17a Directors
Blooms: Comprehension
32. In a __________ merger, the shares in the disappearing corporation are automatically converted into shares in the
surviving corporation.
a.
cash out
b.
noncash
c.
freeze out
d.
liquidation
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–18a Merger
Blooms: Comprehension
33. In a(n) __________ a stock purchase is financed by debt.
a.
cash out merger
b.
freeze out acquisition
c.
leveraged buyout
d.
illegal purchase
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-19b Leveraged Buyouts
Blooms: Comprehension
34. In the case of Estate of Countryman v. Farmers Cooperative Association discussed in the text, the plaintiffs attempted
to hold a member who owned 95% of an LLC personally liable as the LLC’s manager, after propane gas delivered by the
LLC exploded. How did the court rule?
a.
That only the LLC could be held liable.
b.
That the manager was subject to personal liability along with the LLC regardless of whether it could be
established that the manager participated in tortious conduct in performing his duties.
c.
That only the manager, not the LLC, could be held liable.
d.
The manager was not shielded from personal liability if he participated in tortious conduct while performing
his duties.
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–12 Agency Law and Limited Liability
Blooms: Analysis
DISC: – AICPA: BB-Legal
19–19 Tender Offers and Stock Repurchases
Blooms: Comprehension
35. The __________ theory applies to the situation in which owners of a corporation have so mingled their own affairs
with those of the corporation that the corporation does not exist as a distinct entity.
a.
undercapitalization
b.
alter ego
c.
per se
d.
absolute
36. In most jurisdictions, there is no quorum unless the holders of at least _____ of the outstanding shares are present in
person or by proxy.
a.
25%
b.
33%
c.
50%
d.
75%
c
Easy
NATIONAL STANDARDS:
United States – BUSBROG: – Analytic
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
19–17c Shareholders
Blooms: Knowledge
37. Which of the following is true regarding taxation of losses of a C corporation?
a.
The operating loss is passed on to shareholders, but the corporation itself does not realize any benefit.
b.
The operating loss is recognized at the corporate level, and shareholders also receive a tax benefit.
c.
The operating loss will be recognized at the corporate level, shareholders receive no tax benefit, and the
corporation receives no benefit until it has operating income against which its prior losses can be deducted.
d.
The operating loss is not recognized at the corporate level; and although shareholders may receive a deduction,
they must wait until they receive some amount of profit from the corporation at which point they can deduct
up to 10% of the losses per year.
c
Challenging
NATIONAL STANDARDS:
United States – BUSBROG: – Analytic
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
19–11a Comparing Taxable Entities with Pass-Through Entities
Blooms: Application
38. What does the term “reverse piercing” reference in regard to a corporation and its shareholders?
a.
Holding a corporation liable for debts of a shareholder
Moderate
NATIONAL STANDARDS:
United States – BUSBROG: – Analytic
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
19–16 Piercing the Veil of a Corporation or Limited Liability Company
Blooms: Application
b.
Holding a shareholder liable for debts of a corporation
c.
Holding a corporation liable for debts of a shareholder and holding a shareholder liable for debts of a
corporation
d.
Holding a corporation liable for debts of a shareholder, holding a shareholder liable for debts of a corporation,
and holding officers liable for debts of a corporation.
39. Which of the following statements is NOT true regarding the advantages and disadvantages of a sole proprietorship?
a.
A sole proprietorship can be created without formal agreements or state filings.
b.
The proprietor reports income from the business on a personal tax return.
c.
The proprietor alone bears liability for the losses.
d.
It is usually easy for sole proprietorships to raise capital.
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-1 Sole Proprietorships
40. Which of the following is NOT true regarding limited partnerships?
a.
General partners of a limited partnership remain jointly and severally liable for partnership obligations.
b.
Limited partners assume no liability for partnership debts beyond the amount of capital they contributed.
c.
Limited partners are responsible for the management of the partnership.
d.
Limited partnerships are often used to raise capital.
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-5 Limited Partnerships
Blooms: Comprehension
41. Which of the following requirements is not required by a corporation to qualify for S corporation status?
a.
The corporation must have only one class of stock.
b.
The corporation must file a timely election signed by all the shareholders to be treated as an S corporation.
c.
The corporation must have no more than twenty-five shareholders.
d.
The corporation must be a domestic corporation.
c
a
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–16c Reverse Piercing
Blooms: Application