42. In __________ voting, a shareholder can cast one vote for each share the shareholder owns for each nominee whereas
in __________ voting, a shareholder may cast all of his or her votes for one nominee or allocate them among the
nominees as the shareholder sees fit.
a.
cumulative; straight
b.
absolute; cumulative
c.
straight; cumulative
d.
straight; absolute
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–17c Shareholders
Blooms: Comprehension
43. A shareholder who cannot be present at a meeting can vote by __________, that is, by a written authorization for
another person to vote on his or her behalf.
a.
proxy
b.
allowance
c.
record
d.
nomination
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–17c Shareholders
Blooms: Comprehension
44. A(n) __________ is a public offer to all the __________ of a(n) __________ corporation to buy their shares at a
stated price, usally __________ than the market price.
a.
tender offer, shareholders, target, higher
b.
leveraged buyout, shareholders, target, higher
c.
tender offer, directors, acquiring, below
d.
tender offer, shareholders, target, below
a
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–7b S Corporations
Blooms: Comprehension
45. Which of the following is generally true regarding the liability of members of a limited liability partnership for
malpractice?
a.
Members split evenly among themselves 50% of any assessed liability for malpractice against any member
with the limited liability company retaining liability for the remaining 50%.
b.
Members are not liable for their own malpractice or for the malpractice of other members because recovery for
malpractice may only be obtained from assets of the limited liability partnership itself.
c.
Members are liable for their own malpractice but not for the malpractice of other members.
d.
Members are liable for their own malpractice and also for the malpractice of other members.
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-4 Limited Liability Partnerships
Blooms: Comprehension
46. Which of the following involves settling accounts and liquidating assets of a partnership for the purpose of making
distributions and ending the partnership?
a.
Debt resolution
b.
Bypassing formalities
c.
Termination
d.
Winding-up
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-13d Dissolution, Winding Up, and Termination of a General Partnership
Blooms: Comprehension
47. Which of the following refers to a merger in which some shareholders are required to surrender their shares in the
disappearing corporation for cash?
a.
Illegal merger
b.
Termination merger
c.
Surrender consolidation
d.
Freeze-out merger
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–18a Merger
Blooms: Comprehension
19–19a Tender Offers
Blooms: Application
48. Which of the following is false regarding decision making in a partnership?
a.
Each partner’s assets are vulnerable to the poor business decisions of the fellow partners.
b.
A partnership is prohibited from placing managerial control of the business in one partner.
c.
Unless the partners expressly agree otherwise, partnership law requires unanimous agreement of all partners
on all but the most ordinary matters.
d.
If the partners in an informal partnership cannot agree on a decision, they may disband the partnership,
distribute its assets, and terminate it.
49. Which of the following is true regarding incorporation?
a.
A corporation must be incorporated in the state in which it has its principal place of business.
b.
Laws regarding incorporation and the rights and duties of corporations are uniform from state to state.
c.
Since the mid-1930’s, Delaware has been considered the preeminent state for incorporation.
d.
Incorporation may be done pursuant to common law as well as statute.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–15a Where to Incorporate
Blooms: Knowledge
50. When a third party, based on all of its transactions with the enterprise, acts as if it were doing business with
a corporation, the third party is prevented from claiming that the enterprise is not a corporation because a(n)
__________ has been formed.
a.
partnership by estoppel
b.
corporation de facto
c.
corporation de jure
d.
corporation by estoppel
United States – BURPROG: – Analytic
DISC: – AICPA: BB-Legal
19-15d Defective Incorporation
Blooms: Application
51. Which of the following statements is not true regarding the characteristics of a corporation?
a.
A corporation is a legal entity distinct from its owners.
b.
A corporation is owned by shareholders.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–13 Partnership Mechanics
Blooms: Comprehension
c.
The corporation itself is responsible for its liabilities.
d.
The board of directors implements the decisions of the officers.
52. __________ of a general partnership occurs when all the affairs are wound up and the partners’ authority to act for the
partnership is completely extinguished.
a.
Dissolution
b.
Termination
c.
Winding up
d.
Staged end
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-13d Dissolution, Winding Up, and Termination of a General Partnership
Blooms: Application
53. A(n) __________ is a for-profit corporation that uses the power of business to solve social and environmental
problems.
a.
C corporation
b.
S corporation
c.
B corporation
d.
Benevolent Recognized Group
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-9 Benefit Corporation
Blooms: Knowledge
54. The __________ set forth the steps that must be taken to establish a corporation in a state.
a.
Uniform Federal Rules
b.
corporate statutes of each state
c.
corporate bylaws
d.
corporate charter requirements
Easy
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–17 Management of the Corporation
Blooms: Comprehension
55. In CASE 19.2 Holmes v. Lerner (1999), Lerner (a wealthy entrepreneur) talked to Holmes about setting up a
cosmetics business called Urban Decay. Holmes received assurances from Lerner about finances and setting up the
business. Later Lerner negotiated a separate deal for Urban Decay without including Holmes, and drafted articles of
incorporation which gave Holmes only a one percent interest in Urban Decay. Holmes sued, insisting that even though
they had no written agreement, she should have been a full and equal partner. How did the court rule and why??
a.
The court held for Lerner as a full and equal partner, because the oral and written expressions and discussion
of profits was a prerequisite to form a partnership.
b.
The court held for Lerner, there was insufficient evidence of intentions to form a partnership.
c.
The court held for Holmes as a full and equal partner, because the oral and written expressions and discussion
of profits was a prerequisite to form a partnership.
d.
The court held for Holmes, because under state law, she automatically became a limited partner.
c
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19–13a Formation of a General Partnership
Blooms: Analysis
56. If incorporators cannot show substantial compliance with statutes regarding incorporation but can show that they were
unaware of any defect and acted in good faith, a court may treat the entity as a(n):
a.
de jure corporation.
b.
real corporation.
c.
de facto corporation.
d.
equitable corporation.
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-15d Defective Incorporation
Blooms: Comprehension
57. A corporation can conduct business as a(n) __________ in states other than its state of incorporation.
a.
domestic corporation
b.
foreign corporation
c.
pass through entity
d.
alien
Moderate
United States – BUSBROG: – Analytic
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19–15 Incorporation
Blooms: Knowledge
58. Sarah Smith works as a laser technician for a local dermatology center consisting of physicians operating under a
partnership agreement. Sarah purchased supplies through the mail from a medical supply facility totaling $5,000. She
signed the contract agreeing to pay for the supplies in her name, Sarah Smith. A few weeks later the dermatologists
became embroiled in a bitter dispute regarding profits and terminated the partnership. Unfortunately, the partners were not
aware of the debt owed to the medical supply facility; and the bill remained unpaid. Sarah received a bill from the supply
company for $5,000. Is she liable to the medical supply company, and why or why not?
a.
No, because she was only employed as a technician.
b.
No, because the medical supply facility should have asked for proper identification.
c.
Yes, because she signed in her own name.
d.
Yes, but only because the partnership terminated.
c
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19–13 Partnership Mechanics
Blooms: Comprehension
Fact Pattern 19-1
Joan decides to enter into a franchise agreement with XYZ Burgers to sell their burgers in her town. The franchise
agreement did not prohibit XYZ Burgers from granting other franchises in the area, but that did not concern Joan because
she thought XYZ Burgers would treat her fairly. She did not bother to read the franchise papers, contracts, and disclosures
she was provided. Joan’s business went very well for the six months. Then, however, another XYZ Burgers franchise
opened just down the street from Joan’s restaurant. She was very upset and called XYZ Burgers to complain. The CEO
brushed off her concerns and told her that there was enough business for everyone. Joan, however, is interested in suing
XYZ Burgers.
59. Refer to Fact Pattern 19–1. Which of the following is the term used when a franchisor sells a franchisee an outlet in a
certain location, and then a few months later, sells another outlet a few blocks away to someone else?
a.
Encroachment
b.
Fair trace
c.
False competition
d.
Crowding
a
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
Inside Story: Focus on Franchises
Blooms: Analysis
60. Refer to Fact Pattern 19–1. What is the position of the Federal Trade Commission regarding a franchisor selling a
DISC: – AICPA: BB-Legal
19–15 Incorporation
Blooms: Comprehension
franchise very near to an existing franchise?
a.
That the practice is illegal.
b.
That the practice is illegal unless the first franchisee provides specific permission for the sale to the second
franchisee.
c.
That the practice is legal and that no disclosures are required.
d.
That the practice is legal but that certain disclosures must be made to the first franchisee when that agreement
is made.
Fact Pattern 19-2
Maxine and Vince verbally agree to form a dog grooming partnership called “XYZ Grooming.” They file nothing with the
state. Maxine puts up 80% of the capital needed for the partnership, and Vince supplies 20%. Maxine assumed that Vince
would do extra work to account for the small amount of capital contributed by him, but that did not occur. Maxine found
herself grooming more than 90% of the animals on her own. Maxine told Vince that he was only entitled to 10% of the
profits because he was only doing 10% of the work. Vince disagreed, and a heated argument occurred. Not surprisingly,
Maxine and Vince decided to end the partnership. While winding up affairs, Maxine discovered that Vince paid an
excessive amount for some dog shampoo. She thought he bought it from a certain supplier just so he could flirt with the
receptionist there. She told him that paying for the shampoo was entirely his responsibility because she had not agreed to
the purchase. Maxine and Vince also became aware of a lawsuit filed by the owner of a Welsh Pembroke Corgi
complaining that the dog developed a skin rash following bathing by Vince in the expensive shampoo he had purchased,
and that the owner lost money because the dog could not be entered into shows. Maxine told Vince that the litigation was
entirely his responsibility and that she disavowed any liability to the plaintiff.
61. Refer to Fact Pattern 19–2. Which of the following is true regarding Vince’s entitlement, if any, to share in profits of
the business?
a.
Because he was not doing his share of the work, he was not entitled to any profits.
b.
He was entitled to 10% of the profits.
c.
He was entitled to 20% of the profits.
d.
He was entitled to 50% of the profits.
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19-2 General Partnerships
Blooms: Analysis
62. Refer to Fact Pattern 19–2. Is Maxine, XYZ Grooming, or Vince responsible for payment of the shampoo purchased
by Vince?
a.
The partnership is liable and Vince is liable in the event there are insufficient partnership assets, but Maxine is
not liable on the debt.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
Inside Story: Focus on Franchises
Blooms: Comprehension
b.
The partnership is liable, and so are both Vince and Maxine if insufficient partnership funds exist to pay the
debt.
c.
Vince is liable on the debt, but neither Maxine nor XYZ Grooming is liable.
d.
Since the winding-up process has begun, neither Maxine, Vince, nor XYZ Grooming is liable.
63. Refer to Fact Pattern 19–2. Which of the following is true regarding liability on the lawsuit brought by the Corgi
owner?
a.
The partnership is liable and Vince is liable in the event there are insufficient partnership assets to pay any
judgment, but Maxine would not be liable on any judgment.
b.
The partnership is liable, and so are both Vince and Maxine if insufficient partnership funds exist to pay any
judgment.
c.
Vince is liable on any judgment, but neither Maxine nor XYZ Grooming would be liable.
d.
Since the winding-up process has begun, neither Maxine, Vince, nor XYZ Grooming would be liable on any
judgment obtained.
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19-2 General Partnerships
Blooms: Analysis
64. Define a joint venture and list the elements necessary for a finding of a joint venture.
share the partnership’s profits and losses; and (4) combine their property, money, effort,
skill, or knowledge in the undertaking.
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
19-3 Joint Ventures
Blooms: Comprehension
65. Explain requirements for formation of an S corporation.
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
19-13b Operation of a General Partnership
Blooms: Application
66. Mike owns a small but successful coffee house. He decides to incorporate. Considering only tax benefits, should Mike
form a C corporation or a subchapter S corporation and why? Discuss taxation under both forms.
67. Define class voting. Why would a group of investors be interested in a guarantee of class voting?
68. Set forth four of the shareholder proposals that must be included in proxy materials according to the Securities and
Exchange Commission.
69. In what five categories does the Franchise Rule require a franchisor to make material disclosures to prospective
franchisees?