QUESTION 1 Which of the following is generally true about a sole proprietorship?
ID: 2719041 • Letter: Q
Question
QUESTION 1
Which of the following is generally true about a sole proprietorship?
A.
A sole proprietorship can be formed without any formalities of filing.
B.
So long as the proprietor keeps personal and business affairs properly segregated, the proprietor will not have personal liability for liabilities of the business.
C.
A sole proprietor is not liable for torts his or her employees commit in the course of employment.
D.
All sole proprietorships are required to file a fictitious business name statement.
QUESTION 2
Which of the following statements regarding a general partnership is true?
A.
A partnership is an involuntary association.
B.
To be valid, a partnership must have a written partnership agreement.
C.
Partners in a partnership have personal liability much like that of sole proprietors.
D )All of the partners in a partnership have limited liability.
3 points
QUESTION 3
Which of the following are ways that a partnership agreement can be created?
Written agreement of the parties
Oral agreement of the parties
Conduct of the parties
Both A and B.
A, B, and C.
3 points
QUESTION 4
Where there is no agreement to share profits in a partnership, but one partner invested twice as much capital in the partnership as the other over the course of the year, how are profits to be split?
A.
In the ratio of time devoted to the partnership
B.
In the ratio of capital invested
C.
The profits must remain in the partnership and not be distributed.
D.
Equally
E.
In accordance with which partner earned them
3 points
QUESTION 5
Which of the following is not a characteristic of a corporation?
A.
Limited liability of owners
B.
Free transferability of shares
C.
Limited period of existence
D.
Centralized management
E.
Both C and D.
3 points
QUESTION 6
A private corporation is one that:
A.
has a small number of owners who are often members of the same family.
B.
does not prepare financial statements.
C.
is owned by private entities.
D.
does not make public disclosure of information.
E.
has only one shareholder.
3 points
QUESTION 7
A nonprofit corporation is:
A.
any corporation that has never made a profit.
B.
any corporation that does not intend to make a profit.
C.
a corporation formed for charitable, educational, religious or scientific purposes that cannot make a profit.
D.
a corporation formed for charitable, educational, religious or scientific purposes that can make a profit, although any profit may not be distributed to its members, officers or directors.
E.
a corporation formed for charitable purposes only.
3 points
QUESTION 8
A "closely held corporation" is a corporation that is owned by:
A.
a large number of members of the public.
B.
the government.
C.
doctors, lawyers or other professionals.
D.
a few shareholders, often family members.
E.
a nonprofit organization.
3 points
QUESTION 9
Which of the following is not true about promoters of a corporation?
A.
A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if, after the corporation is formed, there is a novation.
B.
A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if, at the time the contract is entered into, the third party agrees to a novation to occur automatically upon the valid creation of the corporation.
C.
The creation of the corporation does not automatically release the promoter from contracts entered into on behalf of the corporation.
D.
If the corporation fails to come into existence, the promoter cannot be held liable on a contract entered into on behalf of the corporation.
E.
If the corporation fails to come into existence, the promoter may be held liable on employment contracts only.
3 points
QUESTION 10
Which of the following may act as an incorporator of a corporation?
A.
A corporation
B.
A partnership
C.
A domestic or foreign corporation
D.
Both A and B.
E.
A, B, and C.
3 points
QUESTION 11
Which of the following is true regarding domestic and foreign corporations?
A.
A corporation does not have to qualify to do business in any state in the U.S. so long as the corporation was incorporated in the U.S.
B.
An alien corporation is a corporation that was incorporated in a state in the U.S. other than the state in which it has its primary place of business.
C.
A corporation is a domestic corporation in any state in the U.S. so long as the corporation was incorporated within the U.S.
D.
A corporation is a foreign corporation in any state other than the state of its incorporation.
E.
A corporation is an alien corporation in any state other than the state of its incorporation.
3 points
QUESTION 12
Which of the following is true about the purposes of corporations?
A.
All corporations are considered to be formed for any lawful purpose, and can therefore engage in any legal activity.
B.
All corporations must identify all specific purposes for which they are formed.
C.
A corporation can have more than one purpose, but the purposes must be related, and if there are unrelated purposes, the state can order the corporation split up into two or more separate corporations.
D.
A corporation can have either a general purpose or a limited purpose.
E.
The secretary of state's office will review new filings of articles of incorporation to prevent the formation of too many corporations with the same purposes.
3 points
QUESTION 13
The bylaws of a corporation:
A.
take precedence over the articles of incorporation.
B.
must be filed in the appropriate state office.
C.
are not binding on the officers and directors of the corporation.
D.
govern the internal management of the corporation and typically would include the time and place of the annual shareholders' meeting.
E.
may be amended only by the board of directors.
3 points
QUESTION 14
Who may call a special shareholders' meeting if the bylaws do not specify this?
A.
The board of directors
B.
Any individual shareholder
C.
Shareholders holding at least 10 percent of the voting shares of the corporation
D.
Any individual director
E.
Both A and C.
3 points
QUESTION 15
Which of the following is true about the required notice for shareholders' meetings?
A.
The notice can be oral or written, but is required only for special meetings.
B.
The notice can be oral or written and is required for both regular and special meetings.
C.
The notice must be written, but is required only for special meetings.
D.
The notice must be written and is required for both regular and special meetings.
E.
The notice must be written, but is required only when unusual items will be on the agenda of the meeting.
3 points
QUESTION 16
Which method of voting would give minority shareholders the best chance to elect someone to the board of directors of a corporation?
A.
Cumulative
B.
Noncumulative
C.
Proxy
D.
Supermajority
E.
Preemptive
3 points
QUESTION 17
Which of the following is true regarding the board of directors of a corporation?
A.
Corporate directors have an absolute right of inspection to access the corporation's books and records, facilities and premises, as well as any other information affecting the operation of the corporation.
B.
Corporate directors have an absolute right of inspection to access the corporation's books and records, but not facilities and premises.
C.
Corporate directors do not have an absolute right of inspection to the corporation's books and records, or the facilities and premises.
D.
Corporate directors have an absolute right of inspection to access the corporation's books and records, facilities and premises, as well as other information only if the shareholder's vote by majority vote to allow such access.
E.
The articles of incorporation may limit the right of the board of directors to inspect the corporation's books and records, and facilities and premises, as well as other information.
3 points
QUESTION 18
In general, when can a corporate officer be removed from position?
A.
Only pursuant to a violation of the officer's employment contract
B.
Only if the shareholders vote unanimously to remove the officer
C.
Any time that the board believes the removal would be in the best interests of the corporation
D.
Only for violation of the business judgment rule
E.
Only if both the board of directors and the shareholders vote unanimously to remove the officer
3 points
QUESTION 19
Officers of a corporation typically can have which types of agency authority?
A.
Express only
B.
Express and apparent only
C.
Express and implied only
D.
Implied and apparent only
E.
Express, implied and apparent
3 points
QUESTION 20
Which of the following is likely to be a breach of a corporate officer's/director's duty of care?
A.
Failing to anticipate a drop in the consumer demand of the company's product
B.
Failing to make a reasonable investigation of relevant facts
C.
Failing to predict the entrance of a new competitor into the market
D.
Failing to foresee a sudden extreme rise in the interest rate
E.
All of the above.
3 points
QUESTION 21
Under the business judgment rule:
A.
directors and officers have an obligation to exercise sound business judgment, and any failure to do so is per se negligence that results in liability to the corporation.
B.
directors and officers have an obligation to exercise sound business judgment, and any failure to do so results in a rebuttable presumption of negligence.
C.
directors and officers are never liable in suits filed against them by shareholders.
D.
directors and officers are not liable for honest mistakes of judgment.
E.
directors and officers are liable for gross negligence, but not for ordinary negligence.
3 points
QUESTION 22
The authority for the formation of LLCs comes from:
state statutes
federal statutes
federal administrative regulations
Court decisions
3 points
QUESTION 23
Which of the following is true about limited liability companies?
At least one member must have unlimited liability.
They can be formed without any specific steps taken by the owners.
In most cases, they can choose whether to be taxed as a partnership or corporation.
They cannot have centralized management by only a few members.
3 points
QUESTION 24
In general, for what purpose(s) can an LLC be formed?
only to practice a profession, such as accountancy or medicine
only for the stated purposes in the Uniform Limited Liability Company Act
only for the purposes that the Internal Revenue Service has recognized as valid LLC purposes
for any lawful purpose
3 points
QUESTION 25
If an LLC fails to follow formalities such as keeping minutes of meetings, then which of the following is true?
This failure will not result in imposing personal liability on any member.
All members will lose their limited liability.
The managers of a manager-managed LLC and all members of a member-managed LLC will lose limited liability.
Only the party or parties responsible for the failure will lose limited liability.
A.
A sole proprietorship can be formed without any formalities of filing.
B.
So long as the proprietor keeps personal and business affairs properly segregated, the proprietor will not have personal liability for liabilities of the business.
C.
A sole proprietor is not liable for torts his or her employees commit in the course of employment.
D.
All sole proprietorships are required to file a fictitious business name statement.
Explanation / Answer
QUESTION 1 Which of the following is generally true about a sole proprietorship?
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