2 - Entity Selection, Formation, and Governance

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2 Practice Assignment

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Started on Jan 15 at 06:54

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1. Bookmark question for later

What is the definition of a foreign corporation?

· A business formed outside the U.S.

· A business formed in a different state

· A business formed within a state

· A business that passes profits directly to shareholders

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What is the definition of a Subchapter S corporation?

· A business formed in a different state

· A business that passes profits directly to shareholders

· A business formed within a state

· A business formed outside the U.S.

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Wade and Hunter want to start a business. They have a large amount of capital. They have a good working relationship and believe they will do well sharing management responsibility and in sharing profits. They are happy to be organizing a business together in order to avoid full liability for the business. Which detail(s) of this situation would be most unhelpful toward Wade and Hunter’s decision to organize a general partnership?

· Avoiding full liability

· Large amount of capital

· Sharing management responsibility

· Sharing profits

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What is a public corporation?

· A business with a large number of shareholders

· A business formed to assist experts in a particular business field

· A business formed by the government

· A business with a small number of shareholders

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What is a closely-held corporation?

· A business formed to assist experts in a particular business field

· A business with a large number of shareholders

· A business formed by the government

· A business with a small number of shareholders

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Albus wants to build a business. He wants to start the business fast and reach a large customer base, but he only has a small amount of opening capital. He has no partner with whom to form the business. Which of the following is not a valid reason for Albus to choose a sole proprietorship organization for his business?

· Wants to reach a large customer base

· Small amount of capital

· Has no partner with whom to form the business.

· Wants to start the business fast

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Which of the following is false concerning LLCs?

· LLC owners are called members.

· LLCs are formed in much the same way as a general partnership.

· LLCs can be taxed as corporations.

· LLCs are governed by state statute.

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Tawny wants to be involved in a business. She has lots of capital to invest and she wants to be involved in management, but does not want to be exposed to personal liability for losses the business might incur and she does not want to have to pay excessive taxes on her gains. Which form of business would be best for Tawny?

· Sole proprietorship

· General partnership

· LLC

· Corporation

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Kim wants to be involved in a business but is not sure what type of business to join or create. She has some capital to invest, several years of managing experience, and a good network of potential investors and partners. What role would be best for Kim?

· General partner in a general partnership

· More than one possible option

· General partner in a limited partnership

· Limited partner in a limited partnership

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Jaden works for LeoHart. He meets with a team to discuss shareholders’ interests and assign managers to run certain parts of the company. What is Jaden’s position in the company?

· Shareholder

· Director

· Executive and shareholder

· Executive

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Leo and Josh have a welding business organized as a general partnership. A customer comes into the business seeking a welding contract. Leo agrees to do the work for the customer as a separate project from his business with Josh. Which of the following is true?

· Leo has usurped the concept of joint ownership of the business.

· Leo is free to make contracts separate from his business with Josh.

· Leo cannot contract with the customer unless the customer has had previous business dealings with Leo.

· Leo may make a separate contract with the customer as long as the customer doesn’t already have a contract with the business itself.

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Del organized his business in Alaska. He does business in both the U.S. and Canada. In Texas, Del’s business would be considered a(n) __________ corporation.

· Domestic

· Foreign

· Alien

· None of the above

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What type of franchise would a car dealership typically belong to?

· Chain-style franchise

· Distributorship

· Plant-processing franchise

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Which of the following is true concerning bonds?

· A bond’s collateral is always based on physical assets.

· As a company’s credit increases, the interest on its bonds tend to decrease.

· Bonds are considered assets.

· A bond is an equity interest.

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The primary purpose for a company’s issuance of stocks is:

· To clarify ownership levels for shareholders

· To increase shareholders’ income

· To increase a firm’s leverage

· To raise capital

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The board of directors for Glenncorp makes an investment in distribution services that ultimately result in a net loss for the company and its shareholders. Shareholders in the company may:

· Do nothing, as the board is protected by the business judgment rule

· Demand compensation for their losses in proportion to their number of shares

· Sign a petition to fire the board of directors

· Sue the board of directors.

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Hector is opening a sole proprietorship. Which of the following would not be included in a list of possible steps Hector would take in setting up his business?

· Publish his fictitious business name

· Obtain a local business license

· File a d/b/a statement

· Obtain federal government approval

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Reed works for Marimart. He assembles components for consumer products. He also conducts training for new hires at Marimart. Reed additionally purchases stock in the company? What is Reed's position in the company?

· Director

· Executive

· Shareholder

· More than one option

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Papapop makes a franchise agreement with a bottling factory to sell its product to the company for bottling and subsequent sale. Over the next several years, Papapop steadily demands a higher percentage of the bottler’s profit from sales. Which of the following is true?

· Papapop is restricted from demanding a higher profit percentage.

· None of the above

· Papapop is restricted from demanding a higher profit percentage if such increases are arbitrary.

· Papapop may demand a higher percentage without restriction.

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Chloe is a non-executive supervisor at her company. She directs other employees but has no control of financial information or decision-making responsibilities. She would be responsible for contributing to which of the following areas?

· Maintaining a strong board of directors

· Promoting integrity and ethical behavior

· Disclosure and transparency

· Safeguarding the rights and interests of shareholders

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Which of the following is not a basic requirement of good corporate citizenship?

· Strong and vigilant board of directors

· Provision of benefits to employees

· Disclosure

· Ethical environment

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Under the notion of effective corporate governance, which of the following is not an example of an internal control?

· Accounting disclosure requirements

· Employee satisfaction surveys

· Reporting to shareholders

· Performance reviews for managers

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