When a corporation elects to be a Subchapter S corporation, which of the following statements is (are) true regarding the federal tax treatment of the corporation's income or loss?

When a corporation elects to be a Subchapter S corporation, which of the following statements is (are) true regarding the federal tax treatment of the corporation's income or loss?

I. The corporation's income is taxed at the corporate level and not the shareholders' level.
II. The shareholders report the corporation's income on their tax returns when the income is distributed to them.
III. The shareholders report the corporation's income on their tax returns even if the income is not distributed to them.
IV. The shareholders generally report the corporation's loss on their tax returns.



a. I only is true.
b. II only is true.
c. III only is true.
d. III and IV only are true.


Answer: d

When a consolidation takes place under the law of corporations, which of the following is true?

When a consolidation takes place under the law of corporations, which of the following is true?

a. Two or more corporations are joined into one new corporation.
b. All assets are acquired by the new corporation.
c. The new corporation is liable for the debts of each of the old corporations.
d. All of the above are true.


Answer: d.

Which of the following statements is a general requirement for the merger of two corporations?

Which of the following statements is a general requirement for the merger of two corporations?

a. The merger plan must be approved unanimously by the stockholder of both corporations.
b. The merger plan must be approved unanimously by the boards of both corporations.
c. The absorbed corporation must amend its articles of incorporation.
d. The stockholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan.


Answer: d

The limited liability of a stockholder in a closely held corporation may be challenged successfully if the stockholder

The limited liability of a stockholder in a closely held corporation may be challenged successfully if the stockholder

a. Under-capitalized the corporation when it was formed.
b. Formed the corporation solely to have limited personal liability.
c. Sold property to the corporation.
d. Was a corporate officer, director, or employee.



Answer: a

Under the Revised Model Business Corporation Act, which of the following actions by a corporation would entitle a stockholder to dissent from the action and obtain payment of the fair value of his/her shares?

Under the Revised Model Business Corporation Act, which of the following actions by a corporation would entitle a stockholder to dissent from the action and obtain payment of the fair value of his/her shares?

I. An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it alters or abolishes a preferential right of the shares.
II. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the stockholder is entitled to vote on the plan.



a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.


Answer: c

Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will BEST satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation?

Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will BEST satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation?

a. A merger of Trend into Acorn, whereby Trend shareholder receive cash or Acorn shares.
b. A sale of all the assets of Trend, outside the regular course of business, to Acorn for cash.
c. An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares.
d. A cash tender offer, whereby Acorn acquires at least 90% of Trends' shares, followed by a short-form merger of Trend into Acorn.


Answer: d

The following are two statements concerning a fiduciary duty in a corporation. I. Officers and directors of a corporation owe a fiduciary duty to that corporation. II. Majority shareholders of a corporation can owe a fiduciary duty to the minority shareholders. Which of the statements is (are) correct?

The following are two statements concerning a fiduciary duty in a corporation.
I. Officers and directors of a corporation owe a fiduciary duty to that corporation.
II. Majority shareholders of a corporation can owe a fiduciary duty to the minority shareholders.
Which of the statements is (are) correct?

a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.


Answer: c

The officers of West Corporation wish to buy some used equipment for West Corporation. The used equipment is actually owned by Parks, a director of West Corporation. For this transaction to NOT be a conflict of interest for Parks, which of the following is (are) required to be true?

The officers of West Corporation wish to buy some used equipment for West Corporation. The used equipment is actually owned by Parks, a director of West Corporation. For this transaction to NOT be a conflict of interest for Parks, which of the following is (are) required to be true?

I. Parks sells the used equipment to West Corporation in a contract that is fair and reasonable to the corporation.
II. Parks' ownership of the used equipment is disclosed to the shareholders of West who approve it by majority vote.
III. Parks' ownership of the used equipment is disclosed to the board of directors, who approve it by a majority vote of the disinterested directors.



a. Any one of I, II, or III.
b. I and II are both required.
c. I and III are both required.
d. All three of I, II, and III are required.


Answer: a

Corporations generally have which of the following powers without shareholder approval? I. Power to acquire their own shares. II. Power to make charitable contributions. III. Power to make loans to directors.

Corporations generally have which of the following powers without shareholder approval?
I. Power to acquire their own shares.
II. Power to make charitable contributions.
III. Power to make loans to directors.

a. I only.
b. I and II only.
c. II and III only.
d. I, II, and III.


Answer: b

An owner of common stock will NOT have any liability beyond actual investment if the owner

An owner of common stock will NOT have any liability beyond actual investment if the owner

a. Paid less than par value for stock purchased in connection with an original issue of shares.
b. Agreed to perform services that were worth less than par value for the corporation in exchange for original issue par value shares.
c. Purchased treasury shares for less than par value.
d. Failed to pay the full amount owed on a subscription contract for no-par shares.


Answer: c

Johns owns 400 shares of Abco Corp. Cumulative preferred stock. In the absence of any specific contrary provisions in Abco's Articles of Incorporation, which of the following statements is correct?

Johns owns 400 shares of Abco Corp. Cumulative preferred stock. In the absence of any specific contrary provisions in Abco's Articles of Incorporation, which of the following statements is correct?

a. Johns is entitled to convert the 400 shares of preferred stock to a like number of shares of common stock.
b. If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco.
c. If Abco declares a dividend on its common stock, Johns will be entitled to participate with the common stock shareholders in any dividend distribution made after preferred dividends are paid.
d. Johns will be entitled to vote if dividend payments are in arrears.


Answer: b

Promoters of a corporation which is NOT yet in existence

Promoters of a corporation which is NOT yet in existence

a. Are persons that form the corporation and arrange for capitalization to help begin the corporation.
b. Are agents of the corporation.
c. Can bind the future corporation to presently made contracts they make for the future corporation.
d. Are shielded from personal liability on contracts they make with third parties on behalf of the future corporation.


Answer: a

Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership?

Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership?

a. Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters.
b. Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interests are automatically exempt from those requirements.
c. Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership.
d. A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper government body.


Answer: d

A corporation as a separate legal entity can do which of the following?

A corporation as a separate legal entity can do which of the following?

a. Contracts in its own name with its own shareholders.
b. Contract in its own name with its own shareholders only if a majority of its shareholders agree that such contract can be made.
c. Contract in its own name with third parties.
d. Both a. and c. are correct.


Answer: d

Which of the following is NOT considered to be an advantage of the corporate form of doing business over the partnership form?

Which of the following is NOT considered to be an advantage of the corporate form of doing business over the partnership form?

a. A potential perpetual and continuous life.
b. The interests in the corporation are typically easily transferable.
c. The managers in the corporation and shareholders have limited liability.
d. Persons who manage the corporation are not necessarily shareholders.


Answer: c

Which of the following is NOT characteristic of the typical limited liability company?

Which of the following is NOT characteristic of the typical limited liability company?

a. Death of a member (owner) causes it to dissolve unless the remaining members decide to continue the business.
b. All members (owners) are allowed by law to participate in the management of the firm.
c. The company has, legally, a perpetual existence.
d. All members (owners) have limited liability.


Answer: c

Which of the following is NOT true of a joint venture?

Which of the following is NOT true of a joint venture?

a. Each joint venturer is personally liable for the debts of a joint venture.
b. Each joint venturer has the right to participate in the management of the joint venture.
c. The joint venturer owe each other fiduciary duties.
d. Death of a joint venturer dissolves the joint venture.


Answer: d

Riewerts, Morgan and Stonk form a limited partnership. Riewerts is the one general partner. Which of the following events will cause this limited partnership to be dissolved?

Riewerts, Morgan and Stonk form a limited partnership. Riewerts is the one general partner. Which of the following events will cause this limited partnership to be dissolved?

I. Riewerts dies and is survived by the other two partners.
II. Morgan dies leaving Riewerts and Stonk.
III. Riewerts takes out personal bankruptcy.
IV. Stonk takes out personal bankruptcy.



a. I only.
b. I and II only.
c. I and III only.
d. III and IV only.


Answer: c

Mandy is a limited partner in a limited partnership in which Strasburg and Hua are the general partners. Which of the following may Mandy do without losing limited liability protection?

Mandy is a limited partner in a limited partnership in which Strasburg and Hua are the general partners. Which of the following may Mandy do without losing limited liability protection?

I. Mandy acts as an agent of the limited partnership.
II. Mandy votes to remove Strasburg as a general partner.




a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.



Answer: c

Which of the following statements is correct with respect to a limited partnership?

Which of the following statements is correct with respect to a limited partnership?

a. A limited partner may not be an unsecured creditor of the limited partnership.
b. A general partner may not also be a limited partner at the same time.
c. A general partner may be a secured creditor of the limited partnership.
d. A limited partnership can be formed with limited liability for all partners.


Answer: c