Exam: 060469RR - Business Organizations
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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. Taylor serves on the board of directors for Cabby Company. Taylor owns a lot of vacant land, which she tried to sell unsuccessfully for two years. Taylor convinced the board of directors to purchase 1,000 acres of her land for a price well over what the land is worth. This action may violate the __________ rule.
A. business judgment
B. actual authority
C. insider trading
D. fairness
2. Sal is a shareholder in XYZ Corporation. XYZ Corporation made defective products, and many individuals have filed lawsuits due to the defects. As a shareholder, Sal may
A. be held personally liable for the defects.
B. not be held personally liable for the defects.
C. be held personally liable only if the plaintiffs name Sal as a defendant.
D. be held personally liable only if the corporation was aware of the defects.
3. Ken is the president of a large energy company. Company executives approached Ken about purchasing some smaller companies to expand the business. Ken read the reports explaining the potential risk and return of the investment, and he decided the purchase appeared to be a good investment. Unfortunately, Ken was wrong, and the purchase caused the company to lose millions of dollars. Based on these facts, Ken
A. violated his duty of loyalty to the corporation.
B. should benefit from the business judgment rule.
C. violated his duty of due diligence to the corporation.
D. should benefit from the fairness rule.
4. The primary difference between general partnerships and limited partnerships is the limiting of the
A. partners' profit.
B. number of agents.
C. partners' liability.
D. number of partners.
5. Crawford, Inc., wants to acquire the assets of Toxic Waste, Inc., but Toxic Waste won't sell. Toxic Waste is a publicly held company with widely dispersed share ownership. What technique can Crawford use to accomplish its goal?
A. Asset acquisition
B. Consolidation
C. Takeover bid
D. Merger
6. In a/an _______, a group of shareholders purchases a controlling portion of the stock in a corporation.
A. consolidation
B. asset acquisition
C. leveraged buyout
D. merger
7. Tricia purchases securities from a company from which she is ensured ownership and priority as to payment of dividends and distribution of assets on dissolution. What type of securities did Tricia purchase?
A. Debenture bonds
B. Convertible bonds
C. Preferred stock
D. Common stock
8. Company A, Inc., and Company B, Inc., are merging. Which of the following statements regarding this merger is true?
A. A newly created third company will exist after the merger.
B. Both companies will exist after the merger.
C. Neither company will exist after the merger.
D. One of the two companies will exist after the merger.
9. The difference between a limited partnership and a registered limited liability partnership (RLLP) is that
A. a limited partnership can have secret partners, while an RLLP can't.
B. an RLLP can have secret partners, while a limited partnership can't.
C. all partners have limited liability in a limited partnership, but not in an RLLP.
D. all partners have limited liability in an RLLP, but not in a limited partnership.
10. Sharon purchased $1,000 of ABC Company stock. In effect, Sharon
A. purchased an ownership interest in the company.
B. purchased a seat on the board for the company.
C. borrowed money from the company.
D. loaned money to the company.
11. In a general partnership, management decisions are made by
A. two-thirds votes of the partners.
B. majority vote, with partners votes weighted in proportion to the interest owned.
C. majority vote, with each partner having an equal vote.
D. unanimous vote in all business decisions.
12. Crawford, Inc., would like to own some land owned by Toxic Waste, Inc., to build a storage warehouse for inventory. However, Crawford doesn't want to be responsible for the liabilities of Toxic Waste. The best method of accomplishing Crawford's goals is
A. consolidation.
B. merger.
C. stock acquisition.
D. asset acquisition.
13. An advantage of an S corporation is that shareholders can avoid
A. double taxation.
B. estoppel.
C. bylaws.
D. insider trading.
14. A shareholder's preemptive rights refers to a right to
A. preempt the board of director's decisions if they're not supported by a majority of shareholders.
B. receive dividends out of profits before profits are used for any other purpose.
C. purchase a proportionate share of every new share offering by the company.
D. share in any profits insiders made from insider trading.
15. Tom is president of Big Drug, Inc. Tom receives a phone call from a federal agency informing him that a new drug owned by Big Drug will be approved for sale to the public. Tom knows that this drug will be very popular and will cause a significant increase in the company's profits. Tom quickly purchases as much Big Drug stock as he can afford. Then, when the federal agency formally announces approval of the drug,
Big Drug stock triples in value, and Tom becomes rich. Tom has violated the
A. corporate opportunity doctrine.
B. business judgment rule.
C. insider trading rule.
D. fairness rule.
16. Robert owns shares in Products, Inc., and suspects that Zach, one of the directors of the company, has been stealing corporate assets. Robert complains to the corporation, but no action is taken. Robert should file a
A. direct suit against Zach.
B. derivative suit against Zach on behalf of Products, Inc.
C. derivative suit against Products, Inc., on his own behalf.
D. direct suit against Products, Inc.
17. Jennie owns shares in Superstore, Inc. A vote about whether Superstore should expand its operations to China is coming up. Jennie thinks this is a good idea, but she doesn't own enough shares to control the outcome of the vote. Jennie could increase the chance that the vote will go her way by
A. making a shareholder proposal.
B. offering to give someone else a proxy.
C. filing a derivative suit.
D. entering into a pooling agreement.
18. Bob is the CEO of Realty, Inc., a company that purchases and develops property for shopping centers. Bob learns that certain real estate, which would be excellent for a shopping center, is about to go up for sale. Bob purchases the property himself without telling anyone at the corporation. Bob has violated the
A. corporate opportunity doctrine.
B. fairness rule.
C. insider trading rule.
D. business judgment rule.
19. Todd wants to start a business, but he wants to make sure that he has absolute control. Which business form would you recommend?
A. Limited partnership
B. General partnership
C. Limited liability company
D. Sole proprietorship
20. Melanie and Clay are partners in a law firm that's a general partnership. Melanie fails to respond to a lawsuit against a client in time, and the client is found liable on a $1 million verdict. The client files a lawsuit suit against Melanie and Clay. Which of the following statements about this set of facts is true?
A. Either Melanie or Clay may be held jointly and severally liable.
B. Only Melanie can be held liable because Clay wasn't involved with the case.
C. Only Melanie can be held liable because she committed the wrong.
D. Only the partnership can be held liable; Melanie and Clay aren't personally liable.
