Question 1

If a sole proprietorship operates under a fictitious business name,then that name must be registered with the state.

Accepted Answer

In most states, a sole proprietorship operating under a fictitious business name must register that name with the state's Secretary of State or other designated agency.

Question 2

A shareholder's right of appraisal only applies to transactions that were initially subject to shareholder approval.

Accepted Answer

A shareholder's right of appraisal is a statutory right that allows them to demand payment for their shares at fair value if they disagree with certain corporate actions, such as mergers, consolidations, or sales of substantially all of the company's assets. However, the right of appraisal only applies to transactions that were initially subject to shareholder approval, such as mergers, which typically require a shareholder vote. Thus, the answer is true that the right of appraisal only applies to transactions that were initially subject to shareholder approval.

Question 3

Any corporation not meeting the requirements for an S corporation is automatically a C corporation.

Accepted Answer

By default, corporations are classified as C corporations unless they meet specific IRS criteria and elect to be treated as an S corporation.

Question 4

The main issue in CASE 19.3Burwell v.Hobby Lobby Stores,Inc.(2014)involved a question of whetherthe requirements for contraception under the Affordable Care Act (Obamacare)violated the due process rights of Hobby Lobby Stores.

Accepted Answer

The main issue in Burwell v. Hobby Lobby Stores, Inc. was whether the Religious Freedom Restoration Act (RFRA) provided a defense to corporations against the contraceptive mandate under the Affordable Care Act, not whether it violated due process rights.

Question 5

An outside director is a director who lives outside the state of incorporation.

Accepted Answer

An outside director is not necessarily someone who lives outside the state of incorporation. An outside director can also be someone who is not an employee or an executive of the company.

Question 6

A creditor of a sole proprietorship may seek recovery only from business assets of the sole proprietorship,not from personal assets of the sole proprietor.

Accepted Answer

A creditor of a sole proprietorship may seek recovery from both business assets and personal assets of the sole proprietor because there is no legal distinction between the two under this business structure. The sole proprietor is personally liable for all debts and obligations of the business.

Question 7

B corporations have no duty to maximize shareholder value even when there is a change of control.

Accepted Answer

B corporations have a legal obligation to consider the interests of all stakeholders, not just shareholders, and to balance their financial goals with their social and environmental goals. This duty continues even in cases where there is a change of control, meaning that a new owner or owners acquire a controlling interest in the company.

Question 8

A partnership requires a minimum amount of capital in order to be formed.

Accepted Answer

A partnership does not require a minimum amount of capital to be formed. It is possible to start a partnership with no initial investment from either party. However, it is advisable to agree on the capital contributions and profit-sharing arrangements at the outset to avoid disputes later on.

Question 9

States may not impose a higher fiduciary duty upon partners than that set forth in the Revised Uniform Partnership Act.

Accepted Answer

States have the authority to impose higher fiduciary duties on partners than those outlined in the Revised Uniform Partnership Act (RUPA), as RUPA serves as a model law and states can modify its provisions.

Question 10

A corporation that is technically defective but that is formed in good faith and exercises corporate power is known as a de jure corporation.

Accepted Answer

A corporation that is technically defective but formed in good faith and exercises corporate power is known as a de facto corporation, not a de jure corporation. A de jure corporation is one that has fully complied with all statutory requirements for incorporation.

Question 11

C corporations are taxed as a pass-through entity.

Accepted Answer

C corporations are not taxed as pass-through entities. They are taxed separately from their owners and shareholders.

Question 12

A partnership may acquire property in its own name.

Accepted Answer

A partnership is a legal entity and can acquire property in its own name. This property is owned by the partnership and not by the individual partners.

Question 13

An S corporation cannot have more than one class of stock.

Accepted Answer

This is a requirement for an S corporation to maintain its status and pass through taxation. All shareholders must have the same rights to receive distributions and liquidation proceeds.

Question 14

Corporations must incorporate in the state where their headquarters are located.

Accepted Answer

Corporations can incorporate in any state they choose, not just the state where their headquarters are located. This is known as choosing a "foreign" state of incorporation. Many companies choose to incorporate in Delaware due to its favorable corporate laws.

Question 15

In a joint venture,the authority of one member to bind the partnership is more limited than in a general partnership.

Accepted Answer

In a joint venture, the authority of each member to bind the partnership is typically restricted to their specific role or responsibility within the venture. This is different from a general partnership where each partner has unlimited authority to bind the partnership in any business transaction.

Question 16

The term "appraisal rights" when used in regard to a corporate merger refers to the right of dissenting shareholders to have corporate property independently appraised.

Accepted Answer

Appraisal rights refer to the right of dissenting shareholders to have their shares appraised and to receive monetary compensation based on the appraised value, not corporate property.

Question 17

Cumulative voting allows a greater control by the management interests of a corporation.

Accepted Answer

Cumulative voting allows minority shareholders to have a greater control in the election of directors, as they can concentrate their votes on a single candidate. It may reduce the control of the management interests of a corporation.

Question 18

Federal law governs the obligations,if any,that members of a limited liability partnership owe to creditors.

Accepted Answer

Federal law does not govern the obligations that members of a limited liability partnership owe to creditors; these obligations are typically governed by state law.

Question 19

Partners owe each other a duty of care but not a duty of loyalty.

Accepted Answer

Partners owe each other both a duty of care and a duty of loyalty. The duty of loyalty requires partners to act in good faith and not engage in self-dealing or competing with the partnership without consent.

Question 20

A corporation is a private entity that can be created by a mere handshake,as long as the shareholders have completed a certificate of incorporation.

Accepted Answer

A corporation cannot be created by a mere handshake. It requires a formal process of completing and filing articles of incorporation with the state in which the corporation will be formed.

Quiz 19: Forms of Business Organizations.