Question 1

Assume for a moment that the shareholders in a corporation have unlimited liability for corporate debts.If so,what impact would this have on the functioning of primary and secondary markets for ordinary equity?

Accepted Answer

With unlimited liability,you would be very careful which stocks you invest in.In particular,you would not invest in companies you expected to be unable to satisfy their financial obligations.Both the primary and secondary markets for equity would be severely hampered if this rule existed.It would be very difficult for a young,untested business to acquire enough capital to grow.

Question 2

The owners of a limited liability company prefer:

Accepted Answer

C

Question 3

Which type of business organization has all the respective rights and privileges of a legal person?

Accepted Answer

Only a corporation has all the respective rights and privileges of a legal person, including the ability to enter into contracts, sue and be sued, and own property.

Question 4

The articles of incorporation:

Accepted Answer

The articles of incorporation typically include details such as the number of shares the corporation is authorized to issue.

Question 5

Which one of the following business types is best suited to raising large amounts of capital?

Accepted Answer

Corporations are the best suited for raising large amounts of capital because they can issue stocks and bonds, which can be bought by investors to raise funds. They also have the ability to attract investment from institutions such as banks and venture capitalists. Limited liability companies and partnerships, on the other hand, have limited options for raising funds and may have difficulty attracting large investments. Sole proprietorships do not have a separate legal existence from their owners and therefore cannot issue stocks or bonds to raise capital.

Question 6

Which of the following are disadvantages of a partnership?
I.limited life of the firm
II.personal liability for firm debt
III.greater ability to raise capital than a sole proprietorship
IV.lack of ability to transfer partnership interest

Accepted Answer

I. Limited life of the firm - Partnerships have limited life as they dissolve when one partner leaves, dies, or retires from the business.

II. Personal liability for firm debt - Partners are personally liable for the debts and legal obligations of the firm, even if it means using personal assets to pay off the debt.

III. Greater ability to raise capital than a sole proprietorship - This is not a disadvantage; it is actually an advantage of a partnership as more partners mean more capital injection.

IV. Lack of ability to transfer partnership interest - Partnerships have restricted transferability of ownership interest as they require the unanimous consent of all existing partners.

Question 7

Which one of the following statements is correct concerning the organizational structure of a corporation?

Accepted Answer

The chief executive officer (CEO) is the highest-ranking officer in a corporation and is typically responsible for the overall performance of the organization. Therefore, the CEO reports to the board of directors, which represents the shareholders and is responsible for setting the strategic direction of the company. Options A, C, D, and E are incorrect as they provide incorrect reporting lines for these positions.

Question 8

A partnership:

Accepted Answer

The answer of A partnership:
...

Question 9

One thing lenders sometimes require when loaning money to a small corporation is an assignment of the ordinary equity as collateral on the loan.Then,if the business fails to repay its loan,the ownership of the stock certificates can be transferred directly to the lender.Why might a lender want such an assignment?
 What advantage of the corporate form of organization comes into play here?

Accepted Answer

The answer of One thing lenders sometimes require when loaning...

Question 10

Which of the following help convince managers to work in the best interest of the shareholders?
I.compensation based on the value of the equity
II.share option plans
III.threat of a proxy fight
IV.threat of conversion to a partnership

Accepted Answer

Compensation based on the value of equity and share option plans directly align the interest of managers and shareholders because if the company performs well, the equity value will increase, and this will benefit the shareholders as well as the managers. Additionally, the threat of a proxy fight ensures that managers are held accountable for their actions and are constantly trying to increase shareholder value. Finally, the threat of conversion to a partnership gives shareholders the power to remove managers who are not acting in their best interest. Hence, all the given options help convince managers to work in the best interest of the shareholders.

Question 11

The treasurer and the controller of a corporation generally report to the:

Accepted Answer

The treasurer and the controller typically report to the vice president of finance, who oversees the financial operations of the corporation.

Question 12

A stakeholder is:

Accepted Answer

A stakeholder is any person or entity other than a shareholder or creditor who potentially has a claim on the cash flows of the firm. This includes employees, customers, suppliers, the government, and the community at large. Stakeholders can have a significant impact on the success or failure of a business, and it is important for companies to consider their interests when making decisions.

Question 13

A general partner:

Accepted Answer

A general partner has more management responsibility than a limited partner. They are actively involved in running the business and making decisions, whereas a limited partner typically has a more passive role and is not involved in day-to-day management.

Question 14

Which one of the following statements concerning a sole proprietorship is correct?

Accepted Answer

A sole proprietorship is a business owned by one person, and the life of the business is limited to the life span of the owner. If the owner dies or decides to sell the business, the business ceases to exist. B is false because it can be difficult for a sole proprietorship to raise large sums of capital. C is false because the ownership of the firm is tied to the owner and cannot be easily transferred to another individual. D is false because the company's income is taxed as personal income for the owner, so there are no separate taxes. E is false because forming a sole proprietorship is relatively simple and inexpensive compared to other business structures.

Question 15

Corporate Governance Regulation is intended to:

Accepted Answer

Corporate Governance Regulation is designed to protect investors from corporate abuses, such as fraud, mismanagement, and financial irregularities. It aims to ensure that companies operate transparently, responsibly, and ethically, and that they are accountable to their shareholders and stakeholders. The regulation sets standards for board composition, executive compensation, financial reporting, and disclosure, among other things. Its goal is to promote long-term value creation for shareholders and sustain the trust and confidence of stakeholders in the company.

Question 16

In a limited partnership:

Accepted Answer

In a limited partnership, a limited partner's liability is limited to the amount of money they contribute to the partnership. This means that their personal assets are not at risk in the event of the partnership's debts or legal issues. The other choices are not accurate as they do not reflect the true nature of limited partnership liability.

Question 17

Sole proprietorships are predominantly started because:

Accepted Answer

A sole proprietorship is easily and cheaply set up, the life of the business is limited to the owner's life, and all business taxes are paid as individual tax. Therefore, all of the above options are among the reasons why a sole proprietorship is predominantly started.

Question 18

Do you think agency problems arise in sole proprietorships and/or partnerships?

Accepted Answer

The answer of Do you think agency problems arise in...

Quiz 2: Corporate Governance