Business Structure MCQs

Which of the following statements is not true of a sole proprietorship?

Federal and state governments typically require a formal filing with the appropriate government officials whether or not the sole proprietorship uses a fictitious name.
The sole proprietorship is not a separate legal entity apart from its owner.
The capital to start the business is generally limited to the funds the sole proprietor either has or can borrow.
It is generally considered to be the simplest type of business structure.

A general partnership must

Pay federal income tax.
Have two or more partners.
Have written articles of partnership.
Provide for apportionment of liability for partnership debts

Which of the following can be a partnership?

Karen and Sharon form a charitable organization in which they received donations to give to their favorite charities.
Frank and Pablo are members of a union at work that has 150 members.
Janice and Stanley form a club to encourage business contacts for computer programmers.
None of the above.

A silent partner in a general partnership

Helps manage the partnership without letting those outside the partnership know this.
Retains unlimited liability for the debts of the partnership.
Both of the above are correct.
None of the above is correct.

Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell Larkâ€™s interest to Ward. All of the other par...

Acquired only the right to receive Wardâ€™s share of DSJ profits.
Has the right to participate in DSJâ€™s management.
Is personally liable for partnership liabilities arising before and after being admitted as a partner.
Must contribute cash or property to DSJ to be admitted with the same rights as the other partners.

A partnership agreement must be in writing if

Any partner contributes more than $500 in capital.
The partners reside in different states.
The partnership intends to own real estate.
The partnershipâ€™s purpose cannot be completed within one year of formation.

Sydney, Bailey, and Calle form a partnership under the Revised Uniform Partnership Act. During the first year of operation, the partners have fundam...

I only.
I and II only.
II and III only.
I, II, and III.

Which of the following is not true of a general partnership?

Ownership by the partners may be unequal.
It is a separate legal entity.
An important characteristic is that the partners share in the profits equally.
The partner may agree on unequal rights to participate in management

The partnership agreement for Owen Associates, a general partnership, provided that profits be paid to the partners in the ratio of their financial ...

$ 40,000
$ 60,000
$ 90,000
$100,000

Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts th...

I only.
II only.
I and II.
Neither I nor II.

The apparent authority of a partner to bind the partnership in dealing with third parties

Will be effectively limited by a formal resolution of the partners of which third parties are aware.
Will be effectively limited by a formal resolution of the partners of which third parties are unaware.
Would permit a partner to submit a claim against the partnership to arbitration.
Must be derived from the express powers and purposes contained in the partnership agreement.

In a general partnership, which of the following acts must be approved by all the partners?

Dissolution of the partnership.
Admission of a partner.
Authorization of a partnership capital expenditure.
Hiring an employee.

Under the Revised Uniform Partnership Act, partners have joint and several liability for

Breaches of contract.
Torts committed by one of the partners within the scope of the partnership.
Both of the above.
None of the above.

Which of the following actions require(s) unanimous consent of the partners under partnership law? I. Making partnership a surety. II. Admission of...

I only.
II only.
Both I and II.
Neither I nor II.

Which of the following statements best describes the effect of the assignment of an interest in a general partnership?

The assignee becomes a partner.
The assignee is responsible for a proportionate share of past and future partnership debts.
The assignment automatically dissolves the partnership.
The assignment transfers the assignorâ€™s interest in partnership profits and surplus.

Under the Revised Uniform Partnership Act, in which of the following cases will property be deemed to be partnership property? I. A partner acquires...

I only
I and II only
II only.
I, II, and III.

Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership a...

Windâ€™s withdrawal causes a dissolution of the partnership by operation of law.
Windâ€™s withdrawal has no bearing on the continued operation of the partnership by the remaining partners.
Windâ€™s withdrawal is not effective until Wind obtains a court-ordered decree of dissolution.
Windâ€™s withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement.

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

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

Sharif, Hirsch, and Wolff formed a limited partnership with Sharif and Hirsch as general partners. Wolff was the limited partner. They failed to agr...

Sharif and Hirsch each receives half and Wolff receives none.
Each of the three partners receives one-third.
The profits are shared in proportion to their capital contribution.
None of the above.

Which of the following is (are) true of a limited partnership? I. Limited partnerships must have at least one general partner. II. The death of a li...

I only.
II only.
Neither I nor II.
Both I and II.

Alchorn, Black, and Chan formed a limited partnership with Chan becoming the only limited partner. Capital contributions from these partners were $2...

Unlimited liability for all three partners.
Unlimited liability for Alchorn and Black; $50,000 for Chan.
Up to each partnerâ€™s capital contribution.
None of the above.

To create a limited partnership, a certificate of limited partnership must be filed with the Secretary of State. Which of the following must be incl...

I only.
II only.
I and III only.
I and IV only.

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...

I only.
II only.
Both I and II.
Neither I nor II.

In a limited partnership, the limited partnersâ€™ capital contribution may be in which of the following forms?

A promise to perform services in the future for the partnership.
An agreement to pay cash.
A promise to give property.
All of the above.

Hart and Grant formed Hart Limited Partnership. Hart put in a capital contribution of $20,000 and became a general partner. Grant put in a capital c...

$20,000 and $0.
$20,000 and $10,000.
Unlimited liability and $0.
Unlimited liability and $10,000.

The admission of a new general partner to a limited partnership requires approval by I. A majority of the general partners. II. All of the general ...

I only.
II only.
I and III only.
II and IV only.

The admission of a new limited partner to a limited partnership requires approval by I. A majority of the general partners. II. All of the general ...

I only.
II only.
I and III only.
II and IV only.

Riewerts, Morgar and Stonk form a limited partnership. Riewerts is the one general partner. Which of the following events will cause this limited pa...

I only.
I and II only.
I and III only.
III and IV only.

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

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

Which form(s) of a business organization can have characteristics common to both the corporation and the general partnership? Limited liability comp...

Yes Yes
Yes No
No Yes
No No

Which of the following is true of a limited liability company under the laws of the majority of states?

At least one of the owners must have personal liability.
The limited liability company is a separate legal entity apart from its owners.
Limited liability of the owners is lost if they fail to follow the usual formalities in conducting the business.
All of the above are true.

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

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

Owners and managers of a limited liability company (LLC) owe

A duty of due care.
A duty of loyalty.
Both a duty of due care and a duty of loyalty.
None of the above.

Which of the following is true of the typical limited liability company?

It provides for limited liability for some of its members (owners), that is, those identified as limited members (owners).
The membersâ€™ (ownersâ€™) interests are not freely transferable.
Voting members (owners) but not all members can help choose the managers of the company.
No formalities are required for its formation.

In which of the following respects do general partnerships and limited liability partnerships differ? I. In the level of liability of the partners f...

I only.
II only.
I and II only.
II and IV only.

Under the federal Subchapter S Revision Act, all corporations are designated as

Subchapter S corporations only.
Either a Subchapter S corporation or a Subchapter C corporation.
One of seven different types of corporations.
Both a Subchapter S corporation and a Subchapter C corporation at the same time.

Under the federal Subchapter S Revision Act all corporations are

Now treated as Subchapter S corporations.
Divided into either a Subchapter C corporation or a Subchapter S corporation.
Divided into either a Subchapter C corporation, a Subchapter E corporation, or a Subchapter S corporation.
None of the above.

Which of the following statements is (are) true?

Both Subchapter C corporations and Subchapter S corporations have limited liability for their shareholders.
Both Subchapter C corporations and Subchapter S corporations are similar in their corporate management structure.
All of the above are true.
None of the above are true.

The main difference between Subchapter S corporations and Subchapter C corporations is

Their tax treatment.
That the federal Subchapter S Revision Act covers Subchapter S corporations but does not cover Subchapter C corporations.
Their limited liability of their shareholders.
Their structure of their corporate management

Which of the following statements best describes an advantage of the corporate form of doing business?

Day-to-day management is strictly the responsibility of the directors.
Ownership is contractually restricted and is not transferable.
The operation of the business may continue indefinitely.
The business is free from state regulation.

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

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

Which of the following is not a characteristic of a corporation?

It has a continuous life.
Shares in the corporation can normally be freely transferred.
A corporation is treated as a legal entity separate from its shareholders.
A corporation is automatically terminated upon the death of a majority of its shareholders.

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

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

Which of the following are characteristics of the corporate form of doing business?

Persons who manage corporations need not be shareholders.
The corporation may convey or hold property in its own name.
The corporation can sue or be sued in its own name.
All of the above are true.

Which of the following is a disadvantage of a Subchapter C corporation?

It may face higher tax burdens than a Subchapter S corporation.
The shareholders lose their limited liability when they switch from a general partnership to a corporation.
A Subchapter C corporation is not well defined under the law.
A Subchapter C corporation does not protect its shareholders from liability as well as a Subchapter S corporation does

Bond Company is incorporated in Florida but not in Georgia. Bond has branch offices in both states. Which of the following is correct? I. Bond is a...

I and II only.
II only.
II and III only.
I, II, and III.

Colby formed a professional corporation along with two other attorneys. They took out loans in the name of the corporation. During the first year, C...

I only.
II only.
Both I and II.
Neither I nor II.

Macro Corporation was incorporated and doing business in Illinois. It is doing business in various other states including Nevada. Which of the follo...

Macro must incorporate in Nevada.
Macro is a domestic corporation in Nevada.
Macro is a domestic corporation in Illinois.
All of the above are true.

Cleanit Corporation was incorporated in Colorado. Cleanit wishes to perform some transactions in other states but does not want to incorporate or ob...

Using the US mail to solicit orders in those states.
Holding bank accounts in those states.
Collecting debts in those states.
None of the above.

Which of the following statements is true of professional corporations under the various state laws? I. The professionals in the corporation have pe...

I only is true.
II only is true.
Both I and II are true.
Neither I nor II is true.

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

Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters.
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.
Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership.
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 governmental body.

Under the Revised Model Business Corporation Act, which of the following must be contained in a corporationâ€™s Articles of Incorporation?

Quorum voting requirements.
Names of stockholders.
Provisions for issuance of par and nonpar shares.
The number of shares the corporation is authorized to issue.

Absent a specific provision in its Articles of Incorporation, a corporationâ€™s board of directors has the power to do all of the following, ex...

Repeal the bylaws.
Declare dividends.
Fix compensation of directors.
Amend the Articles of Incorporation

Which of the following statements is correct concerning the similarities between a limited partnership and a corporation?

Each is created under a statute and must file a copy of its certificate with the proper state authorities.
All corporate stockholders and all partners in a limited partnership have limited liability.
Both are recognized for federal income tax purposes as taxable entities.
Both are allowed statutorily to have perpetual existence.

Promoters of a corporation which is not yet in existence

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

Johns owns 400 shares of Abco Corp. cumulative preferred stock. In the absence of any specific contrary provisions in Abcoâ€™s Articles of Inco...

Johns is entitled to convert the 400 shares of preferred stock to a like number of shares of common stock.
If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco.
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.
Johns will be entitled to vote if dividend payments are in arrears.

Gallagher Corporation issued 100,000 shares of $40 par value stock for $50 per share to various investors. Subsequently, Gallagher purchased back 10...

I only.
II only.
III only.
I and II only.

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

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

All of the following distributions to stockholders are considered asset or capital distributions, except

Liquidating dividends.
Stock splits.
Property distributions.
Cash dividends.

Which of the following constitute(s) valid consideration or value to purchase shares of stock?

Services performed.
Intangible property.
Services contracted to be performed in the future.
All of the above.

Brawn subscribed to 1,000 shares of $1 par value stock of Caldo Corporation at the agreed amount of $20 per share. She paid $5,000 on April 1 and th...

Brawn has no liability to the creditors because subscription contract was with the corporation, not the creditors.
Brawn has no liability to the creditors because she has paid more than $1,000 to the corporation which is the par value of the 1,000 shares.
Brawn is liable for $6,000 to the creditors for the amount unpaid on the subscription price.
Brawn is liable for $6,000 to the creditors based on the doctrine of ultra vires.

Pearl Corporation has some treasury stock on hand. Which of the following is (are) true?

Pearl may not vote these shares of treasury stock.
Pearlâ€™s treasury stock does not receive any dividends.
Both of the above statements are true.
None of the above statements are true.

Treasury stock of a corporation is stock that

Has been issued by that corporation but is not outstanding.
Was purchased from another corporation and is retained for a specified purpose.
Has been cancelled.
None of the above is true.

By law, a corporation

Must issue both common stock and preferred stock.
May issue more than one class of common stock as well as more than one class of preferred stock.
Must issue dividends if it has earned a profit.
Must issue at least some cumulative preferred stock.

Mesa Corporation is planning on issuing some debt securities. Which of the following statements is true?

The holders of debt securities are owners of the corporation.
A bond is an instrument for long-term secured debt.
A debenture is an instrument for long-term secured debt.
None of the above is true.

Stock of a corporation is called watered stock when the cash or property exchanged to acquire the stock is

Less than the market value of the stock.
More than the market value of the stock.
Less than the par value or stated value of the stock.
More than the par value or stated value of the stock.

Corporations generally have which of the following powers without shareholder approval? I. Power to acquire their own shares. II. Power to make cha...

I only.
I and II only.
II and III only.
I, II, and III.

Murphy is an employee of Landtry Corporation. Which of the following acts would make the corporation liable for Murphyâ€™s actions? I. Murphy ...

I only.
II only.
Both I and II.
Neither I nor II.

Which of the following statements is (are) true? I. Corporations can be found liable for crimes. II. Directors can face prison sentences for crimes ...

I only.
I and II only.
III only.
I, II, and III.

Norwood was a promoter of Parker Corporation. On March 15, Norwood purchased some real estate from Burrows in Parkerâ€™s name and signed the co...

None of these parties can be held liable.
Norwood only is liable.
Norwood and Parker are liable but not the board of directors.
Norwood, Parker, and the board of directors are all liable.

Under the Revised Model Business Corporation Act, which of the following statements is correct regarding corporate officers of a public corporation?...

An officer may not simultaneously serve as a director.
A corporation may be authorized to indemnify its officers for liability incurred in a suit by stockholders.
Stockholders always have the right to elect a corporationâ€™s officers.
An officer of a corporation is required to own at least one share of the corporationâ€™s stock.

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 ...

Any one of I, II, or III.
I and II are both required.
I and III are both required.
All three of I, II, and III are required.

The following are two statements concerning a fiduciary duty in a corporation. I. Officers and directors of a corporation owe a fiduciary duty to t...

I only.
II only.
Both I and II.
Neither I nor II.

Hogan is a director of a large corporation. Hogan owns a piece of land that the corporation wishes to purchase and Hogan desires to sell this land a...

No, a director does not owe a fiduciary duty to his corporation.
No, since Hogan is selling the land to his corporation in a fair and reasonable contract.
Yes, unless he discloses his conflict of interest to the shareholders who must then approve the sale of by a simple majority.
Yes, unless he discloses his conflict of interest to the shareholders who must then approve the sale by a twothirds vote.

Which of the following is not a power of the board of directors?

May select the officers of the corporation.
May declare the dividends to be paid to the shareholders.
May amend the Articles of Incorporation.
All of the above are powers of the board of directors.

Which of the following statements is (are) true under the law affecting corporations? I. A corporation may indemnify directors against lawsuits bas...

I only.
I and II only.
I and III only.
I, II, and III.

Which of the following is (are) true concerning corporations?

Directors owe a fiduciary duty to the corporation.
Officers owe a fiduciary duty to the corporation.
Both of the above are true.
None of the above are true.

McGarry is an officer of Norton Corporation. McGarry has committed a tort while acting for Norton Corporation within the scope of her authority. Whi...

Only McGarry is liable for the tort committed.
Only Norton Corporation is liable for the tort committed.
Both McGarry and Norton are liable for the tort committed.
Neither McGarry nor Norton are liable for the tort committed.

Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acornâ€�...

A merger of Trend into Acorn, whereby Trend shareholders receive cash or Acorn shares.
A sale of all the assets of Trend, outside the regular course of business, to Acorn for cash.
An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares.
A cash tender offer, whereby Acorn acquires at least 90% of Trendâ€™s shares, followed by a short-form merger of Trend into Acorn.

Price owns 2,000 shares of Universal Corp.â€™s $10 cumulative preferred stock. During its first year of operations, cash dividends of $5 per sh...

Universal will be liable to Price as an unsecured creditor for $10,000.
Universal will be liable to Price as a secured creditor for $20,000.
Price will have priority over the claims of Universalâ€™s bond owners.
Price will have priority over the claims of Universalâ€™s unsecured judgment creditors.

Under the Revised Model Business Corporation Act, which of the following actions by a corporation would entitle a stockholder to dissent from the ac...

I only.
II only.
Both I and II.
Neither I nor II.

To which of the following rights is a stockholder of a public corporation entitled?

The right to have annual dividends declared and paid.
The right to vote for the election of officers.
The right to a reasonable inspection of corporate records.
The right to have the corporation issue a new class of stock.

Which of the following is correct pertaining to the rights of stockholders in a corporation?

Stockholders have no right to manage their corporation unless they are also directors or officers.
Stockholders have a right to receive dividends.
Stockholders have no right to inspect the books and records of their corporation.
Stockholders have a right to get a list of their corporationâ€™s customers to use for the stockholderâ€™s personal business mailing list.

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

Undercapitalized the corporation when it was formed.
Formed the corporation solely to have limited personal liability.
Sold property to the corporation.
Was a corporate officer, director, or employee.

The corporate veil is most likely to be pierced and the shareholders held personally liable if

The corporation has elected S corporation status under the Internal Revenue Code.
The shareholders have commingled their personal funds with those of the corporation.
An ultra vires act has been committed.
A partnership incorporates its business solely to limit the liability of its partners.

Which of the following is correct about the law of corporations?

Each shareholder owes a fiduciary duty to his or her corporation.
Majority shareholders owe a fiduciary duty to their corporation.
Majority shareholders do not owe a fiduciary duty to minority shareholders.
All of the above are correct.

A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary corporation and decided to merge that subsidi...

The subsidiary corporationâ€™s board of directors must pass a merger resolution.
The subsidiary corporationâ€™s dissenting stockholders must be given an appraisal remedy.
The parent corporationâ€™s stockholders must approve the merger.
The parent corporationâ€™s dissenting stockholders must be given an appraisal remedy.

Under the Revised Model Business Corporation Act, a merger of two public corporations usually requires all of the following except

A formal plan of merger.
An affirmative vote by the holders of a majority of each corporationâ€™s voting shares.
Receipt of voting stock by all stockholders of the original corporations.
Approval by the board of directors of each corporation.

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

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

Which of the following must take place for a corporation to be voluntarily dissolved?

Passage by the board of directors of a resolution to dissolve.
Approval by the officers of a resolution to dissolve.
Amendment of the certificate of incorporation.
Unanimous vote of the stockholders.

A corporate stockholder is entitled to which of the following rights?

Elect officers.
Receive annual dividends.
Approve dissolution.
Prevent corporate borrowing.

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

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

When a corporation elects to be a Subchapter S corporation, which of the following statements is (are) true regarding the federal tax treatment of t...

The corporationâ€™s income is taxed at the corporate level and not the shareholdersâ€™ level.
The shareholders report the corporationâ€™s income on their tax returns when the income is distributed to them.
The shareholders report the corporationâ€™s income on their tax returns even if the income is not distributed to them.
The shareholders generally report the corporationâ€™s loss on their tax returns.

Mead, CPA, had substantial doubt about Tech Co.â€™s ability to continue as a going concern when reporting on Techâ€™s audited financial st...

The emphasis-of-matter paragraph included in the 20X2 auditorâ€™s report should not be repeated.
The emphasis-of-matter paragraph included in the 20X2 auditorâ€™s report should be repeated in its entirety.
A different emphasis-of-matter paragraph describing Meadâ€™s reasons for the removal of doubt should be included.
A different emphasis-of-matter paragraph describing Techâ€™s plans for financial recovery should be included.

When an auditor concludes there is substantial doubt about a continuing audit clientâ€™s ability to continue as a going concern for a reasonabl...

Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.
Consider the adequacy of disclosure about the clientâ€™s possible inability to continue as a going concern.
Report to the clientâ€™s audit committee that managementâ€™s accounting estimates may need to be adjusted.
Reissue the prior yearâ€™s auditorâ€™s report and add an emphasis- of-matter paragraph that specifically refers to â€œsubstantial doubtâ€ and â€œgoing concern.â€

In terms of business volume, the dominant form of business organization is the:

Partnership.
Corporation.
Limited liability company.
Proprietorship.

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Business Structure MCQs