LES 305 Final Exam || 100% Accurate Solutions.
General partnerships are comprised of one or more general partners and one or more limited
partners. correct answers False; this describes a limited partnership. General partnerships have
general partners.
Prima facie evidence of a partnership exists if two or more people agree to share profits. correct
answers TRUE; courts can infer that a partnership exists - even if the parties that they are not
partners - because they agreed to share profits
Anyone who helps a partnership obtain a loan by holding himself out as a partner, although he is
not a partner, may be liable on the loan correct answers True. The person will be considered a
partner under the doctrine of partnership by estoppel because the person acted like a partner and
a lender relied on this status
General partners are liable:
for debts of the partnership
personally for their portion of the partnership's debts.
for debts of the partnership only to the extent of their contributions to the partnership and only
for their portion of the partnership's debts.
for all of the partnership's debts personally.
None of the above. correct answers for all of the partnership's debts personally.
This is called joint and several liability
Partnerships do not have to file any tax returns correct answers False. They have to file
informational tax returns.
Each partner may bind a partnership to contracts with third parties correct answers True. Each
partner is considered to be an agent of the partnership.
if a partner dies, the partnership property that belonged to the deceased partner goes to the
partner's estate. correct answers False. Only the value of the partner's interest goes to the estate.
When one partner dies, the partnership automatically is dissolved by law. correct answers True.
Dissolution occurs by operation of law at the death of a partner. Note that dissolution and
termination are different.
Limited partners may manage the business and retain limited liability protection correct answers
False. Limited partners lose limited liability protection if they engage in management.
,If limited partnership interests are easily transferable, the organization may be treated as a
corporation by the IRS correct answers True. See the Tax Consequences section on page 697 and
the Transferability of Interests section
Intel was incorporated in Delaware. It is a domestic corporation when it does business in Arizona
correct answers False. It is a foreign corporation
Transfers of stock are usually restricted in S corporations. correct answers True. This serves
several practical purposes. First, it is more likely that the IRS will treat you as a partnership for
tax purposes because you look less like a C corporation. Plus, you may not want strangers to
have a say in running your business. Finally, there can be no more than 100 shareholders in S
corporations, so if shares are freely transferrable to multiple parties, you may go over that limit
and lose your S status.
S corporations are subject to double taxation. correct answers False. You need to file a "S
Election" form with the IRS and the shareholders will be able to avoid double taxation. These
types of organizations are referred to in your text as "flow-through" or "pass-through" entities
Corporations end upon the death or withdrawal of a member correct answers False. Corporations
exist for an unlimited duration, unlike partnerships, which dissolve upon the death or withdrawal
of a partner.
Registered agents, also known as statutory agents, may manage the business when the members
are unavailable correct answers False. They are only authorized to accept service of process for
the organization
Common stockholders:
have voting rights.
are entitled to fixed dividends.
have the right to a proportionate share of assets upon dissolution before creditors are paid.
receive dividends before preferred shareholders correct answers have voting rights
[In most cases, the owners of shares of common stock have voting rights. Preferred shareholders
usually do not have voting rights.
The corporate veil may be pierced when:
the corporation is inadequately capitalized.
the owners and managers have not treated the corporation as a separate entity from themselves.
there are transfers of property and funds without authorization
, all of the above correct answers All of the above.
[Note Option b above is also referred to as alter ego theory. When the "corporate veil" has been
pierced, the shareholders lose their limited liability protection.
20) Shareholders elect:
the Board of Directors.
Executive Committee members.
Officers.
Audit committee members.
A and b only correct answers the Board of Directors.
[Owners of common stock are usually allowed to vote to elect directors, amend corporate
documents such as the articles of incorporation and bylaws, and other major corporate matters.
The Board appoints corporate officers and the members of the Executive and Audit committees.]
Officers and directors are fiduciaries of the corporation, so they must act in the best interests of
the corporation and they may not profit at the corporation's expense. . correct answers True
The business judgment rule states that:
Directors and officers are responsible for all of their mistakes.
Directors and officers are never responsible for their mistakes.
Directors and officers are protected from liability if they carefully study and discuss their
decisions.
None of the above. correct answers Directors and officers are protected from liability if they
carefully study and discuss their decisions.
Independent board members:
are required for a majority of the directors.
include board members that are not a relative of anyone who works for the company.
Means that the director has not been a manager, office or employee for the previous 3 years.
Means that the Board member is not a principal or owner of a company that does business with
the board or company.
General partnerships are comprised of one or more general partners and one or more limited
partners. correct answers False; this describes a limited partnership. General partnerships have
general partners.
Prima facie evidence of a partnership exists if two or more people agree to share profits. correct
answers TRUE; courts can infer that a partnership exists - even if the parties that they are not
partners - because they agreed to share profits
Anyone who helps a partnership obtain a loan by holding himself out as a partner, although he is
not a partner, may be liable on the loan correct answers True. The person will be considered a
partner under the doctrine of partnership by estoppel because the person acted like a partner and
a lender relied on this status
General partners are liable:
for debts of the partnership
personally for their portion of the partnership's debts.
for debts of the partnership only to the extent of their contributions to the partnership and only
for their portion of the partnership's debts.
for all of the partnership's debts personally.
None of the above. correct answers for all of the partnership's debts personally.
This is called joint and several liability
Partnerships do not have to file any tax returns correct answers False. They have to file
informational tax returns.
Each partner may bind a partnership to contracts with third parties correct answers True. Each
partner is considered to be an agent of the partnership.
if a partner dies, the partnership property that belonged to the deceased partner goes to the
partner's estate. correct answers False. Only the value of the partner's interest goes to the estate.
When one partner dies, the partnership automatically is dissolved by law. correct answers True.
Dissolution occurs by operation of law at the death of a partner. Note that dissolution and
termination are different.
Limited partners may manage the business and retain limited liability protection correct answers
False. Limited partners lose limited liability protection if they engage in management.
,If limited partnership interests are easily transferable, the organization may be treated as a
corporation by the IRS correct answers True. See the Tax Consequences section on page 697 and
the Transferability of Interests section
Intel was incorporated in Delaware. It is a domestic corporation when it does business in Arizona
correct answers False. It is a foreign corporation
Transfers of stock are usually restricted in S corporations. correct answers True. This serves
several practical purposes. First, it is more likely that the IRS will treat you as a partnership for
tax purposes because you look less like a C corporation. Plus, you may not want strangers to
have a say in running your business. Finally, there can be no more than 100 shareholders in S
corporations, so if shares are freely transferrable to multiple parties, you may go over that limit
and lose your S status.
S corporations are subject to double taxation. correct answers False. You need to file a "S
Election" form with the IRS and the shareholders will be able to avoid double taxation. These
types of organizations are referred to in your text as "flow-through" or "pass-through" entities
Corporations end upon the death or withdrawal of a member correct answers False. Corporations
exist for an unlimited duration, unlike partnerships, which dissolve upon the death or withdrawal
of a partner.
Registered agents, also known as statutory agents, may manage the business when the members
are unavailable correct answers False. They are only authorized to accept service of process for
the organization
Common stockholders:
have voting rights.
are entitled to fixed dividends.
have the right to a proportionate share of assets upon dissolution before creditors are paid.
receive dividends before preferred shareholders correct answers have voting rights
[In most cases, the owners of shares of common stock have voting rights. Preferred shareholders
usually do not have voting rights.
The corporate veil may be pierced when:
the corporation is inadequately capitalized.
the owners and managers have not treated the corporation as a separate entity from themselves.
there are transfers of property and funds without authorization
, all of the above correct answers All of the above.
[Note Option b above is also referred to as alter ego theory. When the "corporate veil" has been
pierced, the shareholders lose their limited liability protection.
20) Shareholders elect:
the Board of Directors.
Executive Committee members.
Officers.
Audit committee members.
A and b only correct answers the Board of Directors.
[Owners of common stock are usually allowed to vote to elect directors, amend corporate
documents such as the articles of incorporation and bylaws, and other major corporate matters.
The Board appoints corporate officers and the members of the Executive and Audit committees.]
Officers and directors are fiduciaries of the corporation, so they must act in the best interests of
the corporation and they may not profit at the corporation's expense. . correct answers True
The business judgment rule states that:
Directors and officers are responsible for all of their mistakes.
Directors and officers are never responsible for their mistakes.
Directors and officers are protected from liability if they carefully study and discuss their
decisions.
None of the above. correct answers Directors and officers are protected from liability if they
carefully study and discuss their decisions.
Independent board members:
are required for a majority of the directors.
include board members that are not a relative of anyone who works for the company.
Means that the director has not been a manager, office or employee for the previous 3 years.
Means that the Board member is not a principal or owner of a company that does business with
the board or company.
