Student ID: 21812357
Exam: 060469RR – Business Organizations When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you
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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. Company I, Inc., and Company II, Inc., are consolidating. Which of the following statements regarding
this consolidation is true?
A. One company disappears, and the other company carries on with both businesses.
B. Both companies continue and carry on business as usual.
C. Both companies join and carry on business under a new name.
D. Both companies disappear and stop carrying on business. 2. In a general partnership, management decisions are made by
A. majority vote, with partners votes weighted in proportion to the interest owned.
B. two-thirds votes of the partners.
C. majority vote, with each partner having an equal vote.
D. unanimous vote in all business decisions. 3. Steve decides to incorporate his business, but he thinks it’s too expensive to hire an attorney to advise
him of the requirements. Steve merely changes the name on the sign outside from Steve’s to Steve, Inc.
One of Steve’s customers brings suit against Steve, Inc., based on an allegedly defective product sold
through his business. Steve defends on the basis that Steve, Inc., doesn’t exist. Which of the following
statements about this set of facts is true?
A. Steve is correct; no corporation exists.
B. Steve is wrong; a de facto corporation exists.
C. Steve is wrong; a corporation by estoppel exists.
D. Steve is wrong; a de jure corporation exists. 4. 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. Merger
D. Takeover bid 5. 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. insider trading
B. business judgment
C. fairness
D. actual authority 6. 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. direct suit against Products, Inc.
C. derivative suit against Zach on behalf of Products, Inc.
D. derivative suit against Products, Inc., on his own behalf. 7. 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. fairness rule.
B. corporate opportunity doctrine.
C. insider trading rule.
D. business judgment rule. 8. 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. Preferred stock
B. Common stock
C. Debenture bonds
D. Convertible bonds 9. Sharon purchased $1,000 of ABC Company stock. In effect, Sharon
A. loaned money to the company.
B. borrowed money from the company.
C. purchased an ownership interest in the company.
D. purchased a seat on the board for the company. 10. 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. share in any profits insiders made from insider trading.
C. purchase a proportionate share of every new share offering by the company.
D. receive dividends out of profits before profits are used for any other purpose. 11. 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 liability company
B. Limited partnership
C. General partnership
D. Sole proprietorship 12. 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. not be held personally liable for the defects.
B. be held personally liable for the defects.
C. be held personally liable only if the corporation was aware of the defects.
D. be held personally liable only if the plaintiffs name Sal as a defendant. 13. 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. stock acquisition.
C. merger.
D. asset acquisition. 14. 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. business judgment rule.
B. corporate opportunity doctrine.
C. insider trading rule.
D. fairness rule. 15. In a/an _______, a group of shareholders purchases a controlling portion of the stock in a corporation.
A. merger
B. leveraged buyout
C. consolidation
D. asset acquisition 16. 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. Only Melanie can be held liable because she committed the wrong.
B. Either Melanie or Clay may be held jointly and severally liable.
C. Only the partnership can be held liable; Melanie and Clay aren’t personally liable.
D. Only Melanie can be held liable because Clay wasn’t involved with the case. 17. Sidney and Nikki are law partners in a general partnership. Nikki decides to take a position at another
law firm. Nikki notifies Sidney that she’s leaving the partnership. This set of facts constitutes a dissociation and dissolution by
A. consent.
B. act of a partner.
C. operation of law.
D. judicial decree. 18. An advantage of an S corporation is that shareholders can avoid
A. bylaws.
B. estoppel.
C. insider trading.
D. double taxation. 19. Adam is president of Well, Inc. The board of directors instructs Bob not to borrow any money on
behalf of the corporation. Bob does so anyway, and the corporation lacks income and assets to pay the
debt. Bob will be personally liable for the debt under the
A. actual authority rule.
B. fairness rule.
C. corporate opportunity doctrine.
D. business judgment rule. 20. If a regulation affecting corporations is federal, the authority for that regulation likely derives from
A. police power.
B. the Commerce Clause.
C. executive orders.
D. the Supremacy Clause. End of exam
