Business Law and Corporate Structures Quiz
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Questions and Answers

What is one way a monopoly can be established?

  • Establishing a network of competitors
  • Proving high consumer satisfaction rates
  • Demonstrating a dominant market share (correct)
  • Offering services at a lower price than rivals
  • Which of the following is exempt from Antitrust law?

  • Insurance companies (correct)
  • Retail chains
  • Pharmaceutical companies
  • Telecommunication companies
  • Under the 1933 Securities Act, what is required for securities before they are publicly offered?

  • Government audit
  • Formal registration (correct)
  • Investor approval
  • Market research
  • What is one of the primary reasons corporate structures are important in society?

    <p>They help to build employment and wealth collectively.</p> Signup and view all the answers

    Which offering is exempt from registration and limited to $1 million under the regulations?

    <p>Rule 504</p> Signup and view all the answers

    Which statement accurately describes sole proprietorships?

    <p>The owner bears 100% of the income and personal liability.</p> Signup and view all the answers

    What is involved in the formation of a sole proprietorship?

    <p>No formal formation process is required.</p> Signup and view all the answers

    What does Section 10(b)(5) of the Securities Act prohibit?

    <p>Fraud or misleading investors</p> Signup and view all the answers

    What document is necessary for forming entities like corporations or LLCs?

    <p>Articles of incorporation or organization.</p> Signup and view all the answers

    Which element is NOT required to prove a violation of securities fraud under Section 10(b)(5)?

    <p>Lack of investor awareness</p> Signup and view all the answers

    Why do sole proprietors pay taxes at two different rates?

    <p>They pay personal tax and self-employment tax.</p> Signup and view all the answers

    What is NOT a characteristic of a secured transaction?

    <p>Exclusively pertains to real estate</p> Signup and view all the answers

    What is the implication of the 'flow-through' taxation method for sole proprietors?

    <p>Only the owner is taxed, preventing double taxation.</p> Signup and view all the answers

    Which of the following is a goal related to the prevention of insider trading?

    <p>Preventing fraud or misleading practices</p> Signup and view all the answers

    What is a major advantage of operating as a sole proprietor?

    <p>Ease of formation and more operational flexibility.</p> Signup and view all the answers

    What steps must be taken first when forming any corporate entity?

    <p>Conduct a name search with the Secretary of State.</p> Signup and view all the answers

    What is one significant disadvantage of a sole proprietorship (SP)?

    <p>Unlimited liability for debts</p> Signup and view all the answers

    In a general partnership (GP), how are profits typically shared by default?

    <p>Equally among partners</p> Signup and view all the answers

    What is a necessary step in forming a partnership?

    <p>Obtain an Employer Identification Number (EIN)</p> Signup and view all the answers

    Which type of partner in a limited partnership (LP) has unlimited personal liability?

    <p>General partner</p> Signup and view all the answers

    Which of the following is an inaccurate statement about the taxation of partnerships?

    <p>Partnerships pay income taxes at the entity level.</p> Signup and view all the answers

    What can lead to the dissolution of a partnership?

    <p>One partner's desire to retire</p> Signup and view all the answers

    What is a significant advantage of a limited liability company (LLC) over a sole proprietorship?

    <p>Limited personal liability for members</p> Signup and view all the answers

    Which requirement is NOT necessary for forming a limited liability company (LLC) in California?

    <p>Publishing the filing in a newspaper</p> Signup and view all the answers

    What type of partnership limits a partner's liability to the amount they invested?

    <p>Limited Partnership (LP)</p> Signup and view all the answers

    What is a primary characteristic of franchises?

    <p>Utilization of the franchisor's established brand</p> Signup and view all the answers

    In what scenario would a partner in a GP NOT be liable for another partner's actions?

    <p>Such scenario does not exist</p> Signup and view all the answers

    What is one of the duties partners owe to each other in a partnership?

    <p>Duty of loyalty to the business</p> Signup and view all the answers

    What is the primary purpose of the Operating Agreement in an LLC?

    <p>To detail member rights and duties</p> Signup and view all the answers

    Which of the following is a characteristic that distinguishes Limited Liability Limited Partnerships (LLLPs) from regular limited partnerships?

    <p>All partners are limited to the amount they invest</p> Signup and view all the answers

    Why might certain professionals, like bankers and lawyers, not form LLCs?

    <p>They must form Limited Liability Partnerships (LLPs).</p> Signup and view all the answers

    What is required to resolve a dispute regarding the valuation of a partnership during separation?

    <p>Appraisal of the business' value</p> Signup and view all the answers

    What must be filed to form a corporation in California?

    <p>Articles of incorporation</p> Signup and view all the answers

    What is a consequence of corporations being double-taxed?

    <p>Corporate profits and employee salaries are both taxed.</p> Signup and view all the answers

    What is NOT an advantage of forming a corporation?

    <p>Simplicity in tax structure</p> Signup and view all the answers

    Which document governs the internal rules and operations of a corporation once formed?

    <p>Bylaws</p> Signup and view all the answers

    What limitation does a subchapter-S corporation face?

    <p>Can only have one class of stock</p> Signup and view all the answers

    What occurs if a partner wants to force the sale of a partnership they own a majority interest in?

    <p>It depends on the partnership agreement</p> Signup and view all the answers

    What must members of an LLC file to provide information about all members?

    <p>Statement of Information</p> Signup and view all the answers

    What is one disadvantage of forming an LLC compared to a corporation?

    <p>Not all individuals can be members of an LLC.</p> Signup and view all the answers

    Why do many corporations choose not to elect S-corporation status?

    <p>They cannot meet eligibility criteria.</p> Signup and view all the answers

    What is a primary responsibility of agents towards their principals?

    <p>Communicate all business matters with the principal</p> Signup and view all the answers

    Under what condition is an agency relationship NOT created?

    <p>When the subject matter is illegal</p> Signup and view all the answers

    Which of the following is considered a violation of an agent's duty of loyalty?

    <p>Diverting business to a third party</p> Signup and view all the answers

    Which factor is NOT considered when determining if a worker is classified as an employee or an independent contractor?

    <p>Worker's years of experience</p> Signup and view all the answers

    What is one exception to a principal indemnifying an agent for wrongful acts?

    <p>In cases of unauthorized acts</p> Signup and view all the answers

    What does Section 1 of the Sherman Act primarily address?

    <p>Illegal contracts in restraint of trade</p> Signup and view all the answers

    Which of the following is an example of horizontal restraint of trade?

    <p>A group of sellers refusing to deal with one firm</p> Signup and view all the answers

    In the gig economy, what benefits do drivers classified as independent contractors typically lack?

    <p>Health insurance</p> Signup and view all the answers

    What is a 'work for hire' scenario?

    <p>A commissioned project with ownership rights</p> Signup and view all the answers

    When can a principal still be held liable for an agent's actions?

    <p>When the agent acts with some form of authority from the principal</p> Signup and view all the answers

    What is one factor that could indicate a worker is an independent contractor?

    <p>They have their own employees</p> Signup and view all the answers

    What is a potential result of a company improperly classifying its workers as independent contractors?

    <p>Legal action for employee protections violations</p> Signup and view all the answers

    What is usually required for an agency relationship to end?

    <p>Mutual agreement or contract term ending</p> Signup and view all the answers

    What role do directors primarily serve within a corporation?

    <p>Oversee corporate activities and make policy decisions</p> Signup and view all the answers

    Which of the following accurately describes the duty of care owed by officers to a corporation?

    <p>Acting in good faith and honesty</p> Signup and view all the answers

    What does the doctrine of respondeat superior imply for a corporation?

    <p>A corporation may be liable for acts of employees acting within the scope of employment</p> Signup and view all the answers

    When are shareholders typically not liable for the debts of a corporation?

    <p>When they invest in the company’s stock</p> Signup and view all the answers

    Which financing method allows a company to raise funds without giving up control?

    <p>Debt financing through loans and bonds</p> Signup and view all the answers

    Which right does a director have regarding the corporation’s records?

    <p>Right to inspect the company’s books and records</p> Signup and view all the answers

    In what scenario might a corporation not be liable for an employee's actions?

    <p>When the employee was off the job on personal errands</p> Signup and view all the answers

    What must be present for an initial public offering (IPO) to take place?

    <p>The setting of a market value for the stock</p> Signup and view all the answers

    What action should Stephanie take if her company considers moving into a building she owns?

    <p>Engage in full disclosure of the potential conflict of interest</p> Signup and view all the answers

    Which of the following is a requirement for a valid corporate meeting?

    <p>Majority of directors must be present for a quorum</p> Signup and view all the answers

    What best describes the duty of loyalty that officers and directors owe to a corporation?

    <p>Disclosing all personal conflicts of interest</p> Signup and view all the answers

    What is typically included in common stock ownership?

    <p>Proportional voting rights</p> Signup and view all the answers

    Which of the following is true about the par value of shares?

    <p>It is usually set at a very low amount</p> Signup and view all the answers

    What must Stephanie do before any vote regarding a conflict of interest?

    <p>Disclose her conflict of interest</p> Signup and view all the answers

    What is one primary reason a company might issue multiple classes of shares?

    <p>To distinguish between shareholders with different privileges</p> Signup and view all the answers

    Which right allows shareholders to receive distributions of profit?

    <p>Dividends</p> Signup and view all the answers

    What is a necessary condition for shareholders to bring a derivative action lawsuit?

    <p>Written demand must be made</p> Signup and view all the answers

    What argument might Nicole use to sue the directors for mismanagement?

    <p>Misuse of funds evidenced in financial statements</p> Signup and view all the answers

    What fiduciary duty do majority shareholders owe to minority shareholders in close corporations?

    <p>The duty to not engage in oppressive conduct</p> Signup and view all the answers

    In agency law, who is responsible for contracts entered into by its employees?

    <p>The employer or principal</p> Signup and view all the answers

    How can an agency relationship be established without a formal contract?

    <p>Through conduct or implied agency</p> Signup and view all the answers

    What is one disadvantage of close corporations compared to publicly traded companies?

    <p>Inability to transfer or sell shares to outside parties</p> Signup and view all the answers

    What could the company argue in defense of its spending practices?

    <p>Decisions were made to create business opportunities</p> Signup and view all the answers

    What type of action allows shareholders to appoint a representative to sue for mismanagement?

    <p>Direct action</p> Signup and view all the answers

    What is one way a corporation can be compelled to issue dividends?

    <p>By a majority vote among shareholders</p> Signup and view all the answers

    Which of the following accurately describes a fiduciary relationship?

    <p>A relationship involving trust and confidentiality</p> Signup and view all the answers

    What legislative body might control a majority shareholder's duty to minority shareholders?

    <p>State legislation and corporate law</p> Signup and view all the answers

    What is a key feature of voting power for shareholders?

    <p>It allows approval of amendments to bylaws</p> Signup and view all the answers

    What action should Stephanie take if the board of directors decides to move into a building she owns, leading to her personal profit?

    <p>Disclose her ownership to the board and recuse herself from the decision.</p> Signup and view all the answers

    Which power allows shareholders to approve amendments to bylaws or the election of directors?

    <p>Voting Power</p> Signup and view all the answers

    In a close corporation, what obligation do directors and officers have towards minority shareholders?

    <p>To uphold a fiduciary duty and avoid oppression</p> Signup and view all the answers

    What is required for shareholders to initiate a derivative action against a corporation or its directors?

    <p>A written demand on the corporation to sue</p> Signup and view all the answers

    What is an example of a reason a minority shareholder in a close corporation might take legal action?

    <p>Refusal of majority shareholders to perform a company valuation</p> Signup and view all the answers

    Which power gives shareholders the right to inspect corporate documents?

    <p>Inspect Corporate Documents</p> Signup and view all the answers

    What does a direct action lawsuit involve for shareholders?

    <p>Appointing a class representative for a lawsuit against the corporation</p> Signup and view all the answers

    What is a significant characteristic of close corporations?

    <p>They cannot exceed 35 shareholders</p> Signup and view all the answers

    What is the first step in the formation process of a corporation?

    <p>File articles with the Secretary of State (SOS)</p> Signup and view all the answers

    Which of the following rights are included in shareholder agreements?

    <p>Right to sue on behalf of the corporation</p> Signup and view all the answers

    What is a characteristic of a C corporation?

    <p>Double taxation of profits</p> Signup and view all the answers

    What is one of the fiduciary duties of directors and officers?

    <p>Duty of Care</p> Signup and view all the answers

    Which type of financing keeps the ownership structure unchanged?

    <p>Debt financing</p> Signup and view all the answers

    What is a major feature of S corporations?

    <p>Single class of stock</p> Signup and view all the answers

    Which statement regarding corporate liability is accurate?

    <p>Corporations are treated as separate entities from their owners.</p> Signup and view all the answers

    What action can shareholders take in relation to the corporation?

    <p>Participate in a sale if a majority sells their stake</p> Signup and view all the answers

    Under which condition can directors and officers be held liable for corporate actions?

    <p>If they breach their fiduciary duties</p> Signup and view all the answers

    Which of the following describes a vesting schedule for shareholders?

    <p>Gradually increases ownership stake over time</p> Signup and view all the answers

    What is one of the primary responsibilities of the board of directors?

    <p>Set corporate strategy and policy</p> Signup and view all the answers

    What characterizes private equity financing?

    <p>Involves managerial expertise from outside parties</p> Signup and view all the answers

    Which factor is NOT necessary for forming an S corporation?

    <p>Must have employees</p> Signup and view all the answers

    Directors who cannot attend meetings may utilize which option?

    <p>Assign a proxy to vote on their behalf</p> Signup and view all the answers

    What is a defining characteristic of sole proprietorships?

    <p>The owner bears all risks and rewards.</p> Signup and view all the answers

    Which step is essential in forming any type of business entity?

    <p>Decide on the entity type.</p> Signup and view all the answers

    What does 'flow-through' taxation mean for sole proprietors?

    <p>All profits are taxed at individual income tax rates.</p> Signup and view all the answers

    Which of the following statements is true regarding the taxation of sole proprietorships?

    <p>They only report income on Schedule C of the tax return.</p> Signup and view all the answers

    Which of the following is NOT a necessary step in the formation of a limited liability company (LLC)?

    <p>Create detailed bylaws for the LLC.</p> Signup and view all the answers

    What is a primary benefit of a partnership in terms of taxation?

    <p>Profits are passed through to individual partners' tax returns.</p> Signup and view all the answers

    In a general partnership, what is the default rule for profit sharing if no agreement is made?

    <p>Split 50-50 between partners.</p> Signup and view all the answers

    What distinguishes a general partner from a limited partner in a limited partnership?

    <p>General partners operate the business and have unlimited liability.</p> Signup and view all the answers

    Which provision might be included in a partnership agreement to address potential misconduct?

    <p>Bad boy provisions or involuntary forfeiture clauses.</p> Signup and view all the answers

    If Adam contributes $60,000 and Bryan contributes $40,000 to a partnership with no specific agreement, how would profits be distributed under default rules?

    <p>Adam 50%, Bryan 50%.</p> Signup and view all the answers

    What is a requirement for a franchisee when entering a franchising agreement?

    <p>They must conform to the franchisor's requirements.</p> Signup and view all the answers

    What element is NOT included in the governance of an LLC's Operating Agreement?

    <p>Requirements for forming partnerships</p> Signup and view all the answers

    What happens to the rights and obligations of a business once it transitions from a sole proprietorship to an LLC?

    <p>They can be transferred to the LLC.</p> Signup and view all the answers

    Which statement accurately reflects the income and taxation structure of an LLC?

    <p>An LLC may be taxed as a sole proprietorship if it has one member.</p> Signup and view all the answers

    What is one of the primary cons of an LLC pertaining to membership interests?

    <p>Transferability requires consent from other members.</p> Signup and view all the answers

    Which of the following best describes the ownership of real property in a partnership?

    <p>The partnership itself owns the property.</p> Signup and view all the answers

    Why might certain professionals be ineligible to form LLCs?

    <p>State laws restrict certain professions from forming LLCs.</p> Signup and view all the answers

    What must happen for limited partners wishing to dissolve their partnership with a majority interest partner?

    <p>They cannot force dissolution if the majority wishes to continue.</p> Signup and view all the answers

    What is a potential tax liability for a C corporation?

    <p>Accumulation of earnings tax</p> Signup and view all the answers

    What is one characteristic that distinguishes S corporations from partnerships?

    <p>S corporations do not face penalties for failing to file a return</p> Signup and view all the answers

    What limitation exists for income derived from personal investments in C corporations?

    <p>Personal holding company rules may apply</p> Signup and view all the answers

    Which statement correctly describes estimated tax payment requirements for partnerships?

    <p>Partnerships are not required to make estimated tax payments</p> Signup and view all the answers

    What is a key aspect of the accumulation of earnings for C corporations?

    <p>C corporations face penalties under § 531 for excessive accumulation</p> Signup and view all the answers

    What distinguishes S corporations in terms of personal holding company income taxation?

    <p>S corporations are not subject to personal holding company tax</p> Signup and view all the answers

    What occurs when a shareholder provides excessive loans to an S corporation?

    <p>Section 385 rules may apply if the loans are excessive</p> Signup and view all the answers

    What is the consequence of a C corporation failing to make estimated tax payments on certain taxes?

    <p>They face a penalty for underpayment.</p> Signup and view all the answers

    How is passive investment income treated in partnerships compared to C corporations?

    <p>C corporations face potential tax but partnerships have no limitations</p> Signup and view all the answers

    Which tax preference only applies at the corporate level?

    <p>Built-in gains tax</p> Signup and view all the answers

    How are capital gains taxed for a C corporation?

    <p>They are taxed to the corporation.</p> Signup and view all the answers

    What limitation exists for charitable contributions made by a C corporation?

    <p>They cannot exceed 10% of taxable income.</p> Signup and view all the answers

    What characterizes the treatment of dividend income in a C corporation?

    <p>It retains its dividend status when passed to shareholders.</p> Signup and view all the answers

    Which of the following statements about tax-exempt income is incorrect?

    <p>It is always fully credited to individual shareholders tax records.</p> Signup and view all the answers

    Which statement correctly describes the treatment of net capital losses in a C corporation?

    <p>They may be carried back three years and forward five.</p> Signup and view all the answers

    How do tax preferences function within a partnership compared to a C corporation?

    <p>Tax preferences only apply at the corporate level in C corporations.</p> Signup and view all the answers

    What is the deadline for filing Form 1120S after the end of the taxable year?

    <p>By the 15th day of the third month following the end of the taxable year.</p> Signup and view all the answers

    What is necessary to obtain an automatic six-month extension for filing corporate tax returns?

    <p>Filing Form 7004.</p> Signup and view all the answers

    What happens to the S corporation election if passive income exceeds 25% of gross receipts for three consecutive years?

    <p>The S election is automatically terminated.</p> Signup and view all the answers

    Which statement is correct regarding the examination of tax returns for an LLC?

    <p>Examination occurs at the LLC level with a duty of consistency among members.</p> Signup and view all the answers

    What restriction applies to accounting methods used by partnerships with a C corporation as a partner?

    <p>They are restricted to the accrual method of accounting.</p> Signup and view all the answers

    Under what condition can a partnership's terminative event occur without problem?

    <p>Sale of 50% or more of a partner's interest within six months.</p> Signup and view all the answers

    What is a primary requirement for forming an LLC?

    <p>Satisfaction of state law requirements</p> Signup and view all the answers

    How does the liability of owners in a limited partnership compare to that in a general partnership?

    <p>Limited partners have no liability while general partners have full liability</p> Signup and view all the answers

    What must be filed to adopt a taxable year end that provides a deferral of income for a partnership?

    <p>Form 444.</p> Signup and view all the answers

    What could cause an inadvertent termination of an S corporation election?

    <p>Transfer of shares to an ineligible shareholder.</p> Signup and view all the answers

    What is a key difference in management between an LLC and a general partnership?

    <p>All partners in a general partnership are eligible for management roles</p> Signup and view all the answers

    What happens if a partner receives an interest in capital for performing services?

    <p>It is treated as non-income only if it is a profits interest.</p> Signup and view all the answers

    How does a partner’s share of liabilities affect their basis in the partnership?

    <p>It increases the basis according to § 752.</p> Signup and view all the answers

    What occurs to the continuity of an LLC in cases of member withdrawal?

    <p>It terminates for state law purposes</p> Signup and view all the answers

    Under what circumstance is gain recognized when transferring mortgaged property to an equity?

    <p>When the debt exceeds the adjusted basis of the property transferred.</p> Signup and view all the answers

    Which statement accurately describes the tax implications for an LLC?

    <p>An LLC can choose to file Form 8832 to be taxed as a corporation</p> Signup and view all the answers

    What is a common misconception regarding the expenses involved in forming an LLC compared to a general partnership?

    <p>Expenses for forming an LLC can be less than a partnership but not always</p> Signup and view all the answers

    What must be filed by a partnership following the close of its taxable year?

    <p>Form 1065 by the 15th day of the fourth month.</p> Signup and view all the answers

    What is the effect of transferring stock in exchange for services upon incorporation?

    <p>Only limited stock can be transferred tax-free.</p> Signup and view all the answers

    What limitation does a general partnership face that is different from a corporation regarding continuity?

    <p>Partnerships can only exist for a limited time</p> Signup and view all the answers

    Which statement accurately reflects the role of managers in an LLC?

    <p>Management can be either by members or elected managers</p> Signup and view all the answers

    How is liability treated when transferring property in a partnership under § 357?

    <p>Excess liability is considered as boot.</p> Signup and view all the answers

    What determines the basis of interest in a partnership upon formation?

    <p>It is equal to the amount of money and adjusted basis of property transferred.</p> Signup and view all the answers

    When transferring property to an S corporation, what is the impact of liabilities under § 357?

    <p>Excess liabilities over the basis of property result in boot recognition.</p> Signup and view all the answers

    What is the treatment of net operating losses for C corporations?

    <p>May carry back fifteen years and forward twenty years</p> Signup and view all the answers

    How does § 179 Additional Depreciation apply to S corporations?

    <p>Limitations are applicable to the S corporation and each shareholder</p> Signup and view all the answers

    What must occur for gains on transactions between an entity and an owner to qualify for capital gain treatment?

    <p>The property sold must not be depreciable</p> Signup and view all the answers

    What is the impact of owning more than a 50% interest for losses on transactions between an entity and its owner?

    <p>Loss is disallowed entirely to the owner</p> Signup and view all the answers

    How does the calculation of investment interest differ between partnerships and S corporations?

    <p>Calculated at the partner level for partnerships and at the shareholder level for S corporations</p> Signup and view all the answers

    Which statement is true regarding expenses owed by an entity to its owner?

    <p>§ 267(e) allows deduction only when included in the owner’s income</p> Signup and view all the answers

    For subsequent basis adjustments under § 705, what happens to basis when cash or property is distributed?

    <p>Basis decreases for distributions of cash, property, and liabilities</p> Signup and view all the answers

    Which condition affects the passive loss rules for S corporations?

    <p>They apply only to certain small closely-held corporations</p> Signup and view all the answers

    What significant outcome occurred as a result of Curt Flood's refusal to be traded?

    <p>The birth of free agency in MLB.</p> Signup and view all the answers

    What does Rule 506 of Regulation D primarily pertain to?

    <p>Private placements that are not generally solicited.</p> Signup and view all the answers

    Which of the following is NOT a requirement for proving a violation under Section 10(b)(5) of the Securities Act?

    <p>Providing evidence of non-disclosure of minor facts.</p> Signup and view all the answers

    What is the maximum amount a company can offer under Regulation A within a 12-month period?

    <p>$50 million.</p> Signup and view all the answers

    What is the primary focus of the 1933 Securities Act regarding financial instruments?

    <p>To ensure transparency through mandatory registration of securities.</p> Signup and view all the answers

    What is a principal's duty to an agent?

    <p>To compensate the agent for their work</p> Signup and view all the answers

    Under the gig economy, which of the following is a characteristic of independent contractors?

    <p>They have more control over their work schedule</p> Signup and view all the answers

    Which factor is primarily considered to classify a worker as an independent contractor or employee?

    <p>The level of control the employer has over the worker</p> Signup and view all the answers

    Which is NOT a method for creating an agency relationship?

    <p>Personal affiliation between individuals</p> Signup and view all the answers

    What does Section 2 of the Sherman Act address?

    <p>Monopolization or attempts to monopolize</p> Signup and view all the answers

    Which of the following actions could potentially place an agent in violation of their duty of loyalty?

    <p>Diverting business opportunities to a competing firm</p> Signup and view all the answers

    What is a common characteristic of vertical restraints of trade?

    <p>Restrictions placed by suppliers on how products are sold</p> Signup and view all the answers

    Which illustration best describes a 'work for hire' situation?

    <p>An employee creates a marketing video for their company</p> Signup and view all the answers

    What does the term 'indemnity' in an agency relationship refer to?

    <p>The principal protecting the agent from liability</p> Signup and view all the answers

    Study Notes

    • Corporations are separate legal entities from their owners.
    • Corporations are formed by adopting bylaws, not partnership agreements.
    • Formation process includes: filing articles with the Secretary of State, obtaining an EIN from the IRS, filing a statement of information with the SOS, optionally filing an S-Corporation election with the IRS, and entering into contracts to start operating.
    • Corporations enjoy the same legal rights and responsibilities as individuals.
    • Corporate owners and employees are not personally liable for corporate debts, except in cases of fraud.
    • Corporations are subject to double taxation: first on corporate profits and again on employee salaries.
    • An alternative to C-Corp taxation is S-Corp, which is taxed like partnerships (pass-through tax) with limitations regarding shareholders.
    • Directors represent the board and establish the corporation's strategy; elected by shareholders.
    • Officers (President, VP, CFO) are the daily employees of the corporation.
    • Directors and officers are not liable for actions taken within the scope of their employment unless there's a breach of fiduciary duty.
    • Corporations raise capital through debt and/or equity financing.
    • Debt financing allows the corporation to retain ownership but obligates the repayment of principal and interest.
    • Equity financing involves shareholders owning a portion of the company via purchasing stock.
    • Shares of stock have voting rights and dividend eligibility, both of which are discretionary and outlined in the articles of incorporation.
    • Shareholders are not personally liable for the corporation's debts.
    • They can enter into shareholder agreements, sue the corporation, and be sued.
    • Drag-along and tag-along rights provide options for shareholders if a majority stake in the corporation is sold.
    • Vesting schedules determine how shareholder participation grows over a period.
    • Financing methods include external ventures (Venture Capital, Private Equity), and private funding (Crowdfunding).
    • Crowdfunding platforms (Kickstarter, IndieGoGo, GoFundMe) utilize donation and equity-based models.
    • Directors have annual meeting obligations where each director has one vote on decisions.
    • Absentees can authorize proxies to represent them.
    • Directors have the right to review company books and records.
    • Indemnification protects directors and officers from legal costs and judgments related to their corporate activities.
    • Officers and directors have fiduciary duties, care, and loyalty to the corporation.
    • Duty of care means acting in good faith and in the best interest of the corporation.
    • Duty of loyalty implies prioritizing the corporation's interests above personal interests.
    • Directors and officers are protected from liability under the business judgment rule if they took reasonable steps to be informed about the issue, had a rational basis for decisions, and did not have any conflicts of interest.
    • Shareholders have the power to vote on amendments and the election of directors.
    • They can buy and sell stock without external approval, they receive dividends, and can review corporate documents, and have the right to sue if the corporation/directors/officers act wrongfully.
    • Shareholders can initiate lawsuits directly against the corporation or derivatively on behalf of the corporation against a third party.
    • Lawsuits need to be preceded by written demand to the corporation before bringing a suit.
    • Close corporations have fewer than 35 shareholders and are not publicly traded.
    • Directors and officers in close corporations have a fiduciary duty not to act oppressively towards minority shareholders.
    • In-class exercise involves searching for California corporations through a provided online resource and collecting specified data.

    Hypothetical Scenarios

    • Duty of Loyalty Hypothetical: Stephanie, a director, owns a building the corporation wants to purchase.
    • Direct and Derivative Action Hypothetical: Nicole, a shareholder, questions the company's expenses concerning corporate assets.

    Shareholder Powers and Rights

    • Voting Power, Ownership/Transfer, Dividends, Inspecting Corporate Documents, Right to Sue.

    Close Corporations

    • Applies to corporations with fewer than 35 shareholders.
    • Directors and officers have a fiduciary duty not to act oppressively towards minority shareholders.

    In-Class Exercise

    • Students need to research California corporations via the provided website and retrieve specific information.

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    Description

    Test your knowledge on key concepts in business law and corporate structures. This quiz covers topics such as monopolies, antitrust laws, securities regulations, and sole proprietorships. Perfect for students studying business or law at any level.

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