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Questions and Answers
The owners of a corporation are called stockholders.
The owners of a corporation are called stockholders.
True (A)
A partnership offers limited liability to its owners.
A partnership offers limited liability to its owners.
False (B)
Sole proprietorships are mutual agencies.
Sole proprietorships are mutual agencies.
False (B)
In a limited liability company, the owners are referred to as interest holders.
In a limited liability company, the owners are referred to as interest holders.
In a limited partnership, the limited partners manage the business and are personally liable for all losses.
In a limited partnership, the limited partners manage the business and are personally liable for all losses.
A shareholder derivative suit is brought by a minority shareholder, but any recovery inures to the corporation.
A shareholder derivative suit is brought by a minority shareholder, but any recovery inures to the corporation.
Corporations are artificial persons created under the law of a state.
Corporations are artificial persons created under the law of a state.
In general, the creditors of a corporation cannot reach the personal assets of the shareholders to satisfy the corporation's obligations.
In general, the creditors of a corporation cannot reach the personal assets of the shareholders to satisfy the corporation's obligations.
Closely held corporations face the loss of limited liability through application of the doctrine known as piercing the corporate veil.
Closely held corporations face the loss of limited liability through application of the doctrine known as piercing the corporate veil.
Corporations incur the disadvantage of double taxation.
Corporations incur the disadvantage of double taxation.
An S corporation pays double tax on its income.
An S corporation pays double tax on its income.
Common stockholders share all three property rights associated with stock ownership in proportion to their holdings.
Common stockholders share all three property rights associated with stock ownership in proportion to their holdings.
In the context of the capital structure of corporations, equity capital has a short-term horizon.
In the context of the capital structure of corporations, equity capital has a short-term horizon.
Equity holders' claims are always satisfied before creditors' claims.
Equity holders' claims are always satisfied before creditors' claims.
Although shareholders are the owners of the corporation, control rests with the board.
Although shareholders are the owners of the corporation, control rests with the board.
The Securities Act of 1933 seeks to ensure full disclosure of all material facts about the investment opportunity to offerees before they invest.
The Securities Act of 1933 seeks to ensure full disclosure of all material facts about the investment opportunity to offerees before they invest.
Online trading services provide professional guidance to investors.
Online trading services provide professional guidance to investors.
Blue sky laws are primarily applicable to solely intrastate offerings.
Blue sky laws are primarily applicable to solely intrastate offerings.
Where mergers or direct acquisitions fail, a takeover can be attempted.
Where mergers or direct acquisitions fail, a takeover can be attempted.
Which of the following statements about corporations is true?
Which of the following statements about corporations is true?
Corporations distribute their aftertax income to their shareholders as _____ .
Corporations distribute their aftertax income to their shareholders as _____ .
On termination of a corporation, which of the following has the highest priority for payment?
On termination of a corporation, which of the following has the highest priority for payment?
Which of the following is a feature of a corporation?
Which of the following is a feature of a corporation?
Although the law of partnerships originated in the common law, all states except _____ adopted the Uniform Partnership Act.
Although the law of partnerships originated in the common law, all states except _____ adopted the Uniform Partnership Act.
Which of the following statements is true of the formation of partnerships?
Which of the following statements is true of the formation of partnerships?
Which of the following is true of the partnership form of business?
Which of the following is true of the partnership form of business?
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Study Notes
Corporation Ownership and Structure
- Stockholders are the owners of a corporation.
- Corporations are artificial persons created under state law.
- Shareholder derivative suits are initiated by minority shareholders, with any recovery benefiting the corporation.
- In a corporation, creditors generally cannot access the personal assets of shareholders to satisfy corporate debts.
- Corporations may lose limited liability through "piercing the corporate veil" in closely held corporations.
- Control of the corporation lies with the board of directors, despite shareholders being the owners.
- Corporations incur double taxation on their income.
Business Forms and Liability
- Partnerships do not provide limited liability to owners, contradicting the misconception.
- Sole proprietorships are not mutual agencies; they involve individual ownership.
- In limited partnerships, limited partners do not manage the business and carry no personal liability.
- Limited liability companies (LLCs) have owners referred to as members, rather than interest holders.
Financial Aspects and Regulations
- Common stockholders possess three key property rights associated with stock ownership proportionate to their holdings.
- Equity capital is considered long-term in the context of corporate capital structures.
- Claims of equity holders are not prioritized above creditors’ claims in liquidation scenarios.
- The Securities Act of 1933 mandates full disclosure of investment opportunities before offers are made.
- Blue sky laws govern securities offered within a single state, typically for intrastate offerings.
Mergers, Acquisitions, and Corporate Actions
- Mergers or direct acquisitions may fail, leading to potential takeover attempts.
- Corporations distribute after-tax income to shareholders in the form of dividends.
- Upon termination, creditors have the highest priority for payments, superior to both preferred and common shareholders.
Legal Aspects
- Double taxation is a feature of corporate entities.
- The Uniform Partnership Act has been adopted by all states except Louisiana.
- Partnership formations require co-owners to engage actively in business, cementing a shared risk and reward structure.
- Most partnership agreements are written, ensuring clear terms and conditions.
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