Questions and Answers
The owners of a corporation are called stockholders.
True
A partnership offers limited liability to its owners.
False
Sole proprietorships are mutual agencies.
False
In a limited liability company, the owners are referred to as interest holders.
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In a limited partnership, the limited partners manage the business and are personally liable for all losses.
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A shareholder derivative suit is brought by a minority shareholder, but any recovery inures to the corporation.
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Corporations are artificial persons created under the law of a state.
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In general, the creditors of a corporation cannot reach the personal assets of the shareholders to satisfy the corporation's obligations.
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Closely held corporations face the loss of limited liability through application of the doctrine known as piercing the corporate veil.
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Corporations incur the disadvantage of double taxation.
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An S corporation pays double tax on its income.
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Common stockholders share all three property rights associated with stock ownership in proportion to their holdings.
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In the context of the capital structure of corporations, equity capital has a short-term horizon.
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Equity holders' claims are always satisfied before creditors' claims.
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Although shareholders are the owners of the corporation, control rests with the board.
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The Securities Act of 1933 seeks to ensure full disclosure of all material facts about the investment opportunity to offerees before they invest.
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Online trading services provide professional guidance to investors.
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Blue sky laws are primarily applicable to solely intrastate offerings.
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Where mergers or direct acquisitions fail, a takeover can be attempted.
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Which of the following statements about corporations is true?
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Corporations distribute their aftertax income to their shareholders as _____ .
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On termination of a corporation, which of the following has the highest priority for payment?
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Which of the following is a feature of a corporation?
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Although the law of partnerships originated in the common law, all states except _____ adopted the Uniform Partnership Act.
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Which of the following statements is true of the formation of partnerships?
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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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Description
Test your knowledge with these flashcards from Chapter 9 of Business Studies. This set covers key concepts related to corporations, partnerships, and sole proprietorships. Challenge yourself to distinguish between true and false statements about business structures.
