PART (2) :



1.   Company A, Inc., and Company B, Inc., are merging. Which of the following statements regarding this merger is true?


A. Neither company will exist after the merger.

B. One of the two companies will exist after the merger.

C. A newly created third company will exist after the merger.

D. Both companies will exist after the merger.


2.   A shareholder’s preemptive rights refers to a right to


A. purchase a proportionate share of every new share offering by the company.

B. share in any profits insiders made from insider trading.

C. preempt the board of director’s decisions if they’re not supported by a majority of shareholders.

D. receive dividends out of profits before profits are used for any other purpose.


3.   Stuart and Cole enter a business venture in which they both agree to contribute funds, money, and time to a sporting goods store. Furthermore, the two agree to equally split all profits. Stuart and Cole have entered into a


A. partnership.

B. limited liability company.

C. sole proprietorship.

D. corporation.


4.   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. Debenture bonds

B. Preferred stock

C. Common stock

D. Convertible bonds


5.   Brenda is on the board of directors for Money Company. Brenda rarely attends board meetings and doesn’t pay attention when she does attend. Brenda usually votes like her friend Sadie, who is also on the board. Brenda voted for some proposals that harmed the company. Brenda likely violated


A. her duty of obedience.

B. the actual authority rule.

C. the fairness rule.

D. her duty of due diligence.


6.   The primary difference between general partnerships and limited partnerships is the limiting of the


A. number of partners.

B. number of agents.

C. partners’ liability.

D. partners’ profit.


7.   Company I, Inc., and Company II, Inc., are consolidating. Which of the following statements regarding this consolidation is true?


A. Both companies disappear and stop carrying on business.

B. Both companies continue and carry on business as usual.

C. One company disappears, and the other company carries on with both businesses.

D. Both companies join and carry on business under a new name.



8.   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


9.   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. operation of law.

B. judicial decree.

C. consent.

D. act of a partner.


10.   Herbie owns a pizza parlor in New York. Herbie didn’t file any documents to create the business entity, he makes all the business decisions, and he retains all profit after overhead is paid. Herbie owns a


A. corporation

B. partnership.

C. limited liability company.

D. sole proprietorship.


11.   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 wrong; a corporation by estoppel exists.

B. Steve is wrong; a de facto corporation exists.

C. Steve is wrong; a de jure corporation exists.

D. Steve is correct; no corporation exists.



12.   Ken is the president of a large energy company. Company executives approached Ken about purchasing some smaller companies to expand the business. Ken read the reports explaining the potential risk and return of the investment, and he decided the purchase appeared to be a good investment. Unfortunately, Ken was wrong, and the purchase caused the company to lose millions of dollars. Based on these facts, Ken


A. should benefit from the fairness rule.

B. violated his duty of due diligence to the corporation.

C. violated his duty of loyalty to the corporation.

D. should benefit from the business judgment rule.


13.   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. be held personally liable only if the plaintiffs name Sal as a defendant.

B. be held personally liable only if the corporation was aware of the defects.

C. not be held personally liable for the defects.

D. be held personally liable for the defects.


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. insider trading rule.

C. corporate opportunity doctrine.

D. fairness rule.


15.   Which of the following types of company offers protection for personal liability?


A. Limited liability partnership

B. Term partnership

C. General partnership

D. Sole proprietorship


16.   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. insider trading rule.

B. corporate opportunity doctrine.

C. fairness rule.

D. business judgment rule.


17.   In a general partnership, management decisions are made by


A. majority vote, with partners votes weighted in proportion to the interest owned.

B. majority vote, with each partner having an equal vote.

C. unanimous vote in all business decisions.

D. two-thirds votes of the partners.


18.   If a regulation affecting corporations is federal, the authority for that regulation likely derives from


A. the Supremacy Clause.

B. police power.

C. executive orders.

D. the Commerce Clause.


19.   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. General partnership

C. Sole proprietorship

D. Limited partnership


20.   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. business judgment rule.

D. corporate opportunity doctrine


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