1. Sari and Connie were interested in starting a concrete pouring business but neither had much experience operating a business (though both had worked for years in the concrete industry). Assuming a partnership was a good business formation, they agreed to split all the expenses and profits in half. Additionally, each agreed to work an equal share. They have not filed any paperwork with the state but they started pouring their first concrete job several days ago. Which of the following types of partnership have Sari and Connie formed?

a. Master limited partnership

b. Limited liability partnership

c. General partnership

d. Limited partnership

2. Tama was forming a film production company, in the form of a corporation. She never intended to take the company public and only was going to allow a small number of shareholders, no more than 20. In an attempt to avoid the double taxation of the classic C-corp status, Tama is considering electing S-corp status. Which of the following would prevent Tama's company from obtaining S-corp status?

a. Having a shareholder who is not a U.S. citizen.

b. Having two classes of stock.

c. All of these would prevent the company from obtaining S-Corp status.

d. The failure of one shareholder to sign the S-corp election form.

3. Elonzo had been working for years on the development of a new technology, which he believed would provide clean energy for a small fraction of the cost of current energy supplies. He thought he could provide low cost energy for the most impoverished areas of the country, but knew that to continue the production of his product he needed a certain amount of capital. Elonzo has invested several million dollars of his own money, yet needed additional investors. Ultimately he believed the company could be self-sustaining if he also could sell various versions of his product to consumers as well. As the chairman of the board, Elonzo has directed (with the support of other board members) that no dividends shall be paid out to shareholders until such time as the company's consumer sales can support the company's social objectives. May Elonzo make such a declaration?

a. No; even as a benefit corporation, the directors may not control dividend distribution.

b. No; even as a benefit corporation, it may not put social problems above the financial benefit of a shareholder.

c. Yes; if this is a benefit corporation, shareholders are not entitled to dividends.

d. Yes; if this is a benefit corporation, the directors may put the social goals of the company above distribution of dividends.

4. A company operating as a close corporation, MK3 Co, was initially capitalized by investments from all the shareholders. All the shareholders were members of the same family and also contributed to the work of the company. They were agreeable to delay their distributions of any company dividends for a period of time as long as they each received a salary for the work they did, as many of them did not want to pay a capital gains tax on the dividend. Once the company became profitable, the company accountant wanted to reduce the company's total amount of taxable income to minimize the effect of "double taxation." Which of the following would not represent a way that MK3 Co's income could be reduced?

a. Payments to outside vendors for operating expenses

b. Payment of interest on capital investments coming from the shareholders

c. Payment of salaries to the shareholder/family members

d. Maintaining earnings of the corporation in a separate account so that the company could avoid shareholder distributions (in acquiescence of the shareholders' wishes)

5. Jack, Jill, and Diane were partners in a snow removal business for five years, when Jack died suddenly. The business had been doing well and both Jill and Diane wanted to continue the operations. However, Jack's family wanted 33% of the profits of the business to continue to be paid to them, as they believed Jack's work and expertise had helped create the great business that existed today. Neither Jill nor Diane wanted to pay Jack's family. Must Jill and Diane dissolve the business and start their own new business or may they continue to operate without paying Jack's family anything?

a. Jill and Diane must dissolve the business and are prohibited from opening a new competing business.

b. Jill and Diane must dissolve the business because Jack was a partner who died.

c. Jill and Diane may continue to operate the business but they must purchase the interest of Jack at a fair value.

d. Jill and Diane may continue to operate the business but they must treat Jack's estate as a new partner.

6. Imad and Robert wanted to open a store that sold Zest!, a controversial new product which gave users a boost of energy. Some researchers claimed the product was unsafe and should be banned. Some people have needed medical attention after they ingested Zest! However, many other users had consumed it without experiencing any side effects other than the intended boost of energy. While Imad saw this as a potentially great business opportunity, he also wanted to protect himself as much as possible. If they form a corporation, which of the following would cause Robert or Imad to lose its personal liability protection?

a. Imad's use of company checks to make his mortgage payment

b. Filing their articles of incorporation in Delaware

c. The clerk for the secretary of state failed to file the articles of incorporation on the day they were submitted but did so several days later, and in the meantime Robert began signing contracts on behalf of the company.

d. Submitting an improper notarization on the corporation's documents

7. Cho was a vice president and corporate officer of Green Bins, Inc. He served on the board of directors with seven other people, three of whom were also corporate officers. The remaining directors were outside directors. One day, they were approached by Blue Bins Co. about a potential merger of the two companies. Blue Bins sought to buy out the shares of all their shareholders at a price of $10/share. All the inside directors, including Cho, believed they should wait because they could potentially get a better price next year; however, the outside directors argued that the shareholders did not have much confidence in the company's ability to get a higher price and wanted to proceed with the merger. If the shareholders wanted to force the merger, which of the following is true?

a. The shareholders can vote for the merger directly without the approval of the board.

b. The shareholders can do nothing to force the merger.

c. The shareholders can vote to remove the directors blocking the merger if the company is incorporated in a state that allows for removal without cause.

d. The shareholders can vote to remove the officers blocking the merger if the company is incorporated in a state that allows for removal without cause.

8. Janet was an attorney hired to draft the initial paperwork for incorporation of Alpakaz, Inc. In her first meeting with the incorporators, they were unsure about whether they should allow for cumulative voting or only permit straight voting by shareholders. In a company with 100 shareholders and 10,000 shares, how many shares are required to have a controlling position (elect at least 5 of the 9 directors) under cumulative voting?

a. 5,100

b. 5,001

c. 10,000

d. 1,001

9. Jimmy's Shoes, Inc. had several manufacturing facilities abroad. One facility was discovered to be a sweat-shop in violation of U.S. labor laws, and the company faced significant fines and penalties for its ongoing use of the facility. Further, public protests over the company's practices led to a downturn in stock prices. In order to succeed in a court action for damages, shareholders should most likely:

a. bring a derivative suit.

b. sell their stock at the lower price.

c. bring a direct suit.

d. demand the directors bring an action on behalf of the company

10. Drake was a minority shareholder who voted against a corporate merger, unsuccessfully. As a result of the merger, he was forced to give up his 12,000 shares in the company but was paid out the current fair market value of $6.00/share. To what additional compensation is Drake entitled?

a. Damages contingent upon the earnings of the new company

b. Shares in the new company that survives the merger

c. Damages under a derivative action

d. Nothing