11. Typical Inc. is a typical large publicly traded corporation that was incorporated in 1990. Which of the following individuals is most likely employed by Typical Inc. to manage its day-to-day affairs?
a. Typical Inc.’s President
b. Typical Inc.’s Incorporator
c. Typical Inc.’s Outside Director
d. Typical Inc.’s Registered Agent
12. Assume the facts stated in the prior question. Typical Inc.’s current directors were most likely elected by its:
b. Registered Agents
13. Cool Ventures Inc. was incorporated in the state of South Carolina. In Florida, Cool Ventures Inc. is referred to as:
a. A reciprocal corporation
b. A domestic corporation
c. A foreign corporation
d. An alien corporation
14. Which of the following is MOST ACCURATE considering ORX Resources, Inc. v. MBW Exploration, LLC?
a. Business owners are never personally liable if the entity in question was formed as a Corporation (instead of an LLC)
b. Members of an LLC can be personally liable if a court pierces the “LLC veil” to prevent the use of the LLC form to default creditors
c. Members of an LLC are never personally liable
d. Members of an LLC are always personally liable
15. Which of the following documents is most likely NOT filed with a SOS?
a. An LLC’s Operating Agreement
b. An LLC’s Articles of Organization
c. A corporation’s Articles of Incorporation
d. A limited partnership’s Certificate of Limited Partnership
16. Which of the following is MOST ACCURATE considering Meinhard v. Salmon?
a. Unlike partners, joint adventurers do not owe one another a duty of loyalty
b. Joint adventurers are always entitled to equal pay for equal work
c. The duty of loyalty can be breached when a partner takes an opportunity for herself (without first disclosing the opportunity to the other partners)
d. All of the above
17. Which of the following actions will most likely to require shareholder approval:
a. Issuing common stock that has previously been authorized
b. Hiring a new person to run the marketing department of a services company
c. Increasing the number of authorized shares of stock
d. Increasing the price of a frequently sold product
18. Which of the following is MOST ACCURATE considering Guth v. Loft, Inc. (the Pepsi case)?
a. Directors and officers are free to use a corporation’s assets for their personal uses (so long as such assets would otherwise be sitting idle)
b. Fiduciary duties are sometimes breached when a director pursues an opportunity (i.e., in her individual capacity) without first offering that opportunity to the corporation she is serving
c. Unless they agree in writing, corporate officers and directors owe no fiduciary duties to the corporations they serve
d. Directors and officers are free to pursue whatever personal interests they desire – so long as they do so after business hours (i.e., after 6:30 PM)
19. Which of the following is MOST ACCURATE about the Business Judgment Rule?
a. It allows directors and officers to avoid liability to corporations and shareholders for honest mistakes of judgment
b. It will never protect directors from bad business decisions
c. It will never protect officers from bad business decisions
d. All of the above
20. Which of the following is MOST ACCURATE considering SEC v. Texas Gulf Sulphur Co. (the insider trading case)?
a. Information relating to an initial test, or sample, is never sufficient to be considered a “material” under Rule 10b-5
b. The SEC brought its action because Texas Gulf Sulphur Co. was raising more than $5,000,000 as part of the stock issuance in question
c. Texas Gulf Sulphur Co. was liable because the shares in question were not registered with the SEC and such shares did not fit within an exemption from registration
d. Courts may consider what insiders actually did with information when determining whether such information is a “material” under Rule 10b-5
Background Information for the Next TWO Questions
The following companies plan to raise capital by issuing shares of stock as follows:
Company: Make-it-Happen Inc. Mover Inc. World Shaker, Inc.
Shares being offered : 1,100,000 250,000 800,000
Price per share: $1.00 $1.50 $0.50
Total amount of offering: $1,100,000 $375,000 $400,000
21. Which company is LEAST likely to rely on Rule 504 (of Regulation D) for its exemption from registration under the Securities Act of 1933 (ignore the recently passed Crowdfund Act)?
a. Mover Inc.
b. Make-it-Happen Inc.
c. World Shaker, Inc.
d. Each of the above companies may rely on Rule 504 for its exemption from registration
22. For this question only, assume that each company will rely on a Regulation D exemption from registration. Assume further that each company will issue shares of its stock to unaccredited investors as part of its offering. Which company MUST prepare an “offering document” in connection with its offering (again, ignore the recently passed Crowdfund Act)?
a. Mover Inc.
b. Make-it-Happen Inc.
c. World Shaker, Inc.
d. Each of the above companies must issue an offering document or private placement memorandum in connection with its offering
23. Barack and Mitt recently started a for-profit fitness center (i.e., gym/club). They are co-owners of the business. No documents were ever filed with the SOS on behalf of the business. Which of the following is TRUE:
a. The business is a partnership
b. Barack and Mitt should consider obtaining insurance to reduce certain risks related to the business
c. Barack and Mitt Should consider using contracts to reduce certain risks related to the business
d. All of the above
24. Britney’s sole proprietorship enters into a joint venture with Crazy Inc. (a Delaware corporation). Britney’s personal liability for the joint venture’s activities is:
a. Limited to the amount of her investment in the joint venture
b. Limited to the amount of her investment in the joint venture and any profits
c. Limited by state statute (and the specific amount varies from state to state)
25. Assume that Julie properly forms a corporation “S Inc.” S Inc. then enters into a partnership with Cash Capital Inc. Julie’s liability exposure for the partnership’s activities is most likely:
a. Limited to the amount of S Inc.’s investment in the partnership.
b. Limited to the amount of her investment in S Inc. (that is to say, S Inc.’s liability is unlimited with regards to the partnership’s activities but Julie’s liability is limited with regards to S Inc.’s activities).
c. Limited to the one-half of the amount of S Inc.’s investment in the partnership.
26. Charlene and Karla form a consulting firm called “C & K Partners.” For federal tax purposes, C & K Partners most likely:
a. Is a separate tax-paying entity.
b. Needs to file an informational tax return with the IRS but is not a separate tax-paying entity.
c. Pays ½ of the taxes if there are two partners.
d. Never files an informational tax return or pays any taxes.
27. Yan and Lazara, both U.S. citizens, want to market a new computer game. They wish to form a business entity that avoids U.S. income taxes at the entity level (they want the tax obligations to pass through to their individual returns). Which of the following entities could help Yan and Lazara achieve their goal:
a. IT Inc. (a Delaware corporation that has successfully elected to be taxed as an S Corporation).
b. IT Partners (a Delaware partnership)
c. IT LLC (a Delaware limited liability company)
d. Each of the above entities could help Yan and Lazara achieve their goal of avoiding U.S. income taxes at the entity level.
28. Anthony is an Officer of Toy Inc. (a large corporation). Without informing Toy Inc. or Play Inc., Anthony has taken an additional position as an Officer of Play Inc. Play Inc. is in direct competition with Toys Inc. Thus, Anthony is an Officer of both corporations and has not disclosed this fact to either corporation. By taking these actions, Anthony most likely:
a. Has NOT breached any duty because he has not made any misstatement of fact
b. Has breached his duty of loyalty to Toy Inc.
c. Has breached his duty of loyalty to Play Inc.
d. Both “b” and “c”
29. Co-founders Max, Grinch, and Cindy-Lou have written a business plan and are now launching the startup company in Illinois. Max and Grinch agree with Cindy-Lou when she says:
“If we waste time and worry about forming an entity and drawing up agreements with each other, our business will lose paying customers and the three of us will lose profits. That’s just dumb. After 3 or 4 years of solid sales, we can find an attorney to draw up the papers and incorporate us as either an LLC or Corporation.”
Over the next TWO years, which of the following laws will most likely govern the Max, Grinch, and Cindy-Lou business relationship?
a. Illinois’s partnership laws
b. Illinois’s corporation laws
c. Illinois’s limited liability company laws
d. Both Illinois’s corporation and limited liability company laws
30. Kendra, an employee of Big Company, files a sexual harassment suit against Archie, her supervisor. Kendra wins against Archie. Big Company, however, would also most likely be liable if it had harassment policies and complaint procedures in place:
a. But Kendra failed to follow such policies and procedures
b. And Kendra followed such polices and procures but Archie’s discrimination persisted
c. But Archie failed to follow such policies and procedures
d. But Big Company seldom gives its employee of the month awards to its female employees
31. Which of the following statements is MOST ACCURATE?
a. There are statutory and public policy exceptions to the at-will employment doctrine
b. There are NO exceptions to the at-will employment doctrine
c. The at-will employment doctrine is no longer applicable
d. There are only statutory exceptions to the at-will employment doctrine (i.e., public policy by itself is never sufficient to create an exception)
32. Which of the following is MOST ACCURATE considering Mims v. Starbucks Corp.?
a. Once an employee becomes a manager, she no longer desires overtime pay
b. In order for an employee to be considered a manager (and thus not entitled to overtime), she must spend more than 50% of her time performing management duties
c. When an employee spends only 30% of her time performing management duties, management may still be considered her primary duty
d. When determining whether or not employees are managers (and thus not entitled to overtime), courts will only consider official job titles (i.e., courts will not consider the tasks actually performed by the employees)
33. Alan is bringing a lawsuit under the Age Discrimination in Employment Act of 1967. Which of the following items is Alan NOT required to show in order to establish a prima facie case?
a. That he was a member of protected age group
b. That he was qualified for position from which he was discharged
c. That he was discharged under circumstances giving rise to inference of discrimination (e.g., age-related comments)
d. That he was not materially late for work on the date he was terminated