1. Taylor serves on the board of directors for Cabby Company. Taylor owns a lot of vacant land, which she tried to sell unsuccessfully for two years. Taylor convinced the board of directors to purchase 1,000 acres of her land for a price well over what the land is worth. This action may violate the __________ rule. A. business judgment B. insider trading C. fairness D. actual authority 2. Which of the following types of company offers protection for personal liability? A. General partnership B. Term partnership C. Limited liability partnership D. Sole proprietorship 3. An advantage of an S corporation is that shareholders can avoid A. bylaws. B. double taxation. C. insider trading. D. estoppel. 4. 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 business judgment rule. B. violated his duty of due diligence to the corporation. C. should benefit from the fairness rule. D. violated his duty of loyalty to the corporation. 5. 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. sole proprietorship. B. corporation C. partnership. D. limited liability company. 6. Jennie owns shares in Superstore, Inc. A vote about whether Superstore should expand its operations to China is coming up. Jennie thinks this is a good idea, but she doesn\'t own enough shares to control the outcome of the vote. Jennie could increase the chance that the vote will go her way by A. entering into a pooling agreement. B. making a shareholder proposal. C. offering to give someone else a proxy. D. filing a derivative suit. 7. The difference between a limited partnership and a registered limited liability partnership (RLLP) is that A. all partners have limited liability in a limited partnership, but not in an RLLP. B. an RLLP can have secret partners, while a limited partnership can\'t. C. a limited partnership can have secret partners, while an RLLP can\'t. D. all partners have limited liability in an RLLP, but not in a limited partnership. 8. Robert owns shares in Products, Inc., and suspects that Zach, one of the directors of the company, has been stealing corporate assets. Robert complains to the corporation, but no action is taken. Robert should file a A. direct suit against Products, Inc. B. direct suit against Zach. C. derivative suit against Products, Inc., on his own behalf. D. derivative suit against Zach on behalf of Products, Inc. 9. Steve decides to incorporate his business, but he thinks it\'s too expensive to hire an attorney to adv.

1. 1. Taylor serves on the board of directors for Cabby Company. Taylor owns a lot of vacant land,
which she tried to sell unsuccessfully for two years. Taylor convinced the board of directors to
purchase 1,000 acres of her land for a price well over what the land is worth. This action may
violate the __________ rule.
A. business judgment B. insider trading C. fairness D. actual authority
2. Which of the following types of company offers protection for personal liability?
A. General partnership B. Term partnership C. Limited liability partnership D. Sole
proprietorship
3. An advantage of an S corporation is that shareholders can avoid
A. bylaws. B. double taxation. C. insider trading. D. estoppel.
4. 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 business judgment rule. B. violated his duty of due diligence to the
corporation. C. should benefit from the fairness rule. D. violated his duty of loyalty to the
corporation.
5. 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. sole proprietorship. B. corporation C. partnership. D. limited liability company.
6. Jennie owns shares in Superstore, Inc. A vote about whether Superstore should expand its
operations to China is coming up. Jennie thinks this is a good idea, but she doesn't own enough
shares to control the outcome of the vote. Jennie could increase the chance that the vote will go
her way by
A. entering into a pooling agreement. B. making a shareholder proposal. C. offering to give
someone else a proxy. D. filing a derivative suit.
7. The difference between a limited partnership and a registered limited liability partnership
(RLLP) is that
A. all partners have limited liability in a limited partnership, but not in an RLLP. B. an RLLP can
have secret partners, while a limited partnership can't. C. a limited partnership can have secret
partners, while an RLLP can't. D. all partners have limited liability in an RLLP, but not in a
limited partnership.
8. Robert owns shares in Products, Inc., and suspects that Zach, one of the directors of the

2. company, has been stealing corporate assets. Robert complains to the corporation, but no action
is taken. Robert should file a
A. direct suit against Products, Inc. B. direct suit against Zach. C. derivative suit against
Products, Inc., on his own behalf. D. derivative suit against Zach on behalf of Products, Inc.
9. 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 correct; no corporation exists. D. Steve is wrong; a de jure corporation exists.
10. Company A, Inc., and Company B, Inc., are merging. Which of the following statements
regarding this merger is true?
A. Both companies 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. Neither company will
exist after the merger.
11. If a regulation affecting corporations is federal, the authority for that regulation likely derives
from
A. police power. B. executive orders. C. the Commerce Clause. D. the Supremacy Clause.
12. The primary difference between general partnerships and limited partnerships is the limiting
of the
A. number of agents. B. partners' profit. C. partners' liability. D. number of partners.
13. 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. corporate opportunity doctrine. B. actual authority rule. C. fairness rule. D. business judgment
rule.
14. 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. Common stock C. Preferred stock D. Convertible bonds
15. 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. not be held personally liable for the defects. B. be held personally liable only if the
corporation was aware of the defects. C. be held personally liable only if the plaintiffs name Sal
as a defendant. D. be held personally liable for the defects.

3. 16. In a general partnership, management decisions are made by
A. majority vote, with partners votes weighted in proportion to the interest owned. B. unanimous
vote in all business decisions. C. majority vote, with each partner having an equal vote. D. two-
thirds votes of the partners.
17. 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 due diligence. B. the fairness rule. End of exam C. her duty of obedience. D. the
actual authority rule.
18. In a/an _______, a group of shareholders purchases a controlling portion of the stock in a
corporation.
A. leveraged buyout B. consolidation C. merger D. asset acquisition
19. 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. sole proprietorship. B. partnership. C. limited liability company. D. corporation.
20. 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. Takeover bid B. Consolidation C. Merger D. Asset acquisition
Solution
The actions of Taylor were outside of business law but still violates the rule of fairness. It was
not fair on part of Taylor to intentionally quote the prices which she knew were higher than
actual price. The rule of fairness found its basis on principle of morality and ethics. It was
morally wrong for Taylor to sell land on higher prices.
Therefore, the correct answer is option ‘C’.