QUESTION 1: Betty travels to Arkansas to look for a building for a salon. She negotiates and signs a lease for Hair Expressions as the tenant and tells the landlord that they are currently a partnership but will be incorporating Hair Expressions in the next few weeks. Who is liable for the obligations under the lease on the date Betty signs it?

a. Hair Expressions (the partnership)

b. Hair Expressions, Inc.

c. Betty

d. Betty, Hair Expressions (the partnership) and all of the other partners

QUESTION 2: The first official step in creating the corporation is:

a. issuing shares of stock to investors

b. filing articles of incorporation and paying a fee with the Secretary of State

c. holding an organizational meeting to adopt bylaws

d. electing officers and forming committees

QUESTION 3: When they incorporate Hair Expressions, Betty, Anne, Jean and Carla should also:

a. decide whether to be closely held or publicly traded

b. decide whether to elect Subchapter S tax treatment

c. execute a buy-sell agreement

d. all of the above

QUESTION 4: Betty, Anne, Jean and Carla are shareholders of Hair Expression, Inc. Betty, Anne and Carla are on the board of directors. Betty is the president and Anne is the secretary. Carla and Jean are not officers. If Hair Expressions is a publicly traded company, can Betty hire Dana as a new full-time employee over Jean's objection?

a. Yes, hiring employees is outside the ordinary course of business and requires a two-thirds majority vote of all of the shareholders.

b. Yes, hiring employees is in the ordinary course of business. Shareholders are not involved in the management of the business.

c. No, hiring employees is in the ordinary course of business and requires a unanimous vote of all of the shareholders.

d. No, hiring employees is outside the ordinary course of business and requires a unanimous vote of all of the shareholders.

QUESTION 5: Assume Hair Expressions, Inc. was created on November 8, 2015, as a closely held, Subchapter S corporation in Missouri. On November 21 Mary negligently applies a dye that turns Mrs. Black's hair pink. Mrs. Black is very upset so she brings a case in Missouri small claims court for $2,800 against the corporation, the shareholders and Mary. Who is liable?

a. Mary is liable and the corporation is vicariously liable for Mary's actions.

b. Mary, the corporation and the shareholders.

c. Mary, the corporation and the officers and directors.

d. The corporation and the shareholders are vicariously liable.

QUESTION 6: Hair Expressions, Inc. is now a Missouri corporation with salons in Missouri, Arkansas and Kansas. It is subject to lawsuits, income tax and sales tax in which state(s)?

a. Missouri

b. Arkansas

c. Kansas

d. all of the above

QUESTION 7: In question #6, Hair Expressions, Inc. also has a web site where it sells t-shirts and hats from Missouri. If George, a Georgia resident, buys a hat through the web site, which of the following is true?

a. Hair Expressions will pay real property tax in Georgia.

b. Hair Expressions will pay income tax in Georgia.

c. Hair Expressions will collect sales tax for Georgia.

d. Hair Expressions is required to qualify to do business in Georgia.

e. none of the above

QUESTION 8: If Hair Expressions, Inc. makes a profit, how are the profits shared and taxed if there is no Subchapter S election?

a. The corporation pays income tax on the profits. Shareholders benefit from profits by appreciation of the value of their shares or through dividends. Shareholders pay taxes on the dividends distributed to them.

b. Profits are shared based on each shareholder's capital contribution but the corporation must be taxed as a partnership. It does not have the ability to elect corporate taxation.

c. Profits are divided based on the number of shareholders and the corporation must pay income tax on the profits.

d. Profits are shared based on each shareholder's capital contribution and they may elect to be taxed as a partnership or a corporation.

QUESTION 9: Shareholders are owners, and may also be managers, of a closely held corporation.

True

False

QUESTION 10: In which of the following situations is it most likely that a business incorporated in Ohio will be required to qualify to do business in Kentucky?

a. The business sells its goods to customers in Kentucky through independent distributors located in Kentucky.

b. The business maintains a supply of goods in Kentucky that it sells to customers in Kentucky.

c. The business owns a building in Kentucky, which it holds for investment.

d. The business sends a sales agent to Kentucky to solicit orders from customers in Kentucky, but the orders are brought back to, accepted in and shipped from Ohio.

QUESTION 11: What is the term for an agreement that makes the shareholder sell his shares back to the corporation at a price determined in the agreement and binds the corporation to purchase the shares?

a. Fiduciary Agreement

b. Option Agreement

c. Agency Agreement

d. Buy-Sell Agreement

QUESTION 12: Rement Corporation is incorporated under the laws of New Jersey. Rement maintains a sales agent in New York, who makes contracts for Rement in New York City. New York can impose an income tax on Rement's profits from its New York sales at the same rate it taxes income from domestic New York corporations.

True

False

QUESTION 13: A corporation's decision to issue a dividend, and the size of that dividend, is made by the:

a. officers.

b. creditors.

c. board of directors.

d. shareholders.

QUESTION 14: Dollywood Inc., incorporated in Tennessee, specializes in theme parks in Tennessee and Georgia. Its dinner show, Dixie Stampede, is in Branson, Missouri. It will be considered a(n) _____ corporation in Missouri.

a. foreign

b. domicile

c. domestic

d. alien

QUESTION 15: Mary Lee James, a certified public accountant in Springfield, Missouri, wishes to incorporate. According to the corporate law requirements, she needs to incorporate under the:

a. professional corporation statute.

b. special professional charter.

c. general incorporation statute.

d. common corporation law.

QUESTION 16: Which of the following is true about an S corporation?

a. Shareholders of an S corporation may be only individuals or trusts.

b. An S corporation election requires the consent of a majority of its shareholders.

c. It is taxed at both the corporate and shareholder levels.

d. It may only have 500 or less shareholders.