Which of the following is a requirement for a small business corporation to elect S corporation status?
Answer(s): A
Choice "a" is correct. A corporation may elect to be taxed like a partnership under Subchapter S only if it has only one class of stock.Choice "b" is incorrect. A corporation can elect S corporation status only if its shareholders are individuals, estates, or certain types of trusts.Choice "c" is incorrect. Foreign shareholders generally are prohibited in an S corporation. Choice "d" is incorrect. An S corporation can have up to 100 shareholders, but it may have fewer.
The president of a company has signed a $10 million contract with a construction company to build a new corporate office. Which of the following corporate documents sets forth the scope of authority under which this transaction is governed?
Answer(s): C
Choice "c" is correct. The bylaws usually contain the rules for running the corporation. Choices "a" and "b" are incorrect. These are possible choices, but not as good an answer as "c". A corporation's articles of incorporation (called a charter in a few states) must set out certain information relevant to formation of the corporation, but it may include any other information that it is not illegal.However, usually details about intracorporate power are set out in bylaws rather than in the articles or charter.Choice "d" is incorrect. A proxy statement is a request to shareholders to allow their shares to be voted by a specified person in a specified way. It has nothing to do with a corporate president's authority.Supplemental Questions
A limited liability company taxed under subchapter K of the Internal Revenue Code (the partnership subchapter):
Choice "c" is correct. A limited liability company must have written articles of organization, which must be filed with the state.Choice "a" is incorrect. An LLC taxed under subchapter K of the Internal Revenue Code (the partnership subchapter) does not pay federal income tax; the members are taxed on their share of the LLC's income.Choice "b" is incorrect. Unlike a general partnership, but like a corporation and a limited partnership, an LLC is considered a legal entity separate and apart from its owners. Choice "d" is incorrect. An LLC does not have to provide for apportionment of liability for LLC debts; the members of an LLC have limited liability.
A partnership agreement must be in writing if:
Answer(s): D
Choice "d" is correct. Under the statute of frauds, a partnership agreement must be in writing if by its terms the agreement cannot be completed within one year. Choice "a" is incorrect. No such rule. Although the statute of frauds requires a contract for the sale of goods for $500 or more to be evidenced by a writing, a writing is not required to contribute more than $500 in capital to a partnership.Choice "b" is incorrect. No such rule, a far out distracter. Choice "c" is incorrect. While a contract to buy or sell real estate will require a writing, a partnership agreement to own/buy real estate need not be in writing.
Unless prohibited by the organization documents, a stockholder in a publicly held corporation and the owner of a limited partnership interest both have the right to:
Choice "c" is correct. Both a shareholder in a publicly held corporation and the owner of a limited partnership interest have a right to assign (sell) their interest. While a shareholder is free to assign his whole ownership interest, a limited partner's assignable interest is limited to the limited partner's interest in profits and losses.Choice "a" is incorrect. Neither the stockholder of a publicly held corporation nor the owner of a limited partnership interest (or indeed, even a general partnership interest) has an ownership interest in any item of the business' assets--the assets belong to the business and not to the owners of the business.Choice "b" is incorrect. Stockholders and limited partners generally do not have the right to participate in the management of the business.Choice "d" is incorrect. A limited partnership interest dissolves upon death of the limited partner and so is not a perpetual investment.
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