Answer - Any remaining assets should be distributed to the partners based on their

ending capital balances. Any partner with a negative capital balance should
contribute sufficient funds to eliminate the deficit. (False)
Sarah, Allison, and Jamie have conducted business as a limited partnership for seven
years. Jamie and Allison, who financed the startup of the business, have both been
limited partners and Sarah is the only general partner. Sarah now wishes to buy half
of the limited partnership interest owned by Jamie. If Sarah does this, the limited
partnership is destroyed because Sarah will be both a general and a limited partner.
(True or False?)
Answer - The rule that a limited partnership must have at least one general partner
and at least one limited partner has not been violated. A general partner can also
own a limited partnership interest. Each general partner is exposed to unlimited
personal liability for all of the debts of the limited partnership. (False) '. v
7. A corporation is a separate person, separate from the individuals who formed the
corporation or who own the corporation. Because the corporation is a separate legal
entity, shareholders enjoy limited liability for the debts of the corporation. (True or
False?)
Answer - Because a corporation is an entity separate from its owners, these owners
(or shareholders) enjoy limited liability. They stand to lose only what they invest in
the corporation: what they have paid or have promised to pay for their stock.
Shareholders cannot be held personally responsible for the debts of a corporation
(unless, of course, they personally guarantee an obligation). (True)
In comparison to common stock, preferred stock has greater voting rights but less
right to dividends and to assets upon liquidation of the corporation. (True or False?)
Answer - The specific rights assigned to preferred stock will depend upon the
agreement
specified in the stock indenture (contract). Often, common stock has greater voting -.
rights. Preferred stock usually enjoys greater rights to assets upon liquidation and to
dividends. (False) t
9. The value of the stock of Capital Corporation declined dramatically after its board
uf directors exercised poor business judgment in deciding to expand into foreign
markets. Nevertheless, the corporation can indemnify the directors and pay their
attorney fees in defending a lawsuit brought by the shareholders. (True or False?)
* «>)-;.• „;.; ... , ••• ..^r
Answer - A corporation can indemnify its officers and/or directors for damages
suffered in suits alleging exercise of poor business judgment and can even pay
attorney fees incurred defending such suits as long as such indemnity is approved by
the court. (True)
*I10. Stan, a 10% owner of the stock of L. L. Grant Corporation, wishes to inspect
the books and records of L. L. Grant Corporation in hopes of obtaining information to
enable him to gain control of the corporation. Louis Grant, the company president,
can rightfully deny Stan access to the books and records of the corporation. (True or
False?)
Answer - It is valid to deny access to corporate books and records to someone who
wishes to obtain information to compete with the corporation. However, it is not valid
to deny access to a party who has purposes reasonably related to his or her interest
as a shareholder, including obtaining information to gain control of the corporation.
(False)
Business Structure - 7