Corporate Structures and Ownership quiz Corporate Finance Quiz On Aug 16, 2024 Share /10 12345678910 Corporate Structures and Ownership 10 questions in 10 minutes Answers at the end of the exam Pass Score 70% 1 / 10 Which of the following payments are contractual obligations of a corporation ? Interest, principal, and preferred stock dividend payments Interest and common stock dividend payments Interest and principal payments Interest and principal payments to lenders are contractual obligations. A corporation may distribute dividends to owners but is not required to do so . 2 / 10 Compared to a private company, public company investors have greater : control over management share transferability return potential (share transferability) is correct: because public shares trade on exchange whereas private shares do not. "In most cases, public companies have their shares listed and traded on an exchange. An exchange listing allows ownership to be more easily transferred because buyers and sellers transact directly with one another in the secondary market, on the exchange" . "If an owner of a private company wants to sell shares, he must find a willing buyer". (return potential) is incorrect : because "the potential returns in private companies can be much larger than those earned from investing in public companies." (control over management) is incorrect because "with often smaller numbers of shareholders in private companies, investors have greater control over management." 3 / 10 For a company that is financially sound, increasing the company’s rate of growth is most likely to benefit : equity holders, but not debt holders neither debt holders nor equity holders both debt holders and equity holders Assuming a company is repaying interest and principal in full and on time, debt holders have no further claims. Equity holders benefit from company growth . 4 / 10 Increasing a company's risk exposure in an effort to increase its growth rate is most likely to be favored by : owners but not lenders neither lenders nor owners both lenders and owners Because the upside for lenders is limited to the promised interest payments and repayment of principal, they do not benefit from an increased growth rate of the company and are unlikely to favor actions that increase a company's risk exposure and potential for default. Because owners have potentially unlimited upside from a company's growth, they are more likely to favor actions that increase a company's potential growth rate. 5 / 10 The owner's liability for the business obligations of a sole proprietorship : may be limited or unlimited is unlimited is limited to the amount invested A sole proprietorship is legally an extension of the individual who owns and operates it. The owner has unlimited liability for obligations the business incurs. 6 / 10 Identify the true statement(s) about corporation types from among the following : Nonprofit corporations by definition cannot generate profits Companies are categorized as public when they have greater than a minimum number of shareholders Transferring ownership from seller to buyer is more difficult for a private company than for a public company (Nonprofit corporations by definition cannot generate profits) is incorrect. If they are run well, nonprofits can generate profits; however, all profits must be reinvested in promoting the mission of the organization. (Transferring ownership from seller to buyer is more difficult for a private company than for a public company) is correct. In contrast to public companies, private company shares do not trade on an exchange, so no visible valuation or price transparency exists for the company. Private company shares are not liquid. This means that transferring ownership from seller to buyer is more difficult than it is for a public company. (Companies are categorized as public when they have greater than a minimum number of shareholders) is correct. In many countries, if there are a large number of shareholders (usually greater than 50), the company is categorized as a public company and subject to more onerous regulatory requirements whether or not it is listed on a stock exchange 7 / 10 Under which business structure are profits potentially subject to double taxation ? General partnership Limited partnership Corporation Double taxation refers to a situation in which a country taxes corporations' gross earnings and then taxes net earnings distributed to owners (dividends) as personal income. Partnership profits are subject to only one level of taxation (they are personal income of the partners) . 8 / 10 Bondholders can become shareholders through non-market-based means . True False the statement is true. If a company fails to meet its obligation to bondholders and ultimately needs to petition the courts for bankruptcy protection, a potential alternative to asset liquidation to maximize proceeds for debt repayment is business reorganization. Following that path through the legal process as opposed to transactions in private or public markets, the company can be reorganized with shareholders getting wiped out and bondholders becoming its new shareholders. 9 / 10 Government regulators typically require periodic disclosure of a company's financial performance for : private companies only both private and public companies public companies only Regulators typically require periodic reporting of financial results for public companies. Private companies are typically not subject to these requirements. 10 / 10 The owner exposed to the least business liability is a : partner in a general partnership sole trader general partner in a limited partnership (partner in a general partnership) is correct because general partnerships are like sole proprietorships with the important distinction that they allow for additional resources to be brought into the business along with the sharing of business risk among a larger group of individuals. (sole trader) is incorrect because a sole trader "retains all return and assumes all risk ". (general partner in a limited partnership) is incorrect because "a limited partnership must have at least one general partner with unlimited liability who is responsible for the management of the business " . Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback corporate ownershipcorporate ownership chartcorporate ownership structure