1. What is a company?
A. A group formed only for social activities
B. An association of persons formed voluntarily to carry on lawful business for profit
C. A government department
D. A temporary partnership without legal identity
B. An association of persons formed voluntarily to carry on lawful business for profit
2. Once incorporated, a company becomes:
A. A natural person
B. An artificial legal person
C. A temporary organization
D. A government agency
B. An artificial legal person
3. Which of the following is an advantage of a company?
A. Slower decision making
B. Higher formation cost
C. Limited liability for members
D. Extensive government regulations
C. Limited liability for members
4. Which of the following is a disadvantage of a company?
A. Separate legal entity
B. Continuous existence
C. Easy transfer of ownership
D. Higher formation and compliance cost
D. Higher formation and compliance cost
5. A company has a legal identity that is separate from its:
A. Customers
B. Suppliers
C. Owners or shareholders
D. Competitors
C. Owners or shareholders
6. Which characteristic means a company can continue even if members change?
A. Common seal
B. Perpetual succession
C. Separate property
D. Contractual rights
B. Perpetual succession
7. Limited liability protects shareholders from:
A. Paying company debts beyond their investment
B. Attending company meetings
C. Receiving dividends
D. Selling their shares
A. Paying company debts beyond their investment
8. Which characteristic allows a company to own property in its own name?
A. Separate property
B. Limitation of actions
C. Common seal
D. Separate management
A. Separate property
9. The common seal was traditionally used to:
A. Raise capital from investors
B. Authenticate important legal documents
C. Transfer shares freely
D. Dissolve the company
B. Authenticate important legal documents
10. A company can sue others and be sued because it has:
A. Limited liability
B. Capacity to sue and be sued
C. Professional management
D. Continuous existence
B. Capacity to sue and be sued
11. What does “separate legal entity” mean?
A. The company and shareholders are legally the same person
B. The company cannot enter into contracts
C. The company has its own independent corporate existence
D. Shareholders must personally pay all company debts
C. The company has its own independent corporate existence
12. Under limited liability, shareholders are generally responsible only up to:
A. The total debt of the company
B. The unpaid or nominal value of shares held by them
C. The personal assets they own
D. The salary paid to directors
B. The unpaid or nominal value of shares held by them
13. Which statement best explains perpetual succession?
A. A company ends when one shareholder resigns
B. A company cannot change its directors
C. A company exists only for one financial year
D. A company continues until it is legally dissolved or wound up
D. A company continues until it is legally dissolved or wound up
14. Which of the following is linked to separate legal entity?
A. Company debts belong to the company, not shareholders
B. Shareholders must sign every contract personally
C. The company cannot hold property
D. Directors are personally liable for all company obligations
A. Company debts belong to the company, not shareholders
15. Why does limited liability encourage investment?
A. It removes all government regulations
B. It protects investors from personal financial risk beyond their investment
C. It guarantees profits to shareholders
D. It prevents shares from being transferred
B. It protects investors from personal financial risk beyond their investment
16. Which event does not affect the company’s existence under perpetual succession?
A. Death of a shareholder
B. Change in market price
C. Increase in advertising
D. Purchase of office equipment
A. Death of a shareholder
17. In a private company, transferability of shares is usually:
A. Completely free without restriction
B. Restricted by its Articles of Association
C. Controlled only by customers
D. Not allowed under any condition
B. Restricted by its Articles of Association
18. Who are responsible for running the company’s daily operations?
A. Customers and suppliers
B. Creditors and competitors
C. Directors and managers
D. Government officers only
C. Directors and managers
19. Which disadvantage refers to the division between shareholders and those who run the company?
A. Separation of owner and management
B. Ability to raise capital
C. Separate legal entity
D. Transferability of shares
A. Separation of owner and management
20. If a supplier breaches a contract, what can the company do?
A. Lose its legal identity
B. Dissolve automatically
C. Transfer all shares to the supplier
D. File a lawsuit against the supplier
D. File a lawsuit against the supplier
21. Which characteristic is connected with maintaining corporate identity and authenticating important documents?
A. Limitation of actions
B. Separate property
C. Common seal
D. Voluntary association for profit
C. Common seal
22. Which pair correctly matches the characteristic with its purpose?
A. Common seal — business continuity after shareholders leave
B. Perpetual succession — continuation until winding up
C. Limited liability — unrestricted government control
D. Transferability of shares — company dissolution
B. Perpetual succession — continuation until winding up
23. Which option best combines the legal effects of separate legal entity?
A. The company cannot own assets but can borrow money
B. The company exists only through the signatures of shareholders
C. The company’s shareholders must personally approve every transaction
D. The company can own property, enter contracts, sue, and be sued in its own name
D. The company can own property, enter contracts, sue, and be sued in its own name
24. In relation to transferability of shares, which statement is most accurate?
A. Shares are freely transferable except in private companies where restrictions may apply
B. Shares of all companies are always freely transferable
C. Shares can never be transferred in any company
D. Shares can be transferred only after winding up
A. Shares are freely transferable except in private companies where restrictions may apply
24. Why does separate legal entity provide legal certainty in business transactions?
A. Because the company has no separate obligations
B. Because shareholders must personally guarantee every contract
C. Because the company acts independently in contracts and legal matters
D. Because directors cannot be sued
C. Because the company acts independently in contracts and legal matters