Although It Is a Small Company, Zorn Enterprises Owns a Large

question 130

Multiple Choice

Although it is a small company, Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisiana. Currently, the company is a chartered C corporation, but the owners are interested in switching to be an S corporation. After consulting a lawyer, they learned that Zorn Enterprises does not qualify to be designated as an S corporation. Which of the following characteristics of Zorn Enterprises would prevent it from becoming an S corporation?

• A) The firm has fewer than 75 stockholders.
• B) The firm is chartered in one state, but owns property in another.
• C) The firm has only one class of stock, all owned by U.S. citizens.
• D) The firm receives more than 70 percent of its income from rents and other passive sources.

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Definitions:

Contract Avoidance

A legal strategy or action taken to nullify or declare a contract unenforceable to prevent legal obligations or liabilities.

Undue Influence

The use of excessive pressure or manipulation by one party over another to induce action or decision-making that is not fully voluntary.

Properly Sealed

Ensured that an item or document is closed or fastened securely, often implying it has been authenticated or officially completed.

Mistake Of Fact

Mistake as to the existence of the subject matter of a contract or the identity of a party.