Deck 33: Nature, Formation, and Powers

Question 1

A corporation has perpetual existence unless otherwise stated in its articles of incorporation.

Answer 1

True

Question 2

The Revised Model Business Corporation Act has been adopted at least in part by more than half of the states.

Answer 2

True

Question 3

The Tennessee Valley Authority is an example of a private corporation.

Answer 3

False

Question 4

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation must have bylaws on file with the Office of the Secretary of State or some other public office.

Question 5

A corporation owned by one person is treated under the law as that person.

Question 6

A suit may be brought by the state to challenge the existence of a de facto corporation in a quo warranto action.

Question 7

A corporation can be formed in the State of New York by complying with New York statutes or with the Federal
Model Corporation Act.

Question 8

The modern approach follows the common law rule in holding that a corporation cannot commit a criminal act.

Question 9

Promoters have a fiduciary duty to the corporation.

Question 10

"Piercing the corporate veil" will result in personal liability of shareholders.

Question 11

The Model Business Corporation Act has been adopted by all of the states in the United States to make state incorporation statutes uniform throughout the United States.

Question 12

Zeron Corporation is incorporated in the State of West Virginia. It now wants to open a retail outlet in Kentucky.
Zeron must obtain a certificate of authority allowing it to do business in the Commonwealth of Kentucky.

Question 13

In the absence of contractual restrictions, shares in a corporation may be transferred by sale, gift, or pledge.

Question 14

If an act is ultra vires, it is beyond the legal authority of the corporation.

Question 15

Once a shareholder sells the stock of the corporation, since the ownership of the corporation changes, a new corporation is formed.

Question 16

A corporation is considered to be a person within the Fifth Amendment's clause that protects a person against self­
incrimination.

Question 17

Under the RMBCA, a pre-incorporation subscription may be revoked at any time without the consent of the subscribers.

Question 18

"Doing business" within a particular state will subject a foreign corporation to the litigation, regulation, and taxation of that state.

Question 19

Under the Model Act, the bylaws may contain any provision for managing the business and regulating the affairs of the corporation as long as it is not contrary to or inconsistent with the law or articles of incorporation.

Question 20

Under the RMBCA, a newly formed corporation need not hold an organizational meeting.

Question 21

Michael, employed by Romer Corporation, fraudulently represents Romer's product while attempting to make a sale.
Michael, but not Romer Corporation, may be found liable for fraud.

Question 22

The City of Chicago would best be described as which of the following?

A) A corporation formed pursuant to the Model Business Corporation Act
B) A close corporation
C) A public corporation
D) A domestic corporation

Question 23

Although, in general, internal affairs of foreign corporations are not regulated by the state, at least a few states, including New York, regulate such matters of those corporations that conduct a majority of their business in the state but are incorporated elsewhere.

Question 24

A corporation must keep its funds separate from those of its shareholders.

Question 25

A nonprofit corporation may make a profit, but it may not be distributed to members, directors, or officers.

Question 26

The Revised Act provides that only one person need act as the incorporator, though more may do so.

Question 27

Under the RMBCA, a corporation can act as an incorporator of another corporation.

Question 28

Which of the following is not a characteristics of a corporation?

A) It has perpetual existence.
B) It is a legal entity of its own.
C) It is able to be sued and to sue.
D) It is usually managed by its shareholders.

Question 29

Under the RMBCA, the filing of the articles of incorporation by the Secretary of State is conclusive proof that the incorporators have satisfied all conditions precedent to incorporation so that a shareholder or creditor would be unable to challenge the existence of the corporation.

Question 30

The doctrine of corporation by estoppel is distinct from that of corporation de facto; estoppel does not create a corporation.

Question 31

In corporations, the managers are necessarily owners.

Question 32

The Model Business Corporation Act provides for small, closely held corporations to be organized and creates
Subchapter S corporations with special benefits.

Question 33

The Internal Revenue Service allows taxation of certain corporations to be similar to that of partnerships.

Question 34

In many states, the services of the incorporators are perfunctory and short-lived.

Question 35

A publicly held corporation is one that is both (a) owned by at least 50 shareholders and (b) required to register under the Federal Securities and Exchange Act of 1934.

Question 36

The business corporation is a key institution not only in the American economy but also in the world power structure.

Question 37

The "corporate veil" is most likely to be pierced in the case of closely held corporations and in parent-subsidiary relationships.

Question 38

A corporation has no constitutional protection against unreasonable searches and seizures.

Question 39

Shareholders do not have limited liability for corporate debts.

Question 40

A corporation whose principal place of business operation is Florida must be incorporated in Florida.

Question 41

Master Ink owns all the stock of Prime Pen Co. A Prime Pen employee commits a tort for which the employer is liable. The suit results in a judgment for $1 million against Prime Pen. Prime Pen assets total $650,000, but Master Ink's assets are in the millions. In which of the following situations would the judgment have to be paid by Master Ink?

A) The Master Ink board of directors is exactly the same as Prime Pen's.
B) The president of Master Ink is also the vice president of Prime Pen.
C) Prime Pen's income and Master Ink's income is held in one account.
D) None of these.

Question 42

A promoter is personally liable on contracts made by him in the name of the unformed corporation:

A) even if the corporation adopts the contract.
B) only until the corporation is formed.
C) if the promoter, the third party, and the corporation enter into a novation substituting the corporation for the promoter.
D) only if the corporation is never formed.

Question 43

A corporation formed in substantial compliance with the incorporation statute and the required organizational procedures is a:

A) de facto corporation.
B) de jure corporation.
C) corporation by estoppel.
D) private corporation.

Question 44

Whether a corporation is a de facto corporation may be challenged by:

A) an individual.
B) another corporation.
C) the state.
D) Any of these.

Question 45

The bylaws of the corporation:

A) are adopted as one of the first items of business at the organizational meeting held promptly after incorporation.
B) may contain any provision for managing the business not inconsistent with law or the charter.
C) may be repealed by the board of directors.
D) All of these.

Question 46

Claire opened Claire's Beauty Parlor in her home. She solicited funds to begin the business from Jack, who was led to believe that the business was incorporated. Claire had, in fact, never filed the papers. One day, Claire fell asleep while giving a customer a permanent and the solution caused her customer severe burns. The customer sued the Beauty Parlor for $500,000, an amount enormously in excess of the business assets. Under the RMBCA, what would be the result?

A) Claire and Jack would not be personally liable.
B) Claire would not be personally liable, but Jack would.
C) Jack would not be personally liable, but Claire would.
D) Both would be personally liable since there was no corporation formed.

Question 47

If a foreign corporation wishes to avoid transacting business in Arkansas, it would be careful NOT to do which of the following in Arkansas?

A) Own a piece of real estate on which it may build in the future
B) Own a building in which to warehouse stock
C) Maintain a bank account
D) None of these

Question 48

Which of the following names would NOT be permitted under most general incorporation statutes?

A) Acme Ltd.
B) Acme Co.
C) Acme Inc.
D) Acme

Question 49

Which of the following is not a general corporate power typically granted by incorporation statutes, including the RMBCA?

A) To have a corporate seal
B) To own and vote shares of other entities
C) To make donations for charitable or educational purposes
D) All of these are typical corporate powers.

Question 50

Which of the following may influence a promoter to choose to incorporate in a particular state?

A) Its restrictions on dividend payments
B) Its tax on corporate earnings
C) The rights granted to shareholders
D) All of these

Question 51

Which of the following is correct regarding a foreign corporation?

A) A foreign corporation is incorporated in a foreign country.
B) A foreign corporation may not do business, except for acts in interstate commerce, in any state other than the state of its incorporation.
C) Doing or transacting business within a particular state makes a foreign corporation subject to local litigation, regulation, and taxation.
D) All of these are correct.

Question 52

A corporation is considered a citizen:

A) under the Fourteenth Amendment's "privileges or immunities" clause.
B) of the state of its incorporation or where it has its principal office.
C) of all states where it does business.
D) All of these.

Question 53

The majority of courts view a stock subscription as merely an offer that cannot be accepted until:

A) the corporation enters a novation with the subscriber.
B) the promoter signs in the name of the corporation.
C) the corporation comes into existence.
D) there is a written agreement.

Question 54

Charles Bonney, the sole stockholder of Kid Corporation, wrongfully used the corporation to avoid a personal liability. A court's disregard of the corporate entity to hold Bonney personally liable is called:

A) limited liability.
B) ultra vires.
C) diversity of interest.
D) piercing the corporate veil.

Question 55

Which of the following may be used to redress the ultra vires acts committed by a corporation?

A) A proceeding by shareholders to enjoin furthers such acts
B) A shareholder derivative suit against the directors or officers for exceeding their authority
C) A proceeding by the Attorney General of the state to enjoin the corporation from the transaction of unauthorized business
D) All of these may be used.

Question 56

Dickens Corporation, incorporated in Delaware, opens a warehouse in a western state from which it ships goods. If Dickens does not have a certificate of authority to do business within the western state:

A) it will face no sanctions or penalties.
B) the corporation will be shut down.
C) the corporation's officers and directors may be held personally liable on contracts made within the state.
D) Any of these may happen.

Question 57

An offer to purchase capital stock in a corporation yet to be formed is made by a(n):

A) promoter.
B) subscriber.
C) incorporator.
D) subsidiary.

Question 58

Which of the following is not true of promoters of a corporation?

A) They arrange for capital and financing to start a corporation.
B) They assemble the necessary assets to start a corporation.
C) They attend to the actual legal formation of a corporation.
D) They continue to solicit capital whenever needed after incorporation.

Question 59

The person who signs and files the articles of incorporation is the:

A) promoter.
B) incorporator.
C) subscriber.
D) majority stockholder.

Question 60

Under the RMBCA, the articles of incorporation must include all EXCEPT which one of the following?

A) The number of authorized shares
B) The name of the registered agent
C) The names of the initial shareholders
D) The address of each incorporator

Question 61

A postincorporation subscription is:

A) like a preincorporation subscription in that the subscriber may withdraw the offer to enter into the subscription any time before the corporation accepts it.
B) treated as a contract between the subscriber and the corporation.
C) not recognized under the RMBCA.
D) defined under the RMBCA as a contract between all subscribers.

Question 62

Name the classifications of corporations.

Question 63

Define "promoter" in reference to a corporation.

Question 64

Which of the following is untrue regarding closely held corporations?

A) Most corporations in the U.S. are closely held.
B) In most states, closely held corporations are subject to the general incorporation statute governing all corporations.
C) Shareholders usually have little voice in the management and control of the business.
D) Some states have enacted special legislation to accommodate the needs of closely held corporations.

Question 65

What is the definition of a Subchapter S Corporation?

Question 66

Which of the following is untrue regarding professional corporations?

A) State statutes permitting professional corporations all apply only to specified professions.
B) All states have statutes which permit the practice of professions by duly licensed individuals in the corporate form.
C) There is a supplement to the MBCA which deals with professional corporations.
D) Professionals may avoid personal liability for corporate debts by incorporating.

Question 67

Matt and Ron would like to form a corporation. Discuss what is required in most states to form a corporation.

Question 68

Mark complied with all formation requirements for incorporating his taxicab business. He is the sole shareholder in the corporation. The corporation owns two automobiles that Mark frequently uses for his own personal use. In addition, he sometimes deposits the money he takes in during the day into his personal checking account. One day, an employee of the company, while driving one of the company vehicles, accidentally hits Peter, a pedestrian, in a crosswalk. Peter sues both Mark and the Taxi Company for $100,000. The corporate assets are only $32,000.
a. Is the corporation liable for the acts of its employee? Explain.
b. Will Mark be personally liable under the facts? Why? Explain.

Question 69

What are the principal attributes of a corporation?

Question 70

The president of Hi-Glow Cosmetics sends his top chemist to Hi-Glow's competitor's labs to steal its formula for shiny lipstick. The chemist gets caught and is sent to jail. Can Hi-Glow be found to be criminally liable?

A) Yes, under the theory of ultra vires
B) Yes, since the president authorized the crime
C) No, because a corporation acts through the board of directors
D) No, because a corporation can't go to jail

Question 71

Answer the following:
a. What powers does a corporation normally possess?
b. What is the doctrine of ultra vires? What is the effect of an ultra vires contract?
A corporation possesses only the powers that the state confers on it. Typical general powers granted by incorporation statutes include the following: (1) perpetual succession; (2) to sue and be sued in its corporate name; (3) to have a corporate seal; (4) to make and amend bylaws; (5) to acquire and dispose of property; (6) to own, vote, and dispose of shares in other entities; (7) to make

Question 72

Identify each of the following corporations by type.
a.Dr. Smith and Dr. Jones are medical doctors who practice together. They incorporate their medical practice so that they can offer themselves and their employees better employment benefits.

b. A group of concerned citizens obtains a corporate charter from the state to form a local Water Planning and Management Corporation that is authorized to do water planning on a local level, to grant permits for such purposes as the installation of ditches, and to encourage good water usage practices in their jurisdictional area.
Agatha and Betty, who are sisters, form a corporation in which they are the sole shareholders.
c.They plan to operate a large retail store that sells collectibles. Agatha is the president and Betty
is the chairperson of the board of directors.
d. Shelby and Trent form a corporation to prevent spouse and child abuse. The corporation operates a shelter for battered women and homeless children.
e. Zebron Corporation is incorporated in the State of West Virginia. It decides to expand its business to Kentucky. What type of corporation is it in West Virginia? What type of corporation is it in Kentucky?

Question 73

Discuss the corporate form of business organization with respect to how it is created, the liability of persons having an ownership interest, how management is conducted, and duration of existence.

Question 74

Explain each of the following specialized types of corporations:
a. Professional
b. Public
_{c. Nonprofit}

Question 75

Which of the following run the day-to-day operations of a corporation?

A) Shareholders
B) Board of directors
C) Officers
D) Subscribers