Deck 33: Life and Death of a Corporation

Question 1

Carey decided to incorporate her business under the name yStar Inc.Before yStar was incorporated,Carey signed a contract in the name of yStar,Inc.to have some office space remodeled.Which statement is correct?

A)yStar is liable on the contract because the contract was signed in its name.
B)yStar becomes liable on the contract as soon as it is incorporated.
C)yStar is liable on the contract if the contractor knows that the corporation does not yet exist.
D)yStar will be liable on the contract only if the corporation adopts the contract.

Answer 1

D

Question 2

Laurie is incorporating her business.Laurie's home state is Wisconsin.Business will be conducted in California,Michigan,Pennsylvania,and Virginia.Laurie

A)must incorporate the business in Wisconsin, the home state.
B)must incorporate the business in Wisconsin, California, Michigan, Pennsylvania and Virginia.
C)must incorporate in Delaware.
D)can incorporate the business in any state.

Answer 2

D

Question 3

A de jure corporation is not legal and cannot be recognized as a corporation because the incorporation process was defective.

Answer 3

False

Question 4

A corporation must have a registered agent within the state of incorporation only if the corporation maintains an office in that state.

Question 5

Under corporate law,a corporation that officially states its purpose is "to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Idaho" is too broad.A corporation's purpose must be more narrowly defined.

Question 6

Sara decided to incorporate her business under the name Gomo,Inc.Before Gomo was incorporated,Sara signed a contract in the name of Gomo,Inc.to lease a store front.Sara did not tell the other party that Gomo was not yet formed.Sara is personally liable on the lease.

Question 7

A corporation is not allowed to issue dividends to shareholders unless it is solvent.

Question 8

Incorporators are required to sign the charter,deliver it to the proper state officials,and purchase a certain percentage of the initial stock offering.

Question 9

A corporate charter is filed with

A)a state's Secretary of State office.
B)a state's Treasury and/or Revenue Division.
C)the United States Department of Commerce.
D)the Securities and Exchange Commission.

Question 10

Zach decided to incorporate his business under the name of "Zamm." In addition to "Zamm," the Model Act requires that Zach include one of the following words: "corporation," "incorporated," "limited," or "company" or an abbreviation thereof.

Question 11

A business corporation can be incorporated under either state law or federal law.

Question 12

Terminating a corporation is a three-step process: dissolution,winding up,and termination.

Question 13

When a corporation accepts legal responsibility for a contract,it is called novation.

Question 14

Common stock is the last stock in line for any corporate payouts,including dividends and liquidation payments.

Question 15

In Delaware,lawsuits involving corporations are tried in a special court called

A)corporate court.
B)CEO's court.
C)common court.
D)chancery court.

Question 16

MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called

A)authorized and unissued.
B)authorized and issued.
C)treasury stock.
D)repurchased stock.

Question 17

TriColor,Inc.is doing business in Minnesota,West Virginia,and Oklahoma.TriColor must register in all three of these states.

Question 18

If a party enters into a contract believing in good faith that the corporation exists,he cannot later take advantage of the fact that it does not.

Question 19

When a company dissolves,preferred stockholders typically have the right to receive their share of corporate assets before common shareholders.

Question 20

Incorporators of Maizey Co.signed and delivered the corporate charter to the proper office,but due to inefficiencies in the government office,the filing was delayed.During the period between the delivery of the charter and the filing,a promoter of Maizey Co.entered a contract for the delivery of goods using the corporate name.The supplier,if it finds out the filing had not been completed when the contract was entered,may hold the promoter personally liable on the contract.

Question 21

Hank owns 100 shares of cumulative preferred stock in Wayside Transport,Inc.Kelsey owns 50 non-cumulative preferred shares,and Oleg owns 120 shares of common stock.Wayside does not pay dividends in 2007.In 2009

A)Hank and Kelsey must receive their 2009 dividends before Oleg is paid any 2009 dividends.
B)Oleg cannot receive any 2009 dividends until Hank is paid for the 2007 dividends.
C)Kelsey cannot receive the dividends Wayside could not afford to pay in 2007. She will just lose them.
D)All of the above.

Question 22

What term identifies stock that has been authorized and sold?

A)authorized and paid stock
B)outstanding stock
C)treasury stock
D)authorized and unissued stock

Question 23

MegaCorp is incorporated in the state of Delaware and is registered only in Delaware.Jolene purchased a MegaCorp product from a company's sales representative following a presentation in Michigan.Jolene was seriously injured by the product in Michigan.Under the Model Act,if Jolene sues in Michigan,can MegaCorp defend the suit there?

A)MegaCorp may only defend against a lawsuit in Michigan if it first registers by paying back fees, taxes, and penalties.
B)Yes, MegaCorp can bring or defend against a lawsuit in any state regardless of whether the corporation is registered to business in that state.
C)Yes, MegaCorp can defend against a lawsuit in Michigan regardless of whether MegaCorp is registered to do business in that state.
D)No. Jolene must sue and MegaCorp may defend a lawsuit only in Delaware.

Question 24

The officers of a corporation are

A)chosen by the board of directors.
B)appointed by the president of the company.
C)elected by shareholders.
D)appointed by the Secretary of State.

Question 25

Under most state statutes,a corporation may

A)include in its charter a provision indemnifying directors unless they have engaged in intentional misconduct or bad faith.
B)include in its charter a provision indemnifying directors under any circumstances in the conduct of their duties for the corporation.
C)not include in its charter a provision indemnifying directors who engage in negligent conduct of their duties.
D)not include in its charter any provisions regarding indemnification of directors.

Question 26

Corporate stock can be divided into categories called ________,which can be further divided into ________.

A)authorized shares, classes
B)classes, series
C)equity, assets
D)debentures, classes

Question 27

MegaCorp is incorporated under Delaware law.It is registered to do business in New York.Legally,in New York MegaCorp is known as what kind of corporation?

A)Domestic
B)Foreign
C)Secondary
D)Cumulative

Question 28

Fashions,Inc.has 12 shareholders.There is no shareholder agreement concerning the board of directors.The company is subject to the Model Act.How many directors is Fashions,Inc.required to have?

A)None.
B)One.
C)Two.
D)Five.

Question 29

MegaCorp occasionally sells products in Michigan.It does not have an office in that state and does not advertise in Michigan.The company's marketing representatives are based in New York but do travel to Michigan once a year to attend a trade show.Which statement is correct?

A)MegaCorp must register in Michigan because its sales representatives attend a trade show in Michigan.
B)MegaCorp is not required to register in Michigan because it does not have an ongoing presence in Michigan.
C)MegaCorp must register in Michigan because its actions qualify as doing business.
D)Whether MegaCorp has to register in Michigan depends on where its shareholders reside.

Question 30

Wizardry Corporation's purpose clause in its charter states,"To operate a home-cleaning service business." After a few years of successful operation,Wizardry is offered the challenge of landscaping a neighboring business.If Wizardry accepts the offer,it would be violating its charter under

A)the de jure doctrine.
B)the de facto doctrine.
C)the ultra vires doctrine.
D)an estoppel theory.

Question 31

What is an exculpatory clause?

A)A requirement that the company pay the legal fees of directors who are sued for actions taken on behalf of the company
B)A provision that if a party enters into a contract believing in good faith that the corporation exists, he cannot later take advantage of the fact that it does not
C)A requirement that a corporation cannot undertake any transaction unless the charter permits it
D)A provision that protects directors from personal liability to the corporation and its shareholders

Question 32

Which of the following states that a corporation cannot undertake any transaction unless its charter permits it?

A)The ultra vires doctrine
B)The estoppel doctrine
C)The exculpatory clause
D)The indemnification clause

Question 33

Fashions,Inc.has 12 shareholders.The company is subject to the Model Act.What officers is Fashions,Inc.required to have?

A)A president, secretary, and treasurer
B)A president and a secretary, and they can be the same person
C)A president, at least one vice-president, a secretary, and a chief financial officer
D)Whatever officers are described in the corporate bylaws

Question 34

The directors of MegaCorp learn that an outsider is planning on buying enough voting stock to get herself elected to the board of directors.MegaCorp,which has cumulative voting,quickly puts together a vote of shareholders to eliminate the company's cumulative voting procedure.The shareholders vote to do away with cumulative voting.The outsider,Dawn,who wanted to get herself elected to MegaCorp's board,claims that the company has committed an illegal act.Is she right?

A)Yes.The United States Supreme Court has ruled that a publicly held corporation that purposefully sets about to eliminate cumulative voting to prevent a person from getting herself elected to the board has acted illegally.
B)Yes, but only if the company is incorporated in a state that has adopted the Model Act.
C)No, provided the company did not change its cumulative voting provision solely for the purpose of preventing a particular person from taking advantage of that right.
D)No. Under the Model Act, regardless of MegaCorp's motives, it had the right to act as it did.

Question 35

The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance their expansion plans.The executives

A)cannot sell that many shares unless they were authorized initially in the corporate charter.
B)can sell as many shares as the market will bear.
C)are limited by the number of shares authorized in the corporate charter, but this number can be increased by amending the charter and paying a fee.
D)can sell the shares only if the shares have a par value which is close to the current market price.

Question 36

Which of the following can challenge the validity of a de jure corporation?

A)A majority vote of the shareholders
B)The Secretary of State in the state in which the company was incorporated
C)The state in which the company was incorporated as well as any third party
D)No entity can challenge the validity of ade jurecorportaion.

Question 37

Mike is planning on incorporating his business in the state of Delaware.Which of the following regarding the name of Mike's business is TRUE?

A)He will be able to use the words "Association" or "Institute" in his company name.
B)He will not be able to use abbreviations (such as Inc. or Corp.) in his company name.
C)His company name will not have to include one of the following words: Corporation, Incorporated, Company or Limited.
D)His company name can be the same as another corporation that already exists in Delaware.

Question 38

What are some of the advantages for a business to incorporate in Delaware?

Question 39

Preemptive rights are

A)not legal in the majority of states.
B)designed to prevent dilution of a shareholder's ownership in the company.
C)required to be offered to shareholders by the Model Act.
D)designed to indemnify managers who act in good faith.

Question 40

In incorporating E-prise,the promoter gave an incorrect ZIP Code for the registered agent.All of the other requirements for incorporation were met.E-prise is a(n)

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

Question 41

Denise is a promoter for a proposed corporation,EVR-Young Corp.As promoter,she signed a three-year lease to rent office space in an office park.She signed her name and indicated below her signature she is signing as "promoter for EVR-Young Corp.,a company yet to be incorporated."EVR-Young is never incorporated.The lessor believes that Denise is personally liable for any damages it will sustain as a result of the three-year lease having to be breached.Is Denise personally liable? Explain.

Question 42

Isabel,Wesley,Gina,and Lucas worked together intensively to form and become the only shareholders of a corporation that is environmentally conscious.Is there anything they can do to avoid having shares of stock in their company sold to someone who does not share their vision for the environment?

Question 43

Identify four circumstances that might persuade a court to pierce the corporate veil.

Question 44

Discuss how a corporation is terminated.

Question 45

MegaCorp has five directors.The company has 1,050 shares of voting stock.Jessica would like to purchase enough stock to elect herself to the board of directors.The company allows for cumulative voting.Explain the concept of cumulative voting and also state how many shares of MegaCorp stock Jessica will need to own to assure herself a place on the board of directors.