Deck 31: Combining and Dissolving a Corporation

Question 1

Appraisal rights cannot be lost even if the statutory procedures are not followed precisely.

Answer 1

False

Question 2

Before a vote is taken on a proposed combination, the shareholders must be given the same information the directors used when deciding to pursue the combination.

Answer 2

True

Question 3

One corporation that owns all of the shares of another corporation is a subsidiary corporation.

Answer 3

False

Question 4

All states have statutes authorizing consolidations of domestic corporations.

Question 5

Appraisal rights do not normally apply to short-form mergers.

Question 6

Corporate creditors are required to approve a plan of merger or consolidation.

Question 7

No state allows the combination of a domestic corporation with a foreign corporation.

Question 8

All states have statutes authorizing share exchanges for domestic corporations.

Question 9

An appraisal right is available only when a federal statute specifically provides for it.

Question 10

In a merger, the surviving corporation assumes all of the assets and liabilities of the disappearing corporation.

Question 11

Merger and consolidation refer to two completely different legal processes.

Question 12

A merger will not affect the rights and liabilities of the corporations involved.

Question 13

In a consolidation, the newly formed corporation acquires all of the assets and liabilities of both corporations that were consolidated.

Question 14

A share exchange can be used to create a holding company.

Question 15

Shareholders are not required to vote to approve a plan of merger.

Question 16

Only the board of directors of the disappearing corporation involved in a merger must approve the merger.

Question 17

The shareholder's appraisal right does not normally apply to sales of substantially all of the corporate assets.

Question 18

A short-form merger can be accomplished only with the approval of the shareholders.

Question 19

A short-form merger is the acquisition of control over a corporation through a purchase of stock.

Question 20

In a consolidation, two or more corporations combine in such a way that only one of the original corporations continues to exist.

Question 21

When a corporation is dissolved voluntarily, its assets can be liquidated without notice to its creditors.

Question 22

Generally, a corporation that acquires the assets of another corporation needs to obtain shareholder approval for the purchase.

Question 23

A court can dissolve a corporation for abuse of corporate powers.

Question 24

During the liquidation process, corporate assets are converted into cash.

Question 25

To resist a takeover, a target company may make a self-tender.

Question 26

Generally, a corporation that is selling all of its assets must obtain the approval of the shareholders.

Question 27

Building Corporation and Construction Inc. combine so that only Construction continues to exist. This is

A) a takeover.
B) a merger.
C) a liquidation.
D) a share exchange.

Question 28

Dissolution of a corporation can be brought about by the shareholders' majority vote to initiate dissolution proceedings.

Question 29

Like other corporations, Market Maker Inc. can expand its operations by

A) combining with another corporation.
B) terminating its existence.
C) purchasing a substantial number of its voting shares.
D) dissolving and winding up.

Question 30

Fact Pattern 31-1 Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains.
Refer to Fact Pattern 31-1. Outlook held rights in certain real property. With regard to these assets, in the merger Pinnacle assumes

A) none of Outlook ' s assets.
B) only those assets acquired after the merger was proposed.
C) an amount of assets equal to the ratio of the firms' pre-merger market values.
D) all of Outlook ' s assets .

Question 31

A takeover is the acquisition of control over a corporation through a purchase of substantially all of its assets.

Question 32

A shareholder may not petition a court for corporate dissolution.

Question 33

Fact Pattern 31-1 Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains.
Refer to Fact Pattern 31-1. Outlook owed money to Quest Bank and other creditors. With respect to these liabilities, in the merger Pinnacle assumes

A) none of Outlook ' s liabilities.
B) only those liabilities incurred after the merger was proposed.
C) an amount of liability equal to the ratio of the firms' pre-merger market values.
D) all of Outlook ' s liabilities.

Question 34

A firm may respond to a tender offer by recommending that shareholders accept the offer.

Question 35

Dissolution of a corporation can be brought about by an agreement between the shareholders and the board of directors.

Question 36

Through a tender offer, an acquiring corporation deals directly with a target company's management in seeking to purchase the target's stock.

Question 37

Like other corporations, Social Media Inc. can expand its operations by

A) liquidating its assets.
B) purchasing the assets of another corporation.
C) firing employees.
D) distributing retained earnings to shareholders.

Question 38

When dissolution takes place by voluntary action, the members of the board of directors act as trustees of the corporate assets.

Question 39

The business judgment rule may apply to determine whether directors acted reasonably in resisting a takeover attempt.

Question 40

A court cannot dissolve a corporation for failure to commence business operations.

Question 41

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. Equity Inc. is

A) a holding company.
B) a parent corporation.
C) a subsidiary corporation.
D) a foreign corporation.

Question 42

Fact Pattern 31-1 Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains.
Refer to Fact Pattern 31-1. The articles of merger

A) amend the articles of Pinnacle.
B) disappear once the merger is complete.
C) create an entirely new organization.
D) take the place of the articles of Pinnacle.

Question 43

Garden Company and Home Corporation make a plan to consolidate. Once approved, the plan likely will be filed with

A) a holding company.
B) a parent corporation.
C) the appropriate state's secretary of state.
D) the U.S. Department of Commerce.

Question 44

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. The plan for the exchange of shares between Carrier and Distribution must be approved by each corporation's

A) directors only.
B) shareholders only.
C) directors and shareholders.
D) none of the choices.

Question 45

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. The plan for Bank and Credit's combination must be approved by the shareholders of

A) both corporations.
B) Bank only.
C) Credit only.
D) neither corporation.

Question 46

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc .
Refer to Fact Pattern 31-5. Lender Inc. is

A) an insufficient company.
B) a parent corporation.
C) a subsidiary corporation.
D) a consolidated company.

Question 47

Cloud Inc. merges with Data Corporation. Cloud, the surviving corporation, issues shares or pays fair consideration to

A) Cloud's shareholders.
B) Data's shareholders.
C) the state.
D) no one.

Question 48

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. Before a vote is taken on the proposed combination, sufficient information to evaluate the deal must be given to each corporation's

A) shareholders.
B) creditors.
C) officers and other employees.
D) marketing departments.

Question 49

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. The formation of Fuel Inc. is

A) a takeover.
B) a consolidation.
C) a liquidation.
D) a share exchange.

Question 50

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. On the exchange of shares between Carrier and Distribution

A) both companies continue to exist.
B) both companies cease to exist.
C) only Carrier survives.
D) only Distribution survives.

Question 51

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. With respect to the assets of Dynamo and Energy, Fuel Inc. acquires

A) none of the assets.
B) only those assets acquired after the combination was proposed.
C) an amount of assets equal to the ratio of the firms' pre-merger market values.
D) all of the assets of both companies.

Question 52

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. The plan for Bank and Credit's combination must be approved by the board of directors of

A) both corporations.
B) Bank only.
C) Credit only.
D) neither corporation.

Question 53

Fact Pattern 31-3 Bank Company decides to combine its operations with Credit Corporation to form Debit Finance Inc. Bank and Credit are domestic corporations.
Refer to Fact Pattern 31-3. Mergers, consolidations, and share exchanges of domestic corporations are authorized

A) in all states.
B) in most states.
C) in no states.
D) by the federal government.

Question 54

Through a certain transaction, Coffee Café Inc. acquires all of the shares of Deli Corporation for some of Coffee's shares. Both Coffee and Deli continue to exist. This is

A) a consolidation.
B) a share exchange.
C) a short-form merger.
D) a purchase of assets.

Question 55

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc .
Refer to Fact Pattern 31-5. A copy of a plan for a merger of Lender and Mortgage must be sent to each shareholder of

A) both corporations.
B) Lender.
C) Mortgage.
D) neither corporation.

Question 56

Burgers Inc. merges with Chicken Corporation with Burgers as the surviving corporation. After the merger, the shareholders of Chicken

A) will be paid out or will own shares of Burgers.
B) will be creditors of Burgers.
C) will lose their investment value in Chicken.
D) will have the option of becoming employees of Burgers in order to receive their value.

Question 57

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. With respect to the liabilities of Dynamo and Energy, Fuel Inc. acquires

A) none of the liabilities.
B) only those liabilities acquired after the combination was proposed.
C) an amount of liability equal to the ratio of the firms' pre-merger market values.
D) all the liabilities of both companies.

Question 58

A merger between Beverage Corporation and Creamery Inc. can be expressed as Beverage + Creamery =

A) Creamery.
B) Dairy Company.
C) Dairy Company + EZ Sip Inc.
D) EZ Sip Inc.

Question 59

Fact Pattern 31-4 Carrier Company exchanges some of its shares for some of the shares of Distribution Corporation. The exchange is used to create Equity Inc., whose business activity is to hold the shares of the two companies.
Refer to Fact Pattern 31-4. Once the formalities are satisfied, a certificate of the exchange is issued by

A) Equity Inc.
B) none of the choices.
C) the appropriate state.
D) the U.S. Department of Commerce.

Question 60

Fact Pattern 31-2 Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist.
Refer to Fact Pattern 31-2. The agreement between Dynamo and Energy that sets out the capital structure and other features of Fuel Inc.

A) amends the articles of Dynamo and Energy.
B) disappears once the combination is complete.
C) combines with the articles of Dynamo and Energy.
D) takes the place of the articles of Dynamo and Energy.

Question 61

Fact Pattern 31-7 Enchilada Inc. seeks to purchase a substantial number of the voting shares of Fajita Inc .
Refer to Fact Pattern 31-7. The directors of Fajita resist Enchilada's takeover attempt. In analyzing whether this is reasonable, a court would apply

A) an appraisal right.
B) a takeover defense.
C) the corporation's policies.
D) the business judgment rule.

Question 62

Dissolution of a corporation can be initiated by

A) corporate ethics groups.
B) competitors.
C) customers, suppliers, and other corporate stakeholders.
D) a court order.

Question 63

Fact Pattern 31-7 Enchilada Inc. seeks to purchase a substantial number of the voting shares of Fajita Inc .
Refer to Fact Pattern 31-7. Enchilada deals directly with the shareholders of Fajita. Enchilada offers a price higher than the market price of Fajita's shares. This is

A) a poison pill.
B) a tender offer.
C) a self-tender.
D) a breach of the business judgment rule.

Question 64

Fact Pattern 31-6 Sweet Inc. acquires all of the assets of Tart Inc . by direct purchase.
Refer to Fact Pattern 31-6. Upton is a Tart shareholder who does not approve of the deal. In most states, Upton can

A) reverse the deal so that Tart acquires all of the assets of Sweet.
B) insist that the companies carry out their corporate purposes.
C) demand appraisal rights.
D) require the parties to cancel the deal.

Question 65

Fact Pattern 31-6 Sweet Inc. acquires all of the assets of Tart Inc . by direct purchase.
Refer to Fact Pattern 31-6. Approval of the deal between Sweet and Tart is subject to the approval of the shareholders of

A) both corporations.
B) Sweet.
C) Tart.
D) neither corporation.

Question 66

The sale and distribution of the assets of a business on its termination is

A) a takeover.
B) dissolution.
C) a breach of fiduciary duty.
D) liquidation.

Question 67

Alice and Bernie pool their money and talents to form Cutting Edge Corporation, a precision tooling company. They are the firm's only shareholders, directors, and officers. After five years of declining home prices, they decide to cease business. Can they simply dissolve their corporation at will? If so, what are the steps in the process?

Question 68

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc .
Refer to Fact Pattern 31-5. A plan for a merger of Lender and Mortgage must be approved by the directors of

A) both corporations.
B) Lender only.
C) Mortgage only.
D) neither corporation.

Question 69

Fact Pattern 31-6 Sweet Inc. acquires all of the assets of Tart Inc . by direct purchase.
Refer to Fact Pattern 31-6. Sweet assumes the liabilities of Tart if

A) a court imposes the liabilities on Sweet.
B) the sale does not amount to a merger or a consolidation.
C) Sweet replaces Tart's personnel and does not continue Tart's business.
D) the sale was done with fair notice to all creditors.

Question 70

The directors of Natural Food Corporation and the directors of Organic Produce, Inc. work together to develop a combination plan. They have several options. In one option, Natural Food continues to exist but Organic Produce does not. In another option, both companies cease to exist and a new company, Natural Organic, is created. In the final option, both companies continue to exist but are wholly owned by a new company, NFOP. Describe in legal terms the different options and who must approve each option.

Question 71

Fact Pattern 31-5 Lender Inc. owns more than 90 percent of the stock of Mortgage Inc .
Refer to Fact Pattern 31-5. A plan for a merger of Lender and Mortgage must be approved by the shareholders of

A) both corporations.
B) Lender only.
C) Mortgage only.
D) neither corporation.

Question 72

Repair Inc. issues a plan to combine operations with Service Company. Tom is a shareholder who disapproves of the deal. He may be entitled to an appraisal right if the combination is

A) a merger or a short-from merger.
B) none of the choices.
C) a purchase of substantially all of the assets of either corporation.
D) a dissolution or winding up of either corporation.