Deck 22: Corporations: Formation and Organization

Question 1

State incorporation statutes typically grant the following implied powers to corporations: the power to have perpetual existence,the power to sue and be sued in the corporation's name,the power to acquire property,the power to make contracts and borrow money,the power to lend money,the power to make charitable donations,and the power to establish rules for managing the corporation.

Answer 1

False
Explanation: State incorporation statutes typically grant the following express (not implied)powers to corporations: the power to have perpetual existence,the power to sue and be sued in the corporation's name,the power to acquire property,the power to make contracts and borrow money,the power to lend money,the power to make charitable donations,and the power to establish rules for managing the corporation.In addition,corporations may take whatever actions are necessary to execute these express powers.Thus,corporations have implied powers.

Question 2

A de facto corporation has not substantially met the requirements of the state incorporation statute,and as a result,courts do not recognize it as a corporation for most purposes.

Answer 2

False
Explanation: A de facto corporation (literally,a "corporation in fact")has not substantially met the requirements of the state incorporation statute,but courts recognize it as a corporation for most purposes to avoid unfairness to third parties who believed it was properly incorporated.

Question 3

Dividends are profits that corporations keep.

Answer 3

False
Explanation: Corporations have control over their income.Corporations can distribute their income to shareholders in the form of dividends.Alternatively,corporations can keep profits,or retained earnings,to reinvest.Corporations' investment of retained earnings can lead to higher stock prices,thus benefiting shareholders when they sell their stock.

Question 4

Today,most state incorporation statutes permit businesses to incorporate for only express and specific purposes; thus,most articles of incorporation limit corporate powers.

Question 5

An S corporation has the tax status of a partnership.

Question 6

A corporation is considered domestic in states in which it conducts business but is not incorporated.

Question 7

Promoters raise capital for an infant corporation by making subscription agreements with subscribers.

Question 8

Corporations have only those powers that states grant them.

Question 9

A de facto corporation has met the substantial elements of the incorporation process.

Question 10

Corporate directors typically serve lifetime appointments.

Question 11

A corporation must be incorporated in the state in which it has its principal place of business.

Question 12

Every corporation must attach Corporation,Company,Limited,or Incorporated,or an abbreviation of one of these terms,to the end of its business name.

Question 13

Corporations commit ultra vires acts most frequently when they create contracts outside the scope of their powers.

Question 14

Partnerships may be shareholders of an S corporation.

Question 15

The Revised Model Business Corporation Act (RMBCA)requires two or more incorporators to incorporate a business.

Question 16

As a general rule,shareholders of a corporation can freely transfer their corporate shares.

Question 17

The life of a corporation ends when the lives of its owners end.

Question 18

A certificate of incorporation is a document issued by a resident district court judge certifying that the corporation is incorporated in the state and is authorized to conduct business.

Question 19

In the United States,corporations are legal entities.

Question 20

Closely held corporations generally offer stock for sale to the general public.

Question 21

Which of the following is generally true regarding the management of a corporation?

A)Shareholders do not participate in corporate management.
B)Shareholders elect a board of directors.
C)The board of directors selects officers to manage the day-to-day business of the corporation.
D)Shareholders do not participate in corporate management,shareholders elect a board of directors,and the board of directors selects officers to manage the day-to-day business of the corporation.
E)Shareholders participate in corporate management,elect a board of directors,and select officers to manage the day-to-day business of the corporation.

Question 22

Shareholders are directly responsible for the daily management of a corporation.

Question 23

According to the "responsible person" doctrine,directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time of the decision.

Question 24

A leveraged buyout (LBO)occurs when a group within a corporation buys all the outstanding corporate stock held by the public.

Question 25

Which of the following is a document a corporation files with the state explaining its organization?

A)Certificate of organization
B)Articles of incorporation
C)Corporate prospectus
D)Certificate of institutionalization
E)Corporate filing statement

Question 26

Because a stock certificate is a negotiable instrument similar to currency,if a stock certificate is destroyed (for example,by fire),the shareholder's ownership in the corporation terminates.

Question 27

A court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity.

Question 28

Hostile takeovers are takeovers to which the management of the target corporation objects.

Question 29

________ references the liability of corporations for torts and crimes committed by their agents during the scope of their employment.

A)Stare decisis
B)Res ipsa loquitur
C)Respondeat superior
D)Negligence per se
E)Post hoc ergo propter hoc

Question 30

Directors and officers have a fiduciary duty of care.

Question 31

Aggressors often try to win the favor of a few institutional investors that own large block of shares.

Question 32

State incorporation statutes typically grant the power ________ to corporations.

A)of perpetual existence
B)to sue and be sued in the corporation's name
C)to make charitable donations
D)of perpetual existence,the power to sue and be sued in the corporation's name,and the power to make charitable donations
E)of perpetual existence and the power to sue and be sued in the corporation's name,but not the power to make charitable donations,

Question 33

In a tender offer,the aggressor offers target shareholders a price below the current market value of the stock.

Question 34

An individual director or officer may not personally benefit from decisions made by the board of directors.

Question 35

A corporation may distribute its income to shareholders through ________.

A)allocations
B)grants
C)dividends
D)provisions
E)allowances

Question 36

With regard to the board of directors of a corporation,China has adopted a two-tier board structure.

Question 37

Courts are likely to pierce the corporate veil when shareholders' personal interests and corporate interests are commingled such that the corporation has no separate identity.

Question 38

________ is a term for profits kept by a corporation for reinvestment.

A)Graft
B)Retained earnings
C)Marginal retention
D)Reversionary interest
E)Float

Question 39

Directors and officers are self-dealing when they make decisions that violate their corporate duty of loyalty.

Question 40

Which of the following is a false statement regarding corporations?

A)Corporations cannot exist separately from their shareholders.
B)Corporations are legal entities.
C)Corporations have rights under the Fifth Amendment to the United States Constitution.
D)Corporations can sue or be sued by others.
E)Corporations are subject to state incorporation statutes.

Question 41

If the incorporator or promoters make an error or omission during the incorporation process,courts may rule that the organization is not a corporation,in which case the organization is a(n)________ corporation.

A)demonstrative
B)ultra vires
C)uncertified
D)defective
E)foreign

Question 42

Which of the following is a corporation created by the government to help administer law?

A)Public
B)Private
C)Closely held
D)Domestic
E)Publicly held

Question 43

Private persons create ________ corporations for private purposes.

A)public
B)private
C)foreign
D)domestic
E)publicly held

Question 44

When a corporation is incorporated,the secretary of state usually issues a(n)________,a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

A)corporate prospectus
B)certificate of incorporation
C)warranty of corporate status
D)certificate of organization
E)general business license

Question 45

Which of the following terms refers to a corporation that has not substantially met the requirements of the state incorporation statute,but courts nevertheless recognize it as a corporation for most purposes to avoid unfairness to third parties who believed it was properly incorporated?

A)De jure corporation
B)De facto corporation
C)Corporation by estoppel
D)Corporation with reservation
E)Implied corporation

Question 46

________ corporations generally do not offer stock to the public.

A)Alien
B)Foreign
C)Closely held
D)Multinational
E)Domestic

Question 47

A(n)________ is an individual who applies to the state for incorporation on behalf of a corporation.

A)promoter
B)incorporator
C)facilitator
D)rainmaker
E)assessor

Question 48

Which of the following is a false statement regarding a nonprofit corporation?

A)A nonprofit corporation may not earn profits.
B)Nonprofit corporations do not have shareholders.
C)An objective of a nonprofit corporation is to not earn profit.
D)Nonprofit corporations do not issue stock.
E)Churches and charitable organizations are examples of nonprofit corporations.

Question 49

Which of the following are rules and regulations that govern a corporation's internal management?

A)Bylaws
B)Corporate minutes
C)Articles of organization
D)Articles of incorporation
E)Corporate decrees

Question 50

Who begins the corporate creation and organization process by arranging for necessary capital,financing,and licenses?

A)Subscribers
B)Incorporators
C)Promoters
D)Officers
E)Shareholders

Question 51

In order to prevent a defective corporation from escaping corporate responsibility,a court may hold that the entity is a(n)________.

A)corporation in fact
B)implied corporation
C)corporation by estoppel
D)corporation with reservation
E)qualified corporation

Question 52

A corporation is a(n)________ corporation in states in which it conducts business but is not incorporated.

A)public
B)foreign
C)multinational
D)intrastate
E)domestic

Question 53

Which of the following is necessary in order for a business to qualify as an S corporation?

A)No more than 100 shareholders
B)Only individuals,trusts,and (in certain circumstances)corporations as shareholders
C)At least $10,000 in capital
D)No more than 100 shareholders; only individuals,trusts,and (in certain circumstances)corporations as shareholders; and at least $10,000 in capital
E)No more than 100 shareholders and only individuals,trusts,and (in certain circumstances)corporations as shareholders; however,there is no requirement of at least $10,000 in capital

Question 54

A corporation commits an ultra vires act when it ________.

A)creates a contract outside the scope of its powers
B)hires incompetent managers
C)hires employees with criminal backgrounds
D)refuses to declare dividends
E)refuses to declare a stock split

Question 55

If a corporation acts beyond its express and implied powers,the act is called a(n)________ act.

A)respondeat superior
B)ultra vires
C)res ipsa loquitur
D)stare decisis
E)res judicata

Question 56

Which of the following is generally the only duty of an incorporator?

A)Prepare and distribute the share prospectus
B)Select the corporate board of directors
C)Select corporate officers
D)Assign a par value to company stock
E)Sign the articles of incorporation

Question 57

A corporation is a ________ corporation in the state in which it is incorporated.

A)domestic
B)foreign
C)multinational
D)closely held
E)public

Question 58

According to the Revised Model Business Corporation Act,which of the following should the articles of incorporation include?

A)The name of the corporation
B)The name of the registered agent
C)The names and addresses of the incorporators
D)The name of the corporation,the name of the registered agent,and the names and addresses of the incorporators
E)The names of the corporation and the registered agent,but not the names and addresses of the incorporators

Question 59

A(n)________ corporation is a business incorporated in another country.

A)multinational
B)foreign
C)interstate
D)alien
E)unified

Question 60

Which of the following is a correct statement regarding law governing the incorporation process and corporate taxation?

A)Federal law exclusively governs the incorporation process and corporate taxation.
B)Federal law exclusively governs the incorporation process while state law exclusively governs corporate taxation.
C)Federal and state law jointly address the incorporation process while federal law exclusively governs corporate taxation.
D)Each state has different laws governing the incorporation process and different corporate tax rates.
E)All fifty states have adopted uniform laws governing the incorporation process and corporate taxation.

Question 61

Although most state statutes allow for longer terms,how long do directors typically serve?

A)Three years
B)Two years
C)One year
D)Four years
E)Five years

Question 62

Which of the following is a term for a requirement that a minimum number of directors be present at a meeting for decisions made at the meeting to be valid?

A)Quorum
B)Simple majority
C)Electorate
D)Super-majority
E)Base

Question 63

How are directors chosen during incorporation?

A)Either the incorporators appoint them or the corporate articles name them.
B)Either the incorporators appoint them or by a majority vote of the shareholders.
C)Only by the incorporators appointing them.
D)Only by the corporate articles naming them.
E)Only by the president appointing them.

Question 64

The Securities and Exchange Commission has established that any shareholder who owns more than ________ worth of stock in the corporation can submit proposals to be included in proxy materials.

A)$4,000
B)$3,000
C)$2,000
D)$1,000
E)$500

Question 65

How is the number of corporate directors determined?

A)In the discretion of the president of the corporation
B)By a vote of the stockholders in compliance with state law
C)According to the corporate articles or bylaws,in compliance with state law
D)According to the number of shares issued
E)According to the amount of profit projected by the incorporators for the first fiscal year of the corporation's existence

Question 66

While ordinary corporate decisions made by directors require a ________ vote,more important decisions sometimes require a ________ vote.

A)majority; two-thirds
B)majority; three-fourths
C)two-thirds; three-fourths
D)one-third; majority
E)majority; unanimous

Question 67

________ directors are also officers or employees of the corporation.

A)Certified
B)Seasoned
C)Inside
D)Affiliated
E)Unaffiliated

Question 68

________ directors are not officers or employees of the corporation.

A)Free-agent
B)Outside
C)Presumptive
D)Affiliated
E)Unaffiliated

Question 69

Owners of ________ stock enjoy preferences with respect to assets and dividends.

A)concentrated
B)premium
C)unconditional
D)preferred
E)common

Question 70

Which of the following are debt securities?

A)Stocks
B)Bonds
C)Certificates of deposit
D)Stocks,bonds,and certificates of deposit
E)Stocks and bonds,but not certificates of deposit

Question 71

Typically,how are corporate directors chosen?

A)By a majority vote of the shareholders.
B)By a majority vote of the officers.
C)By a two-thirds vote of the shareholders.
D)The president appoints them,subject to the advice and consent of the shareholders.
E)By a unanimous vote of the shareholders.

Question 72

Owners of ________ stock own a portion of a corporation but do not enjoy any preferences.

A)watered
B)secondary
C)diluted
D)conditional
E)common

Question 73

In which of the following situations would a court likely to pierce the corporate veil?

A)Shareholders attempt to commit fraud through a corporation.
B)A corporation followed statutory mandates regarding corporate business.
C)Shareholders' personal interests and corporate interests are separate.
D)A corporation had adequate capital when it initially formed.
E)None of the above; because a corporation is a legal entity separate from its owners (i.e.,its shareholders),a court cannot pierce the corporate veil in order to impose personal liability on shareholders.

Question 74

________ directors are outside directors who do not have business contacts with the corporation.

A)Approved
B)Certified
C)Statutory
D)Presumptive
E)Unaffiliated

Question 75

A director may be removed ________.

A)at the discretion of the president
B)in the discretion of the shareholders,upon a majority vote
C)in the discretion of the shareholders,upon a two-thirds vote
D)in the discretion of other directors,upon a majority vote
E)for cause

Question 76

Which of the following is false regarding officers of a corporation?

A)Officers are executive managers.
B)Officers run the day-to-day business of the corporation.
C)In most cases an individual may serve as both a director and an officer.
D)The rules of agency do not apply to the work of officers.
E)Qualifications required of officers are set forth in the corporate articles and bylaws.

Question 77

Which of the following types of securities represent ownership in a corporation?

A)Debt
B)Equity
C)Finance
D)Leveraged
E)Certified

Question 78

________ own(s)the corporation.

A)Directors
B)Officers
C)Shareholders
D)Affiliates
E)The state

Question 79

________ directors are outside directors who have business contacts with the corporation.

A)Approved
B)Presumptive
C)Inside
D)Affiliated
E)Seasoned

Question 80

If a corporation has fewer than fifty shareholders,the Revised Model Business Corporation Act allows companies to ________.

A)choose not to file articles of incorporation
B)eliminate the board of directors altogether
C)have as few as seven corporate directors
D)have as few as five corporate directors
E)have as few as three corporate directors