Deck 36: Corporate Formation and Financing

Question 1

Which of the following criteria must be met for a company to be an S corporation?

A) Shareholders must be other corporations or partnerships.
B) Nonresident aliens cannot be shareholders.
C) The corporation must have more than 100 shareholders.
D) The corporation must have more than one class of stock.

Answer 1

B

Question 2

Shareholders are liable for the debt and obligations of a corporation.

Answer 2

False

Question 3

Which of the following is true of an S corporation?

A) The corporation can have no more than 100 shareholders.
B) Only foreign corporations with more than 10 shareholders can be an S corporation.
C) They are taxed at the corporate level.
D) The corporation must be a member of an affiliated group of corporations.

Answer 3

A

Question 4

A corporation that is incorporated in another country is known as a(n) ________.

A) alien corporation
B) public corporation
C) domestic corporation
D) municipal corporation

Question 5

Which of the following is a definition of a foreign corporation?

A) A corporation with incorporations in multiple states.
B) A corporation in the state in which it is incorporated.
C) A corporation in states other than the one in which it is incorporated.
D) A corporation in the United States which has been incorporated in another country.

Question 6

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

A) offshore
B) domestic
C) alien
D) foreign

Question 7

The board of directors makes policy decisions concerning the operation of a corporation.

Question 8

Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation are known as ________.

A) spectators
B) shareholders
C) electors
D) associates

Question 9

________ is a general rule of corporate law that provides that generally shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation.

A) Limited-purpose clause
B) Limited liability of shareholders
C) Preferred shareholder rule
D) Nonparticipating shareholder rule

Question 10

Corporations are not allowed to enter into contracts in their own name.

Question 11

Corporation codes regulate the formation, operation, and dissolution of corporations.

Question 12

A corporation in the United States that has been incorporated in another country is referred to as a(n) ________ corporation.

A) foreign
B) domestic
C) onshore
D) alien

Question 13

Shareholders of a closely held corporation play a minor role in its management.

Question 14

A corporation in the state in which it was formed is referred to as a(n) ________.

A) foreign corporation
B) domestic corporation
C) alien corporation
D) overseas corporation

Question 15

A person or corporation that is empowered to accept service of process on behalf of a corporation is referred to as a(n) ________.

A) promoter
B) authorized shareholder
C) registered agent
D) incorporator

Question 16

Which of the following can end the existence of a corporation?

A) voluntary termination by shareholder
B) death of a shareholder
C) bankruptcy of a shareholder
D) voluntary termination by the corporation's creditors

Question 17

A panel of persons who are elected by the shareholders that make policy decisions concerning the operation of a corporation is known as the ________.

A) legal aides
B) cartel
C) consortium
D) board of directors

Question 18

________ are corporations that have many shareholders and whose securities are often traded on national stock exchanges.

A) Closely held corporations
B) Non-profit corporations
C) Publicly held corporations
D) Shore-up corporations

Question 19

Which of the following elects members of the board of directors for a corporation?

A) the CEO
B) corporate officers
C) shareholders
D) employees

Question 20

A(n) ________ is a fictitious legal entity that is created according to statutory requirements.

A) corporation
B) cartel
C) outfit
D) conference

Question 21

An S corporation cannot have more than 100 shareholders.

Question 22

The earnings of a not-for-profit corporation are distributed among its members.

Question 23

A(n) ________ is a clause that can be included in the articles of incorporation that stipulates the activities that the corporation can engage in. The corporation can engage in no other purposes or activities.

A) ultra vires clause
B) dissolution clause
C) general purpose clause
D) limited purpose clause

Question 24

An S corporation must pay federal income tax at the corporate level.

Question 25

Which of the following must be true for a corporation to elect statutory close corporation status?

A) The corporation must have 100 or more shareholders.
B) The corporation must have 50 or fewer shareholders.
C) The corporation must contain a board of directors.
D) The corporation must have a set of bylaws.

Question 26

Which of the following acts is seen as conclusive proof for the existence of a corporation?

A) creation of the promoter's contracts
B) filing the articles of incorporation
C) acquiring a domain name for the corporation
D) selecting a state for incorporation

Question 27

An S corporation can have nonresident aliens as shareholders.

Question 28

The ________ is the basic governing document of a corporation which must be filed with the secretary of state of the state of incorporation.

A) debt security
B) redeemable stock
C) certificate of authority
D) articles of incorporation

Question 29

Which of the following is true of an amendment of the articles of incorporation that does not affect the rights attached to shares?

A) The shareholders need to propose a resolution of recommending such an amendment.
B) The shareholders need to provide vote of approval for the amendment.
C) The board of directors can approve the amendment without shareholder approval.
D) The amendment need not be filed with the secretary of state of the state of incorporation.

Question 30

A corporation is a foreign corporation in states other than the one in which it is incorporated.

Question 31

Which of the following is true for a corporation's liability on the promoters' contracts if the corporation is never formed?

A) The corporation assumes liability of the promoters' contract automatically upon its creation.
B) The promoter's liabilities are transferred to the board of directors of the corporation upon its formation.
C) The promoter, the corporation, and the third-party enter into a novation whereby liability is solely transferred to the corporation.
D) The promoters have joint personal liability on the contract unless the third party specifically exempts them from such liability.

Question 32

Compare and contrast publicly held and closely held corporations.

Question 33

Which of the following must be included in the articles of incorporation?

A) The minutes of the first organizational meeting of the board of directors.
B) The number of shares the corporation is authorized to issue.
C) The dissolution terms of the incorporation.
D) The corporate seal must be used in the articles of incorporation.

Question 34

A foreign corporation can conduct commerce in a state if it obtains a certificate of authority from the state.

Question 35

The person responsible for incorporation of a corporation is known as a(n) ________.

A) promoter
B) shareholder
C) incorporator
D) director

Question 36

Foreign corporations can elect to be taxed as an S corporation.

Question 37

A(n) ________ is a clause that can be included in the articles of incorporation that permits the corporation to engage in any activity permitted by law.

A) general purpose clause
B) limited purpose clause
C) dissolution clause
D) ultra vires clause

Question 38

A(n) ________ is a person who organizes and starts a corporation, negotiates and enters into contracts in advance of its formation, finds the initial investors to finance the corporation, and so forth.

A) incorporator
B) promoter
C) articles drafter
D) negotiator

Question 39

Publicly held corporations are corporations run by the government.

Question 40

Which of the following is true for a corporation's incorporation in a state?

A) A corporation can incorporate in only one state.
B) A corporation can incorporate in all states where it conducts business.
C) Alien corporations can only incorporate in one state.
D) Foreign corporations can incorporate in more than one state.

Question 41

A C corporation pays taxes at the corporate level and the shareholder's level.

Question 42

Amendments to the articles of incorporation must be filed with the secretary of state of the state of incorporation.

Question 43

A corporation reimbursing its employees for expenses would fall under its implied powers.

Question 44

Bylaws of a corporation must be filed with a government official.

Question 45

The shareholders of the corporation have the absolute right to amend bylaws.

Question 46

A corporation can be incorporated in several states.

Question 47

The Revised Model Business Corporation ACT (RMBCA) provides that corporate existence begins when the articles of incorporation are filed.

Question 48

Which of the following is true of a C Corporation?

A) It cannot have more than 50 shareholders.
B) Shareholders of such a corporation don't pay tax on their dividends.
C) It must have more than 100 shareholders.
D) Nonresident aliens cannot be shareholders.

Question 49

Which of the following is true of corporate bylaws?

A) They only contain rules on how the corporation can deal with the government.
B) They are only adopted by the shareholders of the corporation.
C) They are not binding on the directors, or shareholders of the corporation.
D) They do not have to be filed with any government official.

Question 50

Incorporators cannot become shareholders of the corporation they are associated with.

Question 51

An act by a corporation that is beyond its express or implied powers is called a(n) ________.

A) Subchapter Revision S Act
B) novation act
C) cooperate code act
D) ultra vires act

Question 52

Which of the following would generally be considered an express power of a corporation?

A) opening a bank account
B) issuing notes and bonds
C) purchasing advertisement
D) purchasing insurance

Question 53

________ are powers beyond express powers that allow a corporation to accomplish its corporate purpose.

A) Cumulative powers
B) Corporation codes
C) Ultra vires acts
D) Implied powers

Question 54

The articles of incorporation must contain the name and address of every incorporator.

Question 55

Any corporation with more than 100 shareholders is automatically considered a C corporation for federal income tax purposes.

Question 56

Explain how articles of incorporations may be amended.

Question 57

According to the RMBCA, only corporations with 50 or fewer shareholders may elect statutory close corporation status.

Question 58

A corporate name cannot include the word corporation, company, incorporated, or limited or an abbreviation of any of these.

Question 59

A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing a corporation are referred to as ________.

A) ultra vires rules
B) articles of incorporation
C) bylaws
D) corporation codes

Question 60

The registered office in the articles of incorporation must be the same as the corporation's place of business.

Question 61

Stock that permits a corporation to buy back the preferred stock at some future date is known as ________.

A) cumulative preferred stock
B) participating preferred stock
C) convertible preferred stock
D) redeemable preferred stock

Question 62

Stocks for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends are known as ________.

A) cumulative preferred stocks
B) noncumulative preferred stocks
C) common stocks
D) participating preferred stocks

Question 63

Treasury shares cannot be issued by the corporation.

Question 64

According to priority, which of the following claimants is the last to be paid after assets have been liquidated of a corporation?

A) creditors
B) common stockholders
C) preferred shareholders
D) bond holders

Question 65

Preferred stockholders are given the right to vote for the board of directors of the corporation.

Question 66

Authorized shares that have been sold by the corporation are called issued shares.

Question 67

Shares that are repurchased by a corporation are called unissued shares.

Question 68

The WaterGlove Corporation issues ________ preferred stock that requires payment of a quarterly dividend of $5.00 per share. The WaterGlove Corporation falls behind with four quarterly payments, i.e., $20.00 per share of preferred stock. The next quarter, the corporation makes a profit of $25.00 per share. The corporation must pay $20.00 per share of arrearages to the preferred shareholders plus this quarter's payment of $5.00 per share.

A) convertible
B) redeemable
C) cumulative
D) participating

Question 69

Which of the following is true of treasury shares?

A) They cannot be issued by the corporation.
B) They cannot be voted by the corporation.
C) They are owned by shareholders.
D) They are only issued by governments.

Question 70

Shareholders cannot seek an injunction against an ultra vires act by a corporation.

Question 71

Which of the following shares have the right to vote?

A) unissued shares
B) treasury shares
C) outstanding shares
D) liquidated shares

Question 72

Only outstanding shares have the right to vote.

Question 73

Authorized shares that have not been sold by the corporation are known as ________.

A) issued shares
B) unissued shares
C) outstanding shares
D) liquidated shares

Question 74

________ is a preferred stockholder right to be paid a stated dollar amount if a corporation is dissolved and its assets redistributed.

A) Noncumulative preference
B) Cumulative dividend preference
C) Dividend preference
D) Liquidation preference

Question 75

Common stockholders receive dividends declared by the board of directors.

Question 76

In case a corporation's assets are liquidated, the preferred stockholders are paid before common stockholders.

Question 77

Convertible preferred stock permits the preferred stockholders to convert their shares into common stock.

Question 78

________ is a type of equity security that represents the value of a corporation.

A) Common stock
B) Preferred stock
C) Cumulative preferred stock
D) Participating preferred stock

Question 79

What are the express powers of a corporation?

Question 80

Issued shares that have been repurchased by the corporation are referred to as ________.

A) outstanding shares
B) liquidated shares
C) unissued shares
D) treasury shares