Question 1

Issuing securities is the only way for a new corporation to raise capital.

Accepted Answer

While issuing securities is a common way for a corporation to raise capital, it is not the only way. Other options include taking out loans, partnering with investors or venture capitalists, and using company profits to reinvest in the business.

Question 2

Shareholders' assumption of personal liability,as guarantors,for the obligations of a corporation can enable the firm to obtain credit.

Accepted Answer

Shareholders assuming personal liability as guarantors gives lenders greater assurance that the corporation is a good credit risk, which can make it easier for the firm to obtain credit.

Question 3

Because a close corporation is one whose shares are held by a relatively small group of persons,the firm often operates like a partnership.

Accepted Answer

A close corporation is typically owned by a small group of shareholders and often operates like a partnership, with close involvement and decision-making among the owners. Therefore, the statement is true.

Question 4

The primary document needed to incorporate a business is the articles of incorporation because the articles serve as a primary source of authority for the firm's organization and functions.

Accepted Answer

The articles of incorporation outline the key aspects of the business, such as its name, purpose, structure, and ownership. It is a legal document filed with the state government to officially create a corporation, and it serves as a primary source of authority and guidance for the company's operations.

Question 5

A foreign corporation that has not obtained a certificate of authority to do business in a state can nevertheless maintain an action in the state's courts.

Accepted Answer

The answer of A foreign corporation that has not obtained...

Question 6

Because the management of a close corporation can resemble that of a sole proprietorship,the firm need not meet all of the specific requirements set forth in state statutes for corporations.

Accepted Answer

Close corporations must still adhere to state statutes and legal requirements specific to corporations, even if their management structure resembles that of a sole proprietorship.

Question 7

A corporation is an artificial being-intangible,invisible,and existing only in the contemplation of the law.

Accepted Answer

This is a commonly accepted definition of a corporation as it is a legal entity created by law. It is treated as a separate legal entity from its owners, with rights and obligations similar to those of a natural person.

Question 8

Like the partners in a partnership,the shareholders in a corporation cannot change without affecting the continued existence of the firm.

Accepted Answer

Unlike a partnership, the existence of a corporation is not affected by changes in shareholders. Shareholders can buy or sell their shares, but the corporation remains a separate legal entity.

Question 9

A shareholder in a professional corporation generally cannot be held liable for torts committed by other professionals at the firm,including malpractice and breaches of duty to the firms' clients.

Accepted Answer

Shareholders in a professional corporation are generally not personally liable for the actions of other professionals in the firm, as the corporation provides limited liability protection. However, there may be certain exceptions to this rule depending on the specific circumstances and jurisdiction.

Question 10

Corporate bylaws and resolutions of the corporation's board of directors provide guidelines but cannot grant or restrict corporate powers.

Accepted Answer

Corporate bylaws and board resolutions can indeed grant or restrict corporate powers as they define the internal rules and governance structure of the corporation.

Question 11

A businessperson who enters into a contract with an investor on behalf of a future corporation is not personally liable on the deal,even though the firm is not yet formed,because the nature of investment is risk.

Accepted Answer

A businessperson who enters into a contract on behalf of a future corporation that has not yet been formed is personally liable because the corporation, not yet existing as a legal entity, cannot be party to contracts or bear liability.

Question 12

Because state corporate laws differ,persons wishing to incorporate may look for the state that offers the most advantageous tax or other provisions.

Accepted Answer

State corporate laws do vary and some states may offer more favorable tax or other provisions for incorporating compared to others. This is why some businesses may choose to incorporate in a particular state based on these factors.

Question 13

Because corporate officers have the implied power to bind the firm in matters directly connected to its business,there is no limit to what the officer can do.

Accepted Answer

While corporate officers do have implied power to bind the firm in matters directly connected to its business, there are limits to what they can do. These limits may be set by the company's bylaws, policies, and procedures, as well as by the law. Additionally, if an officer acts beyond the scope of their authority, the company may not be bound by their actions.

Question 14

If the procedures for incorporation are not followed precisely,others may be able to challenge the existence of the corporation.

Accepted Answer

If the procedures for incorporation are not followed precisely, the corporation may not have legal standing and its existence can be challenged by others.

Question 15

A benefit corporation is designed to make a profit and thereby provide long-term shareholder benefit.

Accepted Answer

A benefit corporation is designed to operate in a socially and environmentally responsible manner, in addition to making a profit. The goal is to balance the interests of all stakeholders, not just shareholders, and to prioritize social and environmental impact alongside financial performance.

Question 16

Because a corporation may be liable for the misconduct of its employees,the firm needs to be careful about whom it hires and how much to monitor and supervise them.

Accepted Answer

This statement is true because a corporation can be held responsible for the actions of its employees within the scope of their employment. Therefore, hiring and supervision practices are important for mitigating risk and avoiding legal liabilities.

Question 17

Individual state laws should be relied on to determine corporate law because,despite the existence and use of model corporation acts,there is considerable variation among the states.

Accepted Answer

Each individual state has the power to establish its own laws regarding corporations and their practices, which means that there may be some variation among these laws from state to state, despite the use of model corporation acts. Therefore, it is important to rely on individual state laws to determine corporate law.

Question 18

If a business says it is a corporation,and a third party deals with it as a corporation,neither party can question the validity of the business's status.

Accepted Answer

If a business represents itself as a corporation and a third party deals with it as such, both parties must honor that representation and cannot later question the validity of the corporation's status. This is known as the doctrine of estoppel.

Question 19

Because bonds do not represent debt,they need never be repaid.

Accepted Answer

Bonds represent debt and therefore, need to be repaid with interest according to the terms of the bond agreement.

Question 20

A corporation is recognized under U.S.law as a person.

Accepted Answer

According to the legal concept of corporate personhood, corporations are recognized as legal persons with certain rights and responsibilities under U.S. law.

Quiz 18: Corporations