Question 1

When a shareholder commingles personal and corporate interests so that the firm has no separate identity, the shareholder may be held liable for the firm's debts.

Accepted Answer

This situation describes "piercing the corporate veil," where courts may hold shareholders personally liable for the firm's debts if they fail to maintain separate identities for themselves and the corporation.

Question 2

Stocks, or equity securities, represent the purchase of ownership in the business firm.

Accepted Answer

When you buy stocks, you are buying a share of ownership in a company, which means you own a part of the business and can benefit from its growth.

Question 3

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

The doctrine of de facto corporation prevents parties from challenging the validity of a corporation's status if it has been operating as a corporation and has been recognized as such by third parties.

Question 4

A de jure corporation is one that is formed to accomplish a single purpose within a limited time.

Accepted Answer

A de jure corporation is one that has been properly formed and recognized by law, not specifically one formed for a single purpose within a limited time.

Question 5

Common stockholders and preferred stockholders benefit when the market price of the stock increases.

Accepted Answer

Both common and preferred stockholders can benefit from an increase in the market price of the stock, as it represents an increase in the value of their investment.

Question 6

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

Accepted Answer

Corporate resolutions of the corporation's board of directors are formal decisions or statements of policy which can indeed grant or restrict corporate powers, in addition to providing guidelines. They are a key mechanism through which the board directs the corporation's affairs.

Question 7

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 8

Under the doctrine of respondeat superior , a corporation can be held liable for

Accepted Answer

Under the doctrine of respondeat superior, a corporation can be held liable for torts committed by its agents or officers while they are acting within the scope of their employment.

Question 9

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

Accepted Answer

The Articles of Incorporation is the primary document needed to incorporate a business, as it outlines the basic information required to establish the company legally and serves as a charter to recognize the firm's organization and functions by the state.

Question 10

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

Accepted Answer

Corporations can also raise capital through borrowing, either by taking out loans or by issuing bonds, in addition to issuing equity securities like stocks.

Question 11

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

Accepted Answer

Bonds represent a form of debt, and they must be repaid at their maturity date along with any agreed-upon interest.

Question 12

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

Corporate officers have implied powers to bind the firm in matters directly connected to its business, but there are legal and organizational limits to their authority, such as those set by corporate bylaws, board directives, and relevant laws.

Question 13

The day-to-day operations of a corporation are overseen by

Accepted Answer

The officers of a corporation are responsible for the day-to-day operations and management of the company. This includes roles such as CEO, CFO, and COO, who oversee various aspects of the business's activities. Directors, on the other hand, make broader strategic decisions and do not manage daily operations. Owners and shareholders have ownership stakes but are not involved in daily management.

Question 14

Sweetwater Corporation is incorporated in Texas. Outside that state, within the United States, the firm is

Accepted Answer

Sweetwater Corporation, incorporated in Texas, is considered a foreign corporation in any other state within the United States outside of Texas. This is because the term "foreign corporation" refers to a corporation operating in a state or jurisdiction other than the one where it was incorporated.

Question 15

A court will pierce the corporate veil of a corporation when the corporate privilege is abused for personal benefit.

Accepted Answer

Piercing the corporate veil occurs when a court disregards the separate legal entity of a corporation, typically due to the misuse of the corporate form to avoid legal obligations, commit fraud, or for personal gain, thus holding the shareholders personally liable for the corporation's actions or debts.

Question 16

To pierce the corporate veil is to disregard the corporate entity and hold the directors liable for a corporate obligation.

Accepted Answer

The answer of To pierce the corporate veil is to...

Question 17

A corporation's authority to act and its liability for those actions is, with respect to the firm's owners,

Accepted Answer

A corporation is a legal entity separate from its owners, meaning its authority to act and its liability for those actions are distinct from those of its owners. This separation provides a layer of protection for the owners' personal assets from the corporation's liabilities.

Question 18

To pierce the corporate veil means to reveal the identity of its true owner.

Accepted Answer

To pierce the corporate veil means to hold the shareholders or directors personally liable for the corporation's debts and liabilities, rather than treating the corporation as a separate legal entity.

Question 19

A corporation is

Accepted Answer

A corporation is considered an artificial legal person, meaning it is recognized by law as having rights and responsibilities similar to those of a natural person, but it is created by legal processes.

Question 20

The primary document needed to incorporate a business is the bylaws-the primary source of guidelines for the firm's management and operation.

Accepted Answer

The primary document needed to incorporate a business is the Articles of Incorporation, which outlines the basic information about the company, such as its name, purpose, and structure. Bylaws, on the other hand, detail the internal rules and procedures for the company's operation.

Quiz 37: Corporate Formation and Financing