Question 1

A corporation has perpetual existence unless otherwise stated in its articles of incorporation.

Accepted Answer

This is true. A corporation is created as a separate legal entity from its owners and can continue to exist even if the owners die or sell their shares. However, the articles of incorporation may include a specific duration for the corporation's existence or allow for its dissolution under certain circumstances.

Question 2

"Piercing the corporate veil" will result in personal liability of shareholders.

Accepted Answer

Piercing the corporate veil is a legal concept that allows a court to hold shareholders personally liable for the obligations of their corporation under certain circumstances. This is typically done when the corporation is found to have engaged in fraudulent or illegal behavior or when the shareholders have failed to comply with certain corporate formalities, such as maintaining separate bank accounts and meeting minutes.

Question 3

Under the RMBCA, a pre-incorporation subscription may be revoked at any time without the consent of the subscribers.

Accepted Answer

Under the Revised Model Business Corporation Act (RMBCA), a pre-incorporation subscription for shares is irrevocable for six months unless the subscription agreement provides otherwise or all the subscribers agree to revocation.

Question 4

Zeron Corporation is incorporated in the State of West Virginia.It now wants to open a retail outlet in Kentucky.Zeron must obtain a certificate of authority allowing it to do business in Kentucky.

Accepted Answer

To do business in a different state than where it is incorporated, a corporation must obtain a certificate of authority, also known as a foreign qualification, to legally operate in that state.

Question 5

A corporation is a creature of the state and may be formed only by substantial compliance with a state incorporation statute.

Accepted Answer

A corporation is a legal entity created by the state through the process of incorporation, and as such, it must comply with the requirements outlined in the state's incorporation statute. Failure to do so can result in the corporation not being recognized as a legal entity, and therefore unable to conduct business or enjoy the legal protections afforded to corporations.

Question 6

Once a shareholder sells the stock of the corporation, since the ownership of the corporation changes, a new corporation is formed.

Accepted Answer

Selling the stock of a corporation does not result in the formation of a new corporation. The existing corporation remains the same, but with new shareholders.

Question 7

Under the RMBCA, a newly formed corporation need not hold an organizational meeting.

Accepted Answer

Under the RMBCA, a newly formed corporation is required to hold an organizational meeting to elect officers, adopt bylaws, and complete other organizational tasks.

Question 8

The modern approach follows the common law rule in holding that a corporation cannot commit a criminal act.

Accepted Answer

The modern approach challenges the common law rule and holds that a corporation can be held criminally liable in certain situations, such as when the corporation has a specific intent to commit the crime, or when criminal liability is imposed by statute.

Question 9

The RMBCA has been adopted, in whole or in part, by more than half of the states.

Accepted Answer

The RMBCA (Revised Model Business Corporation Act) has been adopted, in whole or in part, by more than half of the states in the USA.

Question 10

Promoters have a fiduciary relationship with the corporation.

Accepted Answer

Promoters have a legal and ethical duty to act in the best interests of the corporation and its shareholders. This is known as a fiduciary relationship, which is a relationship of trust and confidence.

Question 11

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

Accepted Answer

A corporation is considered domestic in the state in which it is incorporated, meaning it is headquartered and operates primarily within that state.

Question 12

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation must have bylaws on file with the Office of the Secretary of State or some other public office.

Accepted Answer

The Statutory Close Corporation Supplement to the Model Business Corporation Act (MBCA) does not require a close corporation to have bylaws on file with the Office of the Secretary of State or any other public office. Bylaws are internal documents and, while essential for the governance of the corporation, they are not typically filed with state offices.

Question 13

If an act is ultra vires, it is beyond the legal authority of the corporation.

Accepted Answer

"Ultra vires" literally means "beyond the powers." Therefore, if an act is ultra vires, it means it is beyond the legal authority or power of the corporation to perform that act.

Question 14

Title to corporate property belongs to the shareholders.

Accepted Answer

Title to corporate property legally belongs to the corporation itself, which is a separate legal entity from its shareholders.

Question 15

Shares in a corporation are freely transferable by sale, gift, or pledge unless a contract restricts the transfer.

Accepted Answer

This statement is true. In general, shares in a corporation can be transferred by sale, gift, or pledge unless there is a legal restriction or a contractual agreement that limits or prohibits the transfer. Such restrictions may be imposed by the corporation's charter, bylaws, shareholder agreements, or other legal arrangements. However, even in the absence of such restrictions, there may be practical limitations on the transferability of shares, such as the lack of a market or demand for the shares, or the need to comply with securities laws and regulations.

Question 16

A corporation owned by one person is treated under the law as separate from that person.

Accepted Answer

A corporation is a separate legal entity from its owner, meaning that the owner's personal assets are protected from the corporation's liabilities. This is a fundamental aspect of corporate law.

Question 17

A corporation is considered a citizen under the Fourteenth Amendment provision that, "No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States."

Accepted Answer

The answer of A corporation is considered a citizen under...

Question 18

The Model Business Corporation Act is a state statute that, like the UCC, has been adopted by all of the states in the United States to make state incorporation statutes uniform throughout the United States.

Accepted Answer

The Model Business Corporation Act (MBCA) is a recommendation for state corporation statutes, but it has not been adopted by all states. States have the option to adopt it in whole, in part, or not at all, leading to variations in corporate law across the United States.

Question 19

Big Burger Co.sues Bakum Corporation for breach of contract for $1,000 of hamburger buns that were not delivered.Bakum may assert as a defense to payment that Big Burger is not a de jure corporation.

Accepted Answer

The fact that Big Burger may not be a de jure corporation is not a relevant defense to the breach of contract claim for non-delivery of hamburger buns.

Question 20

Under the RMBCA, the bylaws may be amended and must be publicly filed with the articles of incorporation.

Accepted Answer

Under the Revised Model Business Corporation Act (RMBCA), bylaws may be amended by the corporation's board of directors or shareholders, but unlike the articles of incorporation, bylaws do not need to be filed with the state.

Quiz 34: Nature and Formation of Corporations