Question 1

Boutique Bodega Corporation would like to change its corporate status to that of an S corporation to avoid income taxes at the corporate level.To qualify,the shareholders must not be

Accepted Answer

The correct answer is D because partnerships are not eligible to be shareholders in an S corporation. The other options, corporations, estates, and individuals, are eligible to be shareholders in an S corporation.

Question 2

Qiara is a holder of preferred stock in Rio Grande Irrigation & Development,Inc.Qiara has priority over holders of Rio common stock as to

Accepted Answer

Preferred stock holders have priority over common stock holders when it comes to receiving dividends. Therefore, Qiara has priority over holders of Rio common stock as to payments of dividends.

Question 3

Dollars & Sense,Inc.,is incorporated in the state of New Jersey and is doing business in the state of New York.In New York,Dollars & Sense is properly referred to as

Accepted Answer

Dollars & Sense, Inc. is incorporated in New Jersey, therefore it is a domestic corporation in that state. However, since it is doing business in New York, it is considered a foreign corporation in New York.

Question 4

Equestrian Stables Corporation's articles list an incorrect address for its incorporator.Under this circumstance,Equestrian Stables is most likely

Accepted Answer

A de jure corporation is one that has met all legal requirements for incorporation, including filing articles of incorporation with the state. Even though Equestrian Stables Corporation listed an incorrect address for its incorporator, it still followed the proper legal procedures for incorporation, so it is a de jure corporation. A corporation by estoppel would arise if someone relied on Equestrian Stables Corporation's incorrect address and suffered harm as a result. A de facto corporation would arise if there were some defect in the incorporation process, but not simply because of an incorrect address. Ultra vires refers to actions taken by a corporation that are beyond its legal authority or powers.

Question 5

Demario and Evander want to form and do business as a corporation-Farm-2-Fork Restaurant,Inc.A corporation is

Accepted Answer

A corporation is an artificial person created under state law, which has legal status and is able to enter into contracts, own property, and conduct business just as a natural person would.

Question 6

Miracle Mobile Devices,Inc.,is a private,for-profit corporation that (1)was formed for the purpose of manufacturing and distributing a newly patented tablet,(2)is owned by five shareholders,(3)is subject to double taxation,and (4)has made no public offering of its shares.Miracle is

Accepted Answer

Miracle Mobile Devices, Inc. is characterized as a close corporation because it is privately held by a small number of shareholders, who likely have a close relationship and control over the company's management and operations. Additionally, the fact that it has not made a public offering of its shares also supports this classification. The other choices - A) an S corporation, C) a nonprofit corporation, and D) a professional corporation - do not fit with the description of Miracle Mobile Devices, Inc.

Question 7

Tech Personnel,Inc.,is a corporation.Tech Personnel's implied powers enable it to

Accepted Answer

Implied powers are the powers not explicitly stated in the articles of incorporation but are necessary to carry out the corporation's express powers. One of the implied powers of a corporation is to borrow and lend funds, which enables it to operate and pursue its purpose effectively. Therefore, option D is the best choice. Option B is incorrect as departing significantly from traditional corporate formalities is not an implied power but a violation of corporate governance rules. Option C may be an implied power, but it is not a general power and applies only to specific situations. Option A is incorrect as every corporation has implied powers.

Question 8

Neci and Olwen want to form and do business as a corporation-Pastries & Pies,Inc.A corporation is a legal entity created and recognized by

Accepted Answer

A corporation is recognized as an artificial legal person created under and governed by state law. The state law provides the procedures for forming and organizing the corporation, and also, the legal structure that governs the corporation's operations and management. Therefore, choice D is the correct answer. Choices A, B, and C are incorrect because they do not accurately describe the nature and structure of a corporation.

Question 9

Hudson and Ilka want to market a new line of kayaks and related gear under the brand name Journeys as a corporation-Journeys,Inc.To avoid income taxes at the corporate level,they should form

Accepted Answer

An S corporation is a type of corporation that allows the company's income, losses, deductions, and credits to be passed through to the shareholders' personal tax returns. This means that the company itself is not taxed at the corporate level, avoiding double taxation. The maximum number of shareholders for an S corporation is 100, and they must all be U.S. citizens or residents. Given that Hudson and Ilka want to avoid income taxes at the corporate level, an S corporation would be the best choice for them, since they can still enjoy the benefits of a corporation while avoiding double taxation.

Question 10

Bread & Brews,Inc.,files its articles of incorporation with the appropriate government agency.Least likely to appear in the articles is the name of

Accepted Answer

The names of the corporation's shareholders are not typically included in the articles of incorporation, as this information is generally maintained in the corporation's stock ledger rather than in the public record of the articles. The other three options (names of incorporators, name of the corporation, and name of the initial registered agent) are all commonly included in articles of incorporation.

Question 11

Like the bylaws of other corporations,the bylaws of Equipment Leasing,Inc.,

Accepted Answer

Bylaws are typically adopted at a corporation's first organizational meeting to establish the rules and procedures for its operation.

Question 12

Orel incorporates his business as Posts & Wire Corporation in Texas.He and his group of shareholders intend to make a profit from their sales of fencing materials.Posts & Wire is

Accepted Answer

Out of the given choices, the best-suited option for Orel's business is a private corporation. A private corporation is formed for the purpose of making a profit, and its shares are held by a limited number of individuals. As Orel and his group of shareholders aim to make a profit from the sales of fencing materials, the formation of a private corporation under the name Posts & Wire Corporation in Texas is appropriate. A nonprofit corporation primarily aims to serve a charitable, educational, religious or scientific purpose, which is not the case with Orel's business. An alien corporation is a company incorporated in a foreign country but has operations in the United States, which does not apply to Orel's business.

Question 13

Deepwater Dredging & Excavation holds itself out to others as being a corporation but makes no attempt to incorporate.Estuary Marina signs a contract with Deepwater that is not performed.Estuary Marina files a suit against the firm.The court will likely hold that Deepwater is

Accepted Answer

A corporation by estoppel is a fictitious corporation that is treated as a corporation in legal proceedings because it holds itself out to others as a corporation, regardless of whether it is actually incorporated. In this case, Deepwater Dredging & Excavation holds itself out to others as being a corporation, and Estuary Marina entered into a contract with the firm believing it to be a corporation. Therefore, the court is likely to hold that Deepwater is a corporation by estoppel.

Question 14

The abbreviation "P.A." in the name "Conrad & Drake,Accountants,P.A." means that this organization is

Accepted Answer

"P.A." is typically short for "professional association," indicating that Conrad & Drake are likely a group of licensed professionals who have formed a business entity together. This is a common structure for accountants, lawyers, doctors, and other professionals. "Private association" and "publicly administered corporation" are not common uses of the "P.A." abbreviation, and "public association" is not a common term at all.

Question 15

Urban Commerce,Inc.,issues bonds,which are also known as

Accepted Answer

Bonds are commonly known as fixed-income securities because they provide a fixed rate of return to investors. Bonds are not cumulative investments, equity securities, or preferred stock.

Question 16

Rhys owns Solar Fuel Corporation.Rhys uses Solar Fuel's funds to pay his personal expenses,creates Thermal Power Corporation to engage in the same business as Solar Fuel,transfers Solar Fuel's assets to Thermal Power,and petitions Solar Fuel into bankruptcy.This most likely warrants

Accepted Answer

Rhys is using Solar Fuel's funds for personal expenses and transferring assets to another corporation he created, which are both unethical and illegal activities. This warrants piercing of the corporate veil and holding Rhys personally liable for the actions taken.

Question 17

Bay City Merchants Corporation has six shareholders,four of whom are members of the same family.All of Bay City's shareholders agree in writing to operate without shareholders' meetings.Under the Revised Model Business Corporation Act,this most likely warrants

Accepted Answer

The Revised Model Business Corporation Act allows for shareholders to operate a corporation without meetings as long as they all agree in writing. Therefore, there are no penalties or sanctions for Bay City Merchants Corporation in this situation.

Question 18

Blair and Chanel are holders of common stock in Discount Retail Stores,Inc.Like other holders of common stock,they have a residual position in the overall financial structure of Discount Retail,because they

Accepted Answer

Holders of common stock have a residual position in the overall financial structure of a company, meaning they are the last to receive returns for their investment after all other stakeholders (such as bondholders and preferred stockholders) have been satisfied. They are not guaranteed to receive more than their investment, nor do they have priority to the firm's assets if it becomes insolvent. The state of the firm's incorporation is also not relevant to their position as stockholders.

Question 19

The shares of Home Mortgage Corporation are publicly traded in securities markets.Home Mortgage Corporation is

Accepted Answer

The answer of The shares of Home Mortgage Corporation are...

Question 20

Memphis Music Makers Inc.'s stated purpose is to sell musical instruments.If chief executive officer Neal contracts with Open Season Firearms in Memphis Music's name to sell a shotgun,he has likely committed

Accepted Answer

Memphis Music Makers Inc.'s stated purpose is to sell musical instruments, and selling a shotgun is not within the scope of their business. Conducting business outside of the company's stated purpose is considered an ultra vires act, meaning the act is beyond the legal powers or authority of the company.

Quiz 32: Corporate Formation and Financing