Deck 38: Corporations: Formation and Financing

Question 1

Corporations have implied powers.

Answer 1

True

Question 2

Corporations are not required to indicate in the name of the corporation that the business is incorporated.

Answer 2

False

Question 3

Regarding Société Anonymes (SA) companies in France,

A) SA companies offer shares to the public and must have at least seven shareholders.
B) SA companies do not have to offer shares to the public and may keep all income statements private.
C) French law requires that all SA companies register with the French authorities.
D) French law requires that a portion of all profits be repatriated to the government.
E) SA companies share personal liability for all member's misdeeds.

Answer 3

A

Question 4

Corporations are considered to be legal persons.

Question 5

Under the three tiers of corporate power in ________, the board of directors is the lowest, the board of supervisors makes up the second, and corporate officers compose the top tier.

A) the Netherlands
B) the United States
C) China
D) Japan
E) Europe

Question 6

Convertible bonds allow shareholders to exchange their bonds for shares of company stock.

Question 7

A promoter can enter into contracts as needed for the corporation.

Question 8

A corporation must be incorporated in the state in which it has its principal place of business.

Question 9

Debt securities, or bonds, represent loans to a corporation from another party.

Question 10

Under United States laws, corporations are legal entities and do not exit separately from their shareholders.

Question 11

If over 50% of the shareholders die, a corporation must be dissolved.

Question 12

Under the United States Constitution and mores specifically the Bill of Rights, corporations ________

A) cannot be sued.
B) cannot be foreign owned or have any foreign members.
C) can are the only business entity allowed to sue the United States government.
D) Corporations cannot be treated as "legal persons."
E) claim certain rights under the U.S. Constitution.

Question 13

Which of the following was the result on appeal in King v. American Family Mutual Insurance Company; American Standard Insurance Company of Wisconsin, the case in the text involving whether for an injury occurring outside the state, personal jurisdiction in Montana could be asserted over the defending insurers who had appointed an agent for service of process there but had done no business in the state?

A) That appointment of an agent for service of process does, standing alone, subject foreign corporations to jurisdiction in Montana for acts performed outside of Montana.
B) That Montana law regarding appointment of an agent for service of process does not, standing alone, subject foreign corporations to jurisdiction in Montana for acts performed outside of Montana, at least when the corporations transact no business in the state.
C) That regardless of whether an agent for service of process had been appointed, as a matter of law, insurers may be sued in any state in the U.S.
D) That regardless of whether an agent for service of process had been appointed, as a matter of law, an insurer may only be sued in its state of incorporation.
E) That regardless of whether an agent for service of process had been appointed, as a matter of law, an insurer may only be sued in the state in which its principal place of business is located.

Question 14

The only authority possessed by corporations is the powers granted to them in their articles of incorporation and through state incorporation statutes.

Question 15

Shareholders may not be held personally liable for a defective corporation's actions.

Question 16

Which of the following is false regarding the question presented in the Case Opener regarding Facebook's status as a corporation?

A) Its corporate status allows it to sue and be sued.
B) Its corporate status allows it to enjoy existence for up to 100 years.
C) Its corporate status allows it to acquire property.
D) Its corporate status allows it to make contracts.
E) Its corporate status allows it to make charitable donations.

Question 17

Stock for sale to the general public is frequently offered by closely held corporations.

Question 18

Among the shareholders of an S corporation, no shareholder may be a nonresident alien.

Question 19

A statement of purpose grants a corporation power to engage in certain business activities.

Question 20

The determination of who has the power to amend the corporate bylaws after the first organizational meeting is made by the articles of incorporation.

Question 21

The FDIC is an example of what type of corporation?

A) Public
B) Private
C) Closely held
D) Domestic
E) Publicly held

Question 22

G6A is a major corporation that has had an extremely profitable year. G6A decides to keep some of its profits to reinvest into new machinery. This is known as ________.

A) bonus earnings
B) allowable earnings
C) extra income
D) retained earnings
E) profit maximization

Question 23

Which of the following is an implied power of a corporation?

A) Power to have perpetual existence.
B) Power to sue and be sued in the corporations' name.
C) Power to establish rules for managing the corporation.
D) Power given in the statement of corporate purpose in the articles of incorporation.
E) Power to lend money.

Question 24

Constantine received dividends on his stock from a major corporation. What must Constantine, as a shareholder, now do?

A) Pay taxes on the dividends received.
B) Send a statement to the corporation within 30 days of intent to appeal the dividend amount.
C) Declare the dividend to the state corporation commission as received.
D) Hold onto the dividend amount until the federal government reviews the dividend paid
E) do nothing, the dividend is a bonus to the shareholder that has no other liabilities attached.

Question 25

Regarding management of a corporation, which of the following is false?

A) Shareholders generally participate in corporate management.
B) Shareholders elect a board of directors.
C) The board of directors selects officers to manage the day-to-day business of the corporation.
D) If shareholders die, corporations do not dissolve.
E) In most states, corporations can exist indefinitely.

Question 26

Because corporations are legal entities separate from their shareholders, ________

A) corporations and shareholders share liability for corporate actions.
B) corporate officers are responsible for corporate actions.
C) the corporation assumes liability for corporate actions.
D) the corporation, shareholders, and the board of directors must share in corporate liability.
E) the corporation cannot be assessed liability unless a court assess liability to it.

Question 27

Which of the following is a disadvantage of the corporate form?

A) Double taxation
B) Retained earnings
C) Protection from liability
D) Free transfer of corporate shares
E) Perpetual existence

Question 28

Which of the following references the liability of corporations for torts and crimes committed by their agents during the scope of their employment?

A) Stare decisis
B) Res ipsa loquitur
C) Respondeat superior
D) Ab initio
E) Actus reus

Question 29

Gladstonian Corporation has not been following the statutory mandates regarding corporate business in the state they are incorporated. If Gladstonian is sued, a court could ________ to determine liability.

A) break the glass ceiling
B) pierce the corporate veil
C) temporarily force the shutdown of the business
D) subpoena executives, board of directors and shareholders
E) takeover the corporation

Question 30

What type of corporation is created by the government to help administer law?

A) Public
B) Private
C) Closely held
D) Domestic
E) Publicly held

Question 31

Five friends decide to form a corporation together. They wish to participate in corporate management. What must they do to participate?

A) Nothing, shareholders generally participate in corporate management.
B) They should form a partnership instead.
C) They must form an S-corp, as C-corp shareholders are not permitted to participate in corporate management.
D) They should specify in corporate bylaws that they will participate in corporate management.
E) They will not be allowed to participate in corporate management as shareholders.

Question 32

________ occurs when both a corporation pays taxes on dividends and shareholders pay taxes on dividends receive.

A) Shared liability
B) Double taxation
C) Corporate penalty taxation
D) Dual taxation
E) IRS taxation rule of corporate existance

Question 33

Tony and Tim are shareholders of a closely held corporation that engages in illegal activity. They mixed business and corporate assets regularly. Do Tony and Tim have limited liability?

A) Yes, because limited liability is absolute.
B) Yes, because their corporation was closely held.
C) Yes, because of corporation by estoppel.
D) No, because closely held corporations never benefit from liability protection.
E) No, because they used the corporation to engage in illegal and wrongful acts and because they comingled personal and corporate interests.

Question 34

Which of the following was the result on appeal in Protect My Check, Inc. v Dilger and Steffan the case determining whether the ban on direct corporate contributions violated PMC's free speech rights?

A) The court held that the regulations complained of impermissibly regulated speech because nonprofit corporations were treated differently than corporations operated on a for profit basis and this made the law unconstitutional.
B) The court that as long as the Kentucky laws at issue allow corporations to administer a state PAC and contribute to state candidates through that PAC, and as long as the ban on direct contributions applies equally to corporations, LLCs, and other similarly situated groups, such laws are closely drawn to combat the legitimate interest of preventing the reality or appearance of quid pro quo corruption and are therefore constitutional
C) The court held that corporations could be treated differently than LLCs and unions because of their corporate structure.
D) The court ruled that the regulations complained of permissibly regulated speech because nonprofit corporations, unlike corporations operated on a for profit basis, lack constitutional protections in free speech cases.
E) The court ruled that free speech rights were for natural citizens only and therefore not an action that the courts or regulations protected for corporations.

Question 35

Corporations have many express powers. Which of the following would not be an express power of a corporation?

A) Perpetual existence.
B) Power to sue and be sued in the corporations' name.
C) Power to buy and sell property.
D) Power to eliminate double taxation.
E) Powers to make contracts and borrow money.

Question 36

________ is the document filed with the state that explains a corporations organization.

A) Incorporation document
B) Articles of incorporation
C) Corporate charter
D) Corporate establishment document
E) Domestic corporation documents

Question 37

Yolanda is a shareholder in a corporation which is sued. Which of the following is true of Yolanda's potential liability?

A) Yolanda is fully liable for the corporation's actions
B) Yolanda may be liable for the corporation's actions if she was on the corporate board.
C) Yolanda may be liable for the corporation's actions if the corporation is an S-corp but not a C-corp
D) Yolanda may be liable for the corporations' actions if the corporation is a C-corp but not an S-corp
E) Yolanda's liability is limited to her investment in the corporation

Question 38

________ are what corporations declare in order to distribute their income to shareholders.

A) Profit statements
B) Dividends
C) Statements of cash flow
D) Income and Loss sheets
E) Net-flow statements

Question 39

Which of the following powers of state incorporation statutes are typically granted to corporations?

A) State incorporation statutes give corporations the power to make charitable contributions.
B) State incorporation statutes prohibit corporations from loaning money because that is within the realm of state banks recognized by the state banking regulatory authority.
C) State incorporation statutes give corporations existence for up to 100 years.
D) State incorporation statutes expressly state the powers granted to corporations thereby negating the existence of implied powers.
E) State incorporation statutes generally expressly give corporations only the broad authority to operate within the law to the benefit of stockholders resulting in most actions of corporations arising from implied powers.

Question 40

________ are bonds that corporations may call in and repay at specific times.

A) Secured transactions
B) Credit notes
C) Callable bonds
D) Savings bonds
E) Income commitments

Question 41

What do nonprofit corporations do with profits?

A) Distribute them to shareholders.
B) Distribute them to stockholders.
C) Provide services to members and reinvest in the business.
D) Sell them to stockholders.
E) Nonprofit corporations are not allowed to earn profits.

Question 42

A corporation is a domestic corporation in the particular state in which it is ________.

A) does business
B) has a bank account
C) recognized by federal law
D) incorporated
E) has its principal place of business

Question 43

In the corporate formation process, which of the following provides basic information about the corporation?

A) The articles of subscription
B) The agreement to promote
C) The agreement to subscribe
D) The agreement to incorporate
E) The articles of incorporation

Question 44

Under the Revised Model Business Corporation Act, which of the following must be part of the articles of incorporation?

A) The purpose of the corporation.
B) The bank used in funding the corporation.
C) The attorney for the corporation.
D) Information concerning where the corporation plans to transact business.
E) The address of the registered office.

Question 45

Valina is helping a new corporation apply to the state of Florida for purposes of incorporation. Valina would be considered a(n) ________.

A) promoter
B) incorporator
C) facilitator
D) actuary
E) analyst

Question 46

Which of the following is false regarding requirements needed for a business to qualify as an S corporation?

A) It must have no more than 100 shareholders.
B) Individuals, trusts, partnerships, and in some circumstances corporations can be shareholders.
C) All S corporations must be domestic corporations.
D) No shareholder can be a nonresident alien.
E) S corporations can issue only one class of shares, although they need not have identical voting rights.

Question 47

Which of the following is false regarding a nonprofit corporation?

A) Nonprofit corporations provide services to their members.
B) Nonprofit corporations do not have shareholders.
C) A nonprofit corporation may not earn profits.
D) Nonprofit corporations do not issue stock.
E) Churches and charitable organizations are examples of nonprofit corporations.

Question 48

When a corporation is incorporated, the ________ usually issues a certificate of incorporation, a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

A) Office of the Governor
B) state's highest court
C) Incorporation commissioner
D) secretary of state
E) state treasurer

Question 49

Which of the following is a corporation that has not substantially met the requirements of the state incorporation statute, but courts recognize it as a corporation for most purposes to avoid unfairness to third parties who believed it was properly incorporated?

A) A de jure corporation
B) A de facto corporation
C) A corporation by estoppel
D) A corporation by reservation
E) An inactive corporation

Question 50

Valenteeno is a business incorporated in Italy. This type of a corporation is known as a(n) ________.

A) foreign corporation
B) international conglomerate
C) alien corporation
D) interstate corporation
E) international franchise corporation

Question 51

Which of the following is true regarding corporate structure in Germany?

A) Germany has three tiers of corporate power with the board at the lowest tier, management on the second tier, and the supervisory board on the top tier.
B) Germany has three tiers of corporate power with the board at the lowest tier, the supervisory board on the second tier, and management on the top tier.
C) Germany has three tiers of corporate power with management at the lowest tier, the board on the second tier, and the supervisory board on the top tier.
D) Germany has three tiers of corporate power with management at the lowest tier, the supervisory board on the second tier, and the board on the top tier.
E) Germany has three tiers of corporate power with the supervisory board at the lowest tier, management on the second tier, and the board on the top tier.

Question 52

Two sisters and their parents own an incorporated hotel chain together. No stock is sold to the general public. What type of corporation is the hotel chain most likely to be?

A) Alien corporations
B) Foreign corporations
C) Closely held corporations
D) Carefully held corporations
E) Minority shareholder controlled corporations

Question 53

Regarding promoters, which of the following is false?

A) Promoters prepare the corporation's incorporation papers.
B) Promoters raise capital for the infant corporation.
C) Promoters can purchase buildings for the corporation.
D) Promoters are agents for the company being formed.
E) A promoter may insert a clause into a contract with a supplier stating that the corporation's adoption of the contract terminates the liability of the promoter.

Question 54

The most common type of corporation is ________.

A) non-profit
B) de jure
C) for profit
D) family owned
E) government owned

Question 55

In states in which it conducts business but is not incorporated, a corporation is a[n] ________ corporation.

A) Visiting
B) Foreign
C) Interstate
D) Intrastate
E) Approved

Question 56

A U.S. corporation doing business in Mexico is considered what type of corporation in Mexico?

A) Visiting
B) Foreign
C) Interstate
D) Alien
E) Approved

Question 57

Which of the following generally does not offer stock to the public?

A) Alien corporations
B) Foreign corporations
C) Closely held corporations
D) Carefully held corporations
E) Minority shareholder controlled corporations

Question 58

Private persons create ________ corporations for private purposes.

A) Public
B) Private
C) Closely held
D) Domestic
E) Publicly held

Question 59

Shareholders adopt a set of corporate bylaws which do what for the corporation?

A) Govern how directors should invest dividends
B) Govern the corporations internal management
C) Determine when a corporation should dissolve due to lack of profit
D) Determine how stock options should be paid
E) Determine who can be part of the corporate structure

Question 60

Louisa runs a corporation which sells bracelets to generate money to run a soup kitchen that feeds the needy. The corporation earns profits, but has no shareholders. Instead, all profits are used to provide food for the needy. The corporation is most likely a ________ ?

A) Public corporation.
B) S corporation.
C) A corporation.
D) Private corporation.
E) Nonprofit corporation.

Question 61

Only the state can challenge a de facto corporation's existence as a corporate entity in a suit called an action of ________.

A) Quo facto
B) Quo jure
C) Quo warranto
D) Sine qua non
E) Res ipsa

Question 62

________ or ________ represent loans to a corporation from another party.

A) Primary, secondary bonds
B) Equity bonds, or secured transactions
C) Debt securities, bonds
D) Formal bonds, loan funds
E) Certified securities, certified bonds

Question 63

A bond which allows shareholders to exchange the bond for shares of company stock is a(n) ________ bond?

A) Unsecured
B) Secured
C) Equity
D) Convertible
E) Income

Question 64

[Horse Tracks] Min-ji, Marcus, and Penelope decided to form a corporation called Horse Tracks to raise horses. They all began the incorporation process by arranging for necessary capital and financing. They raised capital from their friends by making deals whereby their friends would purchase stock in the new corporation. After the corporation was formed, a problem arose with a contract for feed that Min-ji, Marcus, and Penelope had entered into while organizing the corporation. Callie, the seller of the feed, claimed that she had not been fully paid and threatened to sue the corporation. The contract Min-ji, Marcus, and Penelope had with Callie did not reference liability after the new corporation came into legal existence. Min-ji, Marcus, and Penelope asked for a novation, but were uncertain as to whether that would occur.
The contracts Min-ji, Marcus, and Penelope made with their friends to buy stock are known by what term?

A) Promotion agreements
B) Capital agreements
C) Subscription agreements
D) Novation agreements
E) Acceptor agreements

Question 65

[Nail Salon] Thea and her friends Josef and Danny, all U.S. citizens, want to open a nail salon. They would all like to avoid personal liability for debts of the business and/or wrongful acts of each other. They would also like to minimize taxation. Thea is in favor of a corporation and asks if there is any problem with that form of business. Josef and Danny say that they are concerned about double taxation with a corporation and that they are in favor of a partnership, even if personal liability is a concern. Thea said that she was concerned about the deductibility of losses if the corporate form was chosen. She did some research and suggested an S corporation to Josef and Danny which she claimed would avoid the problem of double taxation.
Is there an impediment to the business qualifying as an S Corporation, based on the information available?

A) Yes, because there must be at least 100 shareholders involved.
B) Yes, because a business must operate as a partnership for at least two years before converting to an S corporation.
C) Yes, because a business must operate as a general corporation for at least two years before converting to an S corporation.
D) Yes, because at least one-third of the shareholders in an S corporation must be corporations.
E) No.

Question 66

[Horse Tracks] Min-ji, Marcus, and Penelope decided to form a corporation called Horse Tracks to raise horses. They all began the incorporation process by arranging for necessary capital and financing. They raised capital from their friends by making deals whereby their friends would purchase stock in the new corporation. After the corporation was formed, a problem arose with a contract for feed that Min-ji, Marcus, and Penelope had entered into while organizing the corporation. Callie, the seller of the feed, claimed that she had not been fully paid and threatened to sue the corporation. The contract Min-ji, Marcus, and Penelope had with Callie did not reference liability after the new corporation came into legal existence. Min-ji, Marcus, and Penelope asked for a novation, but were uncertain as to whether that would occur.
Min-ji, Marcus, and Penelope would be identified by what term in their arranging for necessary capital and financing for the corporation?

A) Promoters
B) Subscribers
C) Novators
D) Subscriptioners
E) Acceptors

Question 67

Rules and regulations that govern the corporation's internal management are known as corporate ________.

A) Bylaws
B) Requirements
C) Statutes
D) Authorizations
E) Prohibitions

Question 68

A court may hold that a defective corporation is a[n] ________ in order to prevent it from claiming it is not a corporate entity in order to escape liability to a third party.

A) De jure corporation
B) De facto corporation
C) Corporation by estoppel
D) Corporation by reservation
E) Inactive corporation

Question 69

Owners of which of the following types of stock own a portion of a corporation but do not enjoy any preferences?

A) Acknowledged
B) Complex
C) Common
D) Preferred
E) Simple

Question 70

Owners of which of the following types of stock enjoy preferences with respect to assets and dividends?

A) Acknowledged
B) Preferred
C) Simple
D) Complex
E) Common

Question 71

[Horse Tracks] Min-ji, Marcus, and Penelope decided to form a corporation called Horse Tracks to raise horses. They all began the incorporation process by arranging for necessary capital and financing. They raised capital from their friends by making deals whereby their friends would purchase stock in the new corporation. After the corporation was formed, a problem arose with a contract for feed that Min-ji, Marcus, and Penelope had entered into while organizing the corporation. Callie, the seller of the feed, claimed that she had not been fully paid and threatened to sue the corporation. The contract Min-ji, Marcus, and Penelope had with Callie did not reference liability after the new corporation came into legal existence. Min-ji, Marcus, and Penelope asked for a novation, but were uncertain as to whether that would occur.
The friends who agreed to buy stock are known by what term?

A) Promoters
B) Subscribers
C) Novators
D) Subscriptioners
E) Acceptors

Question 72

A bond in which no assets support the corporations' obligation to repay the face value of the bond is called a(n) ________ bond?

A) Unsecured
B) Secured
C) Equity
D) Convertible
E) Income

Question 73

A(n) ________ is one where an error or an omission was made during the incorporation process causing a court to rule the organization a defective corporation.

A) invalid corporation
B) displaced corporation
C) disorganized corporation
D) defective corporation
E) flawed corporation

Question 74

Fallon is a stock owner and owns shares of stock in CEX corporation. These forms of shares of stock are also known as ________

A) debt equities.
B) equity securities.
C) bond assurances.
D) certified equities.
E) masterplan securities.

Question 75

Which of the following is another name for debt securities?

A) Stocks
B) Bonds
C) Certificates of deposit
D) Equity securities
E) Preferred debt

Question 76

Enterprise Inc. was incorporated with a few minor errors but has substantially met the requirements of the state incorporation statute. This is known as a(n) ________.

A) de jure corporation
B) de facto corporation
C) estopped corporation
D) veiled corporation
E) ineffective corporation

Question 77

[Nail Salon] Thea and her friends Josef and Danny, all U.S. citizens, want to open a nail salon. They would all like to avoid personal liability for debts of the business and/or wrongful acts of each other. They would also like to minimize taxation. Thea is in favor of a corporation and asks if there is any problem with that form of business. Josef and Danny say that they are concerned about double taxation with a corporation and that they are in favor of a partnership, even if personal liability is a concern. Thea said that she was concerned about the deductibility of losses if the corporate form was chosen. She did some research and suggested an S corporation to Josef and Danny which she claimed would avoid the problem of double taxation.
In regard to losses, what type of tax treatment would an S corporation provide?

A) Shareholders may deduct corporate losses from their personal income.
B) Losses may only be deducted from the S corporation's taxes, not the shareholders' personal income.
C) Losses may only be deducted from shareholders' personal income when the S corporation has shown a profit for at least two years.
D) Losses may only be deducted from shareholders' personal income when the S corporation has shown a profit for at least three straight years.
E) Losses may only be deducted from shareholders' personal income when the shareholder's gains from other endeavors exceed losses from the S corporation.

Question 78

[Nail Salon] Thea and her friends Josef and Danny, all U.S. citizens, want to open a nail salon. They would all like to avoid personal liability for debts of the business and/or wrongful acts of each other. They would also like to minimize taxation. Thea is in favor of a corporation and asks if there is any problem with that form of business. Josef and Danny say that they are concerned about double taxation with a corporation and that they are in favor of a partnership, even if personal liability is a concern. Thea said that she was concerned about the deductibility of losses if the corporate form was chosen. She did some research and suggested an S corporation to Josef and Danny which she claimed would avoid the problem of double taxation.
Regarding the concerns of Josef and Danny about double taxation and Thea's suggestion regarding an S corporation, which of the following is true?

A) Thea's suggestion will not solve the issue of double taxation because with both a regular corporation and with an S corporation, the corporation is taxed on income and shareholders are taxed again on dividends they receive.
B) Josef and Danny are incorrect, and an S corporation is not needed for any double taxation issue because with both a general corporation and an S corporation, tax effects would be the same with the corporation being taxed on earnings and shareholders being taxed again on dividends.
C) Thea is correct that S corporation shareholders report their income from the corporation only once, as personal income.
D) Thea is correct in that double taxation may be avoided through the use of an S corporation, but this can be negated through taxation of dividends at the higher corporate rate regardless of the tax rate of the shareholder.
E) Thea is correct that double taxation may be avoided through the use of an S corporation, but this may be negated by the fact that S corporations are taxed at a rate double that of general corporations.

Question 79

Which of the following is not a type of bond that a corporation may issue?

A) Unsecured
B) Secured
C) Equity
D) Convertible
E) Income

Question 80

A bond in which specific property supports the corporations' obligation to repay the face value of the bond is called a(n) ________ bond?

A) Unsecured
B) Secured
C) Equity
D) Convertible
E) Income