Deck 33: Nature and Formation of Corporations

Question 1

The doctrine of ultra vires is of more significance today than it has been in the past.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

The RMBCA has been adopted, in whole or in part, by most states.

Answer 3

True

Question 4

A promoter who enters a preincorporation contract in the name of the corporation usually remains liable on the contract even if the corporation adopts it.

Question 5

The "corporate veil" is most likely to be pierced in the case of closely held corporations and in parent-subsidiary relationships.

Question 6

Under the Revised Act, a corporation can act as an incorporator of another corporation.

Question 7

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.

Question 8

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."

Question 9

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

Question 10

Under the Revised Act, the filing of the articles of incorporation by the secretary of state is conclusive proof that the incorporators have satisfied all conditions precedent to incorporation so that a shareholder or creditor would be unable to challenge the existence of the corporation.

Question 11

Promoters have a fiduciary relationship with the corporation.

Question 12

A promoter is a person who takes the preliminary steps to organize a corporation.

Question 13

A preincorporation subscription is an offer to purchase capital stock in a corporation yet to be formed.

Question 14

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

Question 15

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

Question 16

An  ultra vires   act  is beyond the legal authority of the corporation.

Question 17

Bylaws are rules governing a corporation's internal management.

Question 18

Most incorporation statutes have adopted an intermediate position regarding the revocability of preincorporation subscriptions, making them irrevocable for a stated period without regard to whether they are supported by consideration.

Question 19

In many states, the services of the incorporators are perfunctory and short-lived.

Question 20

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

Question 21

Title to corporate property belongs to the shareholders.

Question 22

Under Subchapter S of the Internal Revenue Code, a corporation's income is taxed only at the shareholder level.

Question 23

A corporation is considered to be a person within the meaning of the Fifth Amendment protection against self-incrimination.

Question 24

Most states have special incorporation statutes governing nonprofit corporations.

Question 25

Shareholders do not have limited liability for corporate debts.

Question 26

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.

Question 27

A benefit corporation , also called a public benefit corporation or B-corporation, is a corporate entity whose legally defined goals are only having a positive impact on society and the environment, not making a profit.

Question 28

A corporation has no constitutional protection against unreasonable searches and seizures.

Question 29

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

Question 30

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

Question 31

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

Question 32

The Revised Act provides that at least two persons need to act as incorporators, though more may do so.

Question 33

Subchapter S is a section of the Model Business Corporation Act that provides special benefits for small corporations.

Question 34

Norez Corporation is incorporated in the state of Nevada.It now wants to open a retail outlet in Utah.Norez must obtain a certificate qualifying it to do business in the state of Utah .

Question 35

Estoppel may create a corporation.

Question 36

Carroll, Daniels, and Elmore organized their veterinary practice as a professional corporation.This organization of professionals will be treated as a partnership for liability purposes.

Question 37

Snazzy Sneakers Co. sues SureFast Glue Corporation for breach of contract for $2,400 of shoe glue that was not delivered according to their agreement.SureFast may assert as a defense to payment that Snazzy Sneakers is not a de jure corporation.

Question 38

A benefit corporation must periodically report on its promotion of the public benefit and of the best interests of those materially affected by the corporation's conduct.

Question 39

A corporation owned by a single person is treated under the law as the same entity as that person.

Question 40

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

Question 41

Delaware is a popular state for the headquarters of corporations because:

A) Delaware offers more stability in their corporation laws than other states.
B) office space is low cost and abundant.
C) it is a small state with little competition for the corporations.
D) there are no fees for filing to incorporate in Delaware.

Question 42

All of the following are true of promoters of a corporation EXCEPT:

A) They may make contracts in the name of the corporation.
B) They solicit investors to begin the corporation.
C) They continue to solicit capital whenever needed after incorporation.
D) They prepare the formal documents of incorporation.

Question 43

Corporations have achieved dominance in which of the following ways?

A) Over 75 percent of American adults own stock directly or indirectly.
B) Over 50 percent of all U.S. businesses are organized in the corporate form.
C) This form of organization accounts for 85 percent of the gross revenues of all business entities.
D) All of these.

Question 44

The possible consequences of a defective incorporation include which of the following?

A) The state may bring an action against the association for involuntary dissolution.
B) The associates are held personally liable to a third party.
C) A third party may assert that it is not liable to the association.
D) All of these.
E) None of these.

Question 45

Under the RMBCA, the charter of the corporation is required to provide all of the following EXCEPT:

A) the number of shares authorized.
B) names of the initial directors.
C) the street address of the registered office.
D) the name and address of each incorporator.

Question 46

Under which of the following provisions of the U.S.Constitution is a corporation not a "person"?

A) The Fifth Amendment Due Process Clause.
B) The Fifth Amendment right against self-incrimination.
C) The Fourth Amendment protection against unreasonable searches and seizures.
D) The Fourteenth Amendment Equal Protection Clause.
E) The Fourteenth Amendment Due Process Clause.

Question 47

General Supply owns all the stock of Playne Pencils.A Playne employee commits a tort for which the employer is liable.The suit results in a judgment for $1 million against Playne.Playne's assets total $650,000, but General Supply's assets are in the millions.In which of the following situations would the judgment have to be paid by General?

A) The president of General Supply is also the vice president of Playne.
B) General Supply's board of directors is exactly the same as Playne's.
C) Playne's income and General Supply's income is held in one account.
D) None of these.

Question 48

Courts have responded by piercing the veil when the shareholders have:

A) not followed the formalities of corporate procedures.
B) not provided an adequate financial basis for the business.
C) used the corporation to defraud.
D) All of these.
E) Not followed the formalities of corporate procedures or  used the corporation to defraud.

Question 49

The case of Harris v.Looney dealt with the issue of:

A) a de facto corporation.
B) the effect of an ultra vires act.
C) personal liability for a debt by a person purporting to act as or on behalf of a corporation, knowing no corporation existed.
D) defective incorporation.

Question 50

A corporation formed in substantial compliance with the incorporation statute and the required organizational procedures is a:

A) de jure corporation.
B) private corporation.
C) de facto corporation.
D) corporation by estoppel.

Question 51

Which of the following is not a requirement of a Subchapter S corporation?

A) It may have only one class of stock.
B) It must be a domestic corporation.
C) It must have no more than 50 shareholders.
D) A corporation or partnership cannot be a shareholder.

Question 52

The president of Rosy Cosmetics sends his top chemist to it main competitor, Hi-Glow's, labs to steal its formula for shiny lipstick.The chemist gets caught and is sent to jail.Can Rosy be found to be criminally liable?

A) No, unless the chemist broke in and stole the formula.
B) Yes, since the president authorized the crime.
C) No, because a corporation cannot go to jail.
D) Yes, under the doctrine of ultra vires .

Question 53

Which of the following is NOT a characteristic of the corporate form of doing business?

A) Informal organization.
B) Transferability of corporate shares.
C) Limited liability.
D) Perpetual existence.

Question 54

Which of the following is the basic governing document of a corporation?

A) A certificate of authority.
B) The set of bylaws.
C) A charter, after filing.
D) A subscription.

Question 55

Which of the following may influence a promoter to choose to incorporate in a particular state?

A) The state court system.
B) Corporate laws.
C) State government that is business-friendly, efficient, and accessible.
D) All of these.

Question 56

Use of "Stewart and Woods, Ltd." as a corporate name would be:

A) permissible as long as it is distinguishable from the name of any domestic corporation or any foreign corporation authorized to do business within the state.
B) impermissible because it does not clearly designate that the organization is a corporation.
C) permissible because the selection of a corporate name is purely up to the organizers of the corporation.
D) impermissible because it includes surnames.

Question 57

Which of the following is untrue regarding closely held corporations?

A) Most corporations in the U.S. are closely held.
B) Some states have enacted special legislation to accommodate the needs of closely held corporations.
C) Shareholders frequently restrict the transfer of shares to prevent "outsiders" from obtaining the stock.
D) Shareholders usually have little voice in the management and control of the business.

Question 58

All of the following are characteristics of a corporation EXCEPT:

A) it is able to be sued and to sue.
B) it is usually managed by its shareholders.
C) it has perpetual existence.
D) it is a legal entity of its own.

Question 59

The Statutory Close Corporation Supplement to the Model and Revised Acts applies only to corporations having fewer than 100 shareholders that elect statutory close corporation status.

Question 60

The City of Chicago would best be described as which of the following?

A) A domestic corporation.
B) A corporation formed pursuant to the Model Business Corporation Act.
C) A public corporation.
D) A close corporation.

Question 61

What are the consequences of a defective incorporation?

Question 62

Whether a corporation is a de facto corporation may be challenged by:

A) an individual.
B) another corporation.
C) the state in which the business attempted to incorporate.
D) All of these.

Question 63

Which of the following would not usually be found in the articles of incorporation of a corporation?

A) The number of directors necessary for a quorum.
B) The number of authorized shares.
C) The name and address of each incorporator.
D) The name of the corporation.

Question 64

Which of the following is correct regarding a foreign corporation?

A) A foreign corporation transacting business within a particular state without having first qualified cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority.
B) Failure to obtain a certificate of authority to transact business in the state impairs the validity of a contract entered into by the corporation.
C) A foreign corporation is incorporated in a foreign country.
D) All of these are correct.

Question 65

Bill Bonney, the sole stockholder of Kidd Corporation, wrongfully used the corporation to avoid a personal liability.A court order that disregards the corporate entity and holds Bonney personally liable is called:

A) diversity of interest.
B) piercing the corporate veil.
C) ultra vires.
D) limited liability.

Question 66

Which of the following is correct regarding the characteristics of a corporation?

A) A corporation is considered a person within the meaning of the Fourteenth Amendment's equal protection clause.
B) The Fifth Amendment provisions against self-incrimination protect a corporation.
C) A corporation is protected by the Fourth Amendment's provision against unreasonable searches and seizures.
D) A corporation is considered a person within the meaning of the Fourteenth Amendment's equal protection clause and  is also protected by the Fourth Amendment's provision against unreasonable searches and seizures.

Question 67

What powers does a corporation normally possess?

Question 68

The Revised Act authorizes shareholders in closely held corporations to adopt shareholder agreements that depart from statutory norms by altering the governance of the corporation.These agreements:

A) are valid for the life of the corporation unless a new agreement is reached.
B) are binding on shareholders, the state, creditors, and other third parties.
C) terminate automatically if the corporation's shares are traded publicly.
D) are effective if adopted by a majority of the shareholders.

Question 69

Opal, a promoter of Victory Corporation, has a fiduciary duty to:

A) any other promoters of Victory Corporation.
B) only Victory Corporation.
C) the initial shareholders of Victory Corporation.
D) A ny other promoters of Victory Corporation and also  the initial shareholders of Victory Corporation.

Question 70

What is a Subchapter S Corporation, and what are its requirements?

Question 71

Identify each of the following corporations by type.
a.Dr.Smith and Dr.Jones are both medical doctors who practice together.They incorporate their medical practice so that they can offer themselves and their employees better employment benefits.
b.A group of concerned citizens obtains a corporate charter from the state to form a local Water Planning and Management Corporation that is authorized to do water planning on a local level and to grant permits for such purposes as the installation of ditches, and the encouragement of good water usage practices in their jurisdictional area.
c.Agatha and Betty, who are sisters, form a corporation in which they are the sole shareholders.They plan to operate a large retail store that sells collectibles.Agatha is the president and Betty is the chairperson of the board of directors.
d.Bill and Carl form a corporation to prevent spouse and child abuse.The corporation operates a shelter for battered women and homeless children.


e.
Zeron Corporation is incorporated in the state of West Virginia.It decides to expand its business to Kentucky.What type of corporation is it in West Virginia? What type of corporation is it in Kentucky?

Question 72

Corporate powers granted by the RMBCA include all but which of the following?

A) To make charitable donations.
B) To be considered a person under the Fourth Amendment's search and seizures clause and the Fifth Amendment's self-incrimination clause.
C) To borrow and lend money.
D) To establish profit-sharing plans and other employee benefit plans.

Question 73

Define "promoter" in reference to a corporation.

Question 74

Claire opened Claire's Beauty Parlor in her home.She solicited funds to begin the business from Jack, who believed that the business was incorporated.Claire had, in fact, never filed the papers.One day, Claire fell asleep while giving a customer a perm and the solution caused her customer severe burns.The customer sued the Beauty Parlor for $500,000, an amount enormously in excess of the business assets.Under the Revised Model Act, what would be the result?

A) Claire would not be personally liable, but Jack would.
B) Both would be personally liable since there was no corporation formed.
C) Jack would not be personally liable, but Claire would.
D) Claire and Jack would not be personally liable.

Question 75

Which of the following may be used to redress the ultra vires acts committed by a corporation?

A) A proceeding by the attorney general of the state of incorporation to enjoin it from the transaction of unauthorized business.
B) Suit by the corporation or shareholders derivatively against present or former directors or officers for commission of the acts.
C) Proceeding by shareholders for an injunction.
D) All of these may be used.

Question 76

Identify and give the basic characteristics of each of the following specialized types of corporations.
a.Professional corporations
b.Public corporations
c.Nonprofit corporations

Question 77

What is the doctrine of ultra vires ? What is the effect of an ultra vires contract?

Question 78

The incorporators would typically do which of the following?

A) Prepare the incorporation papers.
B) Purchase the outstanding shares.
C) Sign the charter.
D) Assemble the assets.

Question 79

What are the principal attributes of a corporation?

Question 80

A corporation is considered a citizen:

A) of the state of its incorporation, for the purpose of determining diversity of citizenship.
B) of the state in which it has its principal office, for the purpose of determining diversity of citizenship.
C) in both of these situations.
D) in neither of these situations.