Deck 38: Corporations: Formation and Financing

Question 1

Which of the following is a document a corporation files with the state explaining its organization?

A) Certificate of organization
B) Articles of incorporation
C) Proof of incorporation
D) Proof of capitalization
E) Establishment of corporation

Answer 1

B
Explanation: The articles of incorporation is the document a corporation files with the state explaining its organization.

Question 2

Closely held corporations generally offer stock for sale to the general public.

Answer 2

False
Explanation: Closely held corporations generally do not offer stock to the general public.

Question 3

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

Answer 3

True
Explanation: Shareholders with convertible bonds may exchange their convertible bonds for shares of company stock.

Question 4

Which of the following is true regarding Chinese Law?

A) Under the three tiers of corporate power in China, the board of directors is the lowest, the board of supervisors makes up the second, and corporate officers compose the top tier.
B) Under the three tiers of corporate power in China, the board of supervisors is the lowest, the board of directors makes up the second, and corporate officers compose the top tier.
C) Under the three tiers of corporate power in China, corporate officers make up the lowest tier, the board of supervisors makes up the second, and the board of directors composes the top tier.
D) Under the two tiers of corporate power in China, the board of directors is the lowest and corporate officers compose the top tier.
E) Under the two tiers of corporate power in China, the board of supervisors is the lowest and corporate officers compose the top tier.

Question 5

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

Question 6

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 7

Which of the following was the result on appeal in Federal Election Comm'n v.Beaumont,the case in the text in which the Supreme Court considered whether certain of the Federal Election Commission's regulations including,for example,regulating corporate political participation through the use of PAC's,constitute unconstitutional limits on speech?

A) That the regulations impermissibly regulated speech because nonprofit corporations were treated differently than corporations operated on a for profit basis.
B) That the regulations impermissibly regulated speech because unreasonable distinctions were made between exemptions granted to certain nonprofit corporations but not to others.
C) That the regulations impermissibly regulated speech because, using a strict scrutiny standard, the regulations were overly broad.
D) That the regulations permissibly regulated speech because nonprofit corporations, unlike corporations operated on a for profit basis, lack constitutional protection in the area of free speech.
E) That the regulations permissibly regulated speech because the regulations allowed some control of campaign activity without jeopardizing the associational rights of advocacy organizations' members.

Question 8

No shareholder of an S corporation may be a nonresident alien.

Question 9

Corporations have implied powers.

Question 10

Which of the following is false regarding Société Anonymes (SA)and Société à Responsabilité Limitée (SARL)companies in France?

A) SA companies offer shares to the public and must have only one shareholder.
B) SARL companies sell shares exclusively to company members.
C) French law requires that all SA companies appoint an independent auditor to verify the legality of their accounts.
D) French law does not require that SARL companies appoint an auditor.
E) Members of SARL companies are liable only to the extent of their contributions to the company.

Question 11

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

Question 12

Corporations have only those powers that states grant them.

Question 13

Which of the following is false regarding management of a corporation?

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 14

Which of the following is a term for profits kept by a corporation for reinvestment?

A) Added earnings
B) Retained earnings
C) Approved income
D) Added profit
E) Saved profit

Question 15

Through which of the following do corporations distribute their income to shareholders?

A) Allocations
B) Grants
C) Dividends
D) Provisions
E) Allowances

Question 16

Which of the following is false regarding corporations?

A) Corporations are legal entities.
B) Corporations exist separately from their shareholders.
C) Corporations can sue or be sued by others.
D) Courts consider corporations to be "legal persons."
E) Corporations cannot claim rights under the U.S. Constitution.

Question 17

A corporation must be dissolved if over 50% of the shareholders die.

Question 18

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 19

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

Question 20

The articles of incorporation determine who has the power to amend the corporate bylaws after the first organizational meeting.

Question 21

A ______ corporation is a corporation created by the government to help administer law.

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

Question 22

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 23

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 24

Private persons create ______ corporations for private purposes.

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

Question 25

Which of the following is a type of bond that a corporation may call in and repay at specific times?

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

Question 26

Which of the following is false regarding promoters?

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 27

Which of the following is not required in a corporation's articles of incorporation under the Revised Model Business Corporation Act?

A) The name of the corporation
B) The name of the registered agent
C) The names and addresses of the incorporators
D) Information regarding the purpose of the corporation
E) The address of the registered office

Question 28

Which of the following is an individual who applies to the state for incorporation on behalf of a corporation?

A) A promoter
B) An incorporator
C) A facilitator
D) An obtainer
E) A certification analyst

Question 29

A corporation is a[n] ______ corporation in the state in which it is incorporated.

A) Domestic
B) Home
C) Recognized
D) Approved
E) Certified

Question 30

Which of the following if true regarding powers state incorporation statutes typically grant 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 31

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 32

A[n] ______ corporation is a business incorporated in another country.

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

Question 33

Which of the following in the corporate formation process 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 34

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 35

When a corporation is incorporated,the secretary of state usually issues a[n] ____,a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

A) Approval of incorporation
B) Certificate of incorporation
C) Authorization of incorporation
D) Certification of legality
E) Chronicle of legality

Question 36

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 37

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 38

Which of the following is not a reason that a court would likely pierce the corporate veil?

A) A corporation did not follow statutory mandates regarding corporate business.
B) Shareholders' personal interests and corporate interests are commingled such that the corporation has no separate identity.
C) Shareholders attempt to commit fraud through a corporation.
D) A corporation has only de facto status.
E) A corporation lacks adequate capital when initially formed.

Question 39

Which of the following adopts corporate bylaws?

A) Directors
B) Shareholders
C) Officers
D) Incorporators
E) Promoters

Question 40

A corporation is a[n] ______ corporation in states in which it conducts business but is not incorporated.

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

Question 41

Which of the following identifies the contracts Martha,Greg,and Prudence made with their friends to buy stock?

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

Question 42

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 43

Which of the following is a corporation that,with minor errors,has substantially met the requirements of the state incorporation statute?

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 44

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 45

Which of the following would a court likely rule regarding the status of ABC Corporation as a corporation?

A) That the business was a de jure corporation.
B) That the business was a de facto corporation.
C) That the business was a corporation by estoppel.
D) That the business was a veiled corporation.
E) That the business was not a corporation at all.

Question 46

Which of the following is the most likely result if Belinda sues Martha,Greg,and Prudence for unpaid amounts without a novation in place?

A) Belinda would likely win because courts generally hold promoters liable and rule that preincorporation contracts do not bind the new corporation.
B) Belinda would likely win unless it can be established that the new corporation is making a profit and is able to pay her.
C) Belinda would likely win unless it can be established that the new corporation was capitalized with at least $100,000 and is able to pay her.
D) Martha, Greg, and Prudence will win so long as they can prove that Belinda knew that the feed was purchased for a new corporation and not for their personal farm use.
E) Martha, Greg, and Prudence will win unless they have already paid partial amounts leading Belinda to expect that they, not the corporation, had accepted liability.

Question 47

If the incorporator or promoters make an error or omission during the incorporation process,courts may rule that the organization is not a corporation,in which case the organization may be ruled a[n] ______ corporation.

A) Illegal
B) Defunct
C) Uncertified
D) Defective
E) Expelled

Question 48

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 49

What type of tax treatment would an S corporation provide in regard to losses?

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 50

What were Martha,Greg,and Prudence seeking by requesting a novation in regards to the lawsuit threatened by Belinda?

A) An agreement by which the corporation would be substituted as the debtor instead of Martha, Greg, and Prudence so long as the corporation made a profit in its first year of existence.
B) An agreement by which Martha, Greg, and Prudence would be discharged from the debt so long as the new corporation agreed to do an agreed upon amount of business with Belinda for a certain period.
C) An agreement by which Martha, Greg, Prudence, Belinda, and the corporation would agree that the corporation would be liable to Belinda, and that Martha, Greg, and Prudence would be released.
D) An agreement by which Martha, Greg, Prudence, Belinda, and the corporation would agree that the company would be liable to Belinda for one half the debt and that Martha, Greg, and Prudence would be liable for only one half of the debt.
E) An agreement by which Belinda agreed to delay her claim for one year in order to give the corporation a chance to make a profit.

Question 51

Which of the following is a term used to identify Martha,Greg,and Prudence in their arranging for necessary capital and financing for the corporation?

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

Question 52

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 53

Corporate ______ are rules and regulations that govern the corporation's internal management.

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

Question 54

Which of the following describes the friends who agreed to buy stock?

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

Question 55

Which of the following types of securities represent loans to a corporation?

A) Debt
B) Equity
C) Finance
D) Formal
E) Certified

Question 56

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 57

Which of the following is true regarding the concerns of Jack and Bobby regarding double taxation and Mona's suggestion regarding an S corporation?

A) Mona'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) Jack and Bobby 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) Mona is correct that S corporation shareholders report their income from the corporation only once, as personal income.
D) Mona 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) Mona 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 58

Based on the information available,is there an impediment to the business qualifying as an S Corporation?

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 59

Which of the following types of securities represent ownership in a corporation?

A) Debt
B) Equity
C) Finance
D) Formal
E) Certified

Question 60

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 61

List the six express corporate powers set forth in the text.

Question 62

In what two ways do courts interpret subscription agreements?

Question 63

Which of the following is the likely result of Helen's attempt to hold the shareholders primarily liable for her debt?

A) She will likely be successful.
B) She will be successful only if ABC Corporation proceeds to file for bankruptcy protection.
C) She will be successful only if ABC Corporation is insolvent and remains so for at least six months.
D) She will be successful only if ABC Corporation is insolvent and remains so for at least one year.
E) She will likely be unsuccessful.

Question 64

Assuming ABC's corporate status is in place,which of the following is Bernice's best theory,if any,in order to hold Slick personally liable to her?

A) That the corporate veil should be pierced because Slick committed fraud through the corporation.
B) That in equity Slick should be held personally liable.
C) That Slick should be personally liable because of his status as a shareholder.
D) That Slick should be personally liable because he acted on behalf of the corporation in soliciting the funds.
E) Because of ABC's corporate status and her responsibility to investigate the situation, she will not be able to hold Slick personally liable to her.

Question 65

Discuss the rights of corporations,if any,to due process.Also discuss whether corporations have protection with regard to the Fourth Amendment,and in what manner.

Question 66

List the two implied corporate powers set forth in the text.

Question 67

Set forth the situations under which a court is likely to pierce the corporate veil.