Deck 33: Life and Death of a Corporation

Question 1

Common stock is the last stock in line for any corporate payouts, including dividends and liquidation payments.

Answer 1

True

Question 2

When a company dissolves, preferred stockholders typically have the right to receive their share of corporate assets before common shareholders.

Answer 2

True

Question 3

Terminating a corporation is a three-step process: dissolution, winding up, and termination.

Answer 3

False

Question 4

A promoter is personally liable on any contract he or she signs before the corporation is formed.

Question 5

When a corporation accepts legal responsibility for a contract, it is called novation.

Question 6

A corporation is required to have at least one director, no matter how many shareholders it has.

Question 7

The person who creates a corporation is called the

A) promoter.
B) partner.
C) agent.
D) incorporator.

Question 8

Sara decided to incorporate her business under the name Gomo, Inc. Before Gomo was incorporated, Sara signed a contract in the name of Gomo, Inc. to lease a store front. Sara did not tell the other party that Gomo was not yet formed. Sara is personally liable on the lease.

Question 9

To adopt a contract means to form a new contract with different parties.

Question 10

Stock is divided into categories called series, and these series can be further divided into subcategories called classes.

Question 11

Incorporators are required to sign the charter, deliver it to the proper state officials, and purchase a certain percentage of the initial stock offering.

Question 12

The lawyer who forms the corporation cannot legally serve as its incorporator.

Question 13

A corporation officially states its purpose is "to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Idaho." Under corporate law, this purpose is too broad. A corporation's purpose must be more narrowly defined.

Question 14

Which state does your textbook cite as being particularly attractive to companies looking to incorporate?

A) Ohio
B) Alaska
C) Utah
D) Delaware

Question 15

A business corporation can be incorporated under either state law or federal law.

Question 16

Carey decided to incorporate her business under the name yStar Inc. Before yStar was incorporated, Carey signed a contract in the name of yStar, Inc. to have some office space remodeled. Which statement is correct?

A) yStar is liable on the contract because the contract was signed in its name.
B) yStar becomes liable on the contract as soon as it is incorporated.
C) yStar is liable on the contract if the contractor knows that the corporation does not yet exist.
D) yStar will be liable on the contract only if the corporation adopts the contract.

Question 17

Zach decides to incorporate his business under the name of "Zamm." In addition to "Zamm," the Model Act requires that Zach include one of the following words: "corporation," "incorporated," "limited," or "company."

Question 18

A corporation must have a registered agent within the state of incorporation only if the corporation maintains an office in that state.

Question 19

The Levitt Corporation charter authorizes 500,000 shares of stock. This stock is referred to as

A) treasury stock.
B) preferred stock.
C) authorized stock.
D) common stock.

Question 20

Laurie is incorporating her business. Laurie's home state is Wisconsin. Business will be conducted in California, Michigan, Pennsylvania, and Virginia. Laurie

A) must incorporate the business in Wisconsin, the home state.
B) must incorporate the business in Wisconsin, California, Michigan, Pennsylvania, and Virginia.
C) must incorporate in Delaware.
D) can incorporate the business in any state.

Question 21

Who elects the officers of a corporation?

A) the agents
B) the shareholders
C) the incorporators
D) the directors

Question 22

Under most state statutes, a corporation may

A) include in its charter a provision indemnifying directors unless they have engaged in intentional misconduct or bad faith.
B) include in its charter a provision indemnifying directors under any circumstances in the conduct of their duties for the corporation.
C) not include in its charter a provision indemnifying directors who engage in negligent conduct of their duties.
D) not include in its charter any provisions regarding indemnification of directors.

Question 23

Corporate stock can be divided into categories called ________, which can be further divided into ________.

A) authorized shares, classes
B) classes, series
C) equity, assets
D) debentures, classes

Question 24

Conversion rights

A) specify the order in which classes of stockholders are paid upon dissolution.
B) are designed to prevent dilution of a shareholder's ownership in the company.
C) allow investors to convert to a different class.
D) establish whether shareholders are entitled to dividends.

Question 25

In incorporating E-prise, the promoter gave an incorrect ZIP Code for the registered agent. All of the other requirements for incorporation were met. E-prise is a(n)

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

Question 26

Fashions, Inc. has 12 shareholders. The company is subject to the Model Act. What officers is Fashions, Inc. required to have?

A) a president, secretary, and treasurer
B) a president and a secretary, and they can be the same person
C) a president, at least one vice-president, a secretary, and a chief financial officer
D) whatever officers are described in the corporate bylaws

Question 27

Fashions, Inc. has 12 shareholders. There is no shareholder agreement concerning the board of directors. The company is subject to the Model Act. How many directors is Fashions, Inc. required to have?

A) none
B) one
C) two
D) five

Question 28

MegaCorp is incorporated in the state of Delaware and is registered only in Delaware. Jolene purchased a MegaCorp product from a company's sales representative following a presentation in Michigan. Jolene was seriously injured by the product in Michigan. Under the Model Act, if Jolene sues in Michigan, can MegaCorp defend the suit there?

A) MegaCorp may only defend against a lawsuit in Michigan if it first registers by paying back fees, taxes, and penalties.
B) Yes, MegaCorp can bring or defend against a lawsuit in any state regardless of whether the corporation is registered to do business in that state.
C) Yes, MegaCorp can defend against a lawsuit in Michigan regardless of whether MegaCorp is registered to do business in that state.
D) No. Jolene must sue, and MegaCorp may defend a lawsuit only in Delaware.

Question 29

Wizardry Corporation's purpose clause in its charter states the following: "To operate a home-cleaning service business." After a few years of successful operation, Wizardry is offered the challenge of landscaping a neighboring business. If Wizardry accepts the offer, it would be violating its charter under

A) the de jure doctrine.
B) the de facto doctrine.
C) the ultra vires doctrine.
D) an estoppel theory.

Question 30

What are some of the advantages for a business to incorporate in Delaware?

Question 31

What is the first step that must be taken to terminate a corporation?

A) filing
B) vote
C) revocation
D) winding up

Question 32

What is an exculpatory clause?

A) a requirement that the company pay the legal fees of directors who are sued for actions taken on behalf of the company
B) a provision that if a party enters into a contract believing in good faith that the corporation exists, he cannot later take advantage of the fact that it does not
C) a requirement that a corporation cannot undertake any transaction unless the charter permits it
D) a provision that protects directors from personal liability to the corporation and its shareholders

Question 33

Mike is planning on incorporating his business in the state of Delaware. Which of the following regarding the name of Mike's business is TRUE?

A) He will be able to use the words "Association" or "Institute" in his company name.
B) He will not be able to use abbreviations (such as Inc. or Corp.) in his company name.
C) His company name will not have to include one of the following words: Corporation, Incorporated, Company or Limited.
D) His company name can be the same as another corporation that already exists in Delaware.

Question 34

The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance their expansion plans. The executives

A) cannot sell that many shares unless they were authorized initially in the corporate charter.
B) can sell as many shares as the market will bear.
C) are limited by the number of shares authorized in the corporate charter, but this number can be increased by amending the charter and paying a fee.
D) can sell the shares only if the shares have a par value which is close to the current market price.

Question 35

Who signs the charter and files it with the secretary of state?

A) the incorporator
B) the chairman of the board
C) the promotor
D) the company president

Question 36

Under the Model Act, a corporation must have at least one director unless all shareholders agree to eliminate the board or the corporation has fewer than _____ shareholders.

A) 10
B) 25
C) 50
D) 100

Question 37

What term identifies stock that has been authorized and sold?

A) authorized and paid stock
B) outstanding stock
C) treasury stock
D) authorized and unissued stock

Question 38

Hank owns 100 shares of cumulative preferred stock in Wayside Transport, Inc. Kelsey owns 50 non-cumulative preferred shares, and Oleg owns 120 shares of common stock. Wayside does not pay dividends in 2015. In 2019

A) Hank and Kelsey must receive their 2019 dividends before Oleg is paid any 2019 dividends.
B) Oleg cannot receive any 2019 dividends until Hank is paid for the 2015 dividends.
C) Kelsey cannot receive the dividends Wayside could not afford to pay in 2015. She will just lose them.
D) All of these are correct.

Question 39

MegaCorp is incorporated under Delaware law. It is registered to do business in New York. Legally, in New York MegaCorp is known as what kind of corporation?

A) domestic
B) foreign
C) secondary
D) cumulative

Question 40

Which of the following states that a corporation cannot undertake any transaction unless its charter permits it?

A) the ultra vires doctrine
B) the estoppel doctrine
C) the exculpatory clause
D) the indemnification clause

Question 41

Denise is a promoter for a proposed corporation, EVR-Young Corp. As promoter, she signed a three-year lease to rent office space in an office park. She signed her name and indicated below her signature that she was signing as "promoter for EVR-Young Corp., a company yet to be incorporated."
EVR-Young is never incorporated. The lessor believes that Denise is personally liable for any damages it will sustain as a result of the three-year lease having to be breached. Is Denise personally liable? Explain.

Question 42

Identify four circumstances that might persuade a court to pierce the corporate veil.

Question 43

Discuss how a corporation is terminated.

Question 44

MegaCorp has five directors. The company has 1,050 shares of voting stock. Jessica would like to purchase enough stock to elect herself to the board of directors. The company allows for cumulative voting. Explain the concept of cumulative voting and also state how many shares of MegaCorp stock Jessica will need to own to assure herself a place on the board of directors.

Question 45

Isabel, Wesley, Gina, and Lucas worked together intensively to form and become the only shareholders of a corporation that is environmentally conscious. Is there anything they can do to avoid having shares of stock in their company sold to someone who does not share their vision for the environment?