Deck 18: Corporations

Question 1

Issuing securities is the only way for a new corporation to raise capital.

Answer 1

False

Question 2

Shareholders' assumption of personal liability,as guarantors,for the obligations of a corporation can enable the firm to obtain credit.

Answer 2

True

Question 3

Because a close corporation is one whose shares are held by a relatively small group of persons,the firm often operates like a partnership.

Answer 3

True

Question 4

The primary document needed to incorporate a business is the articles of incorporation because the articles serve as a primary source of authority for the firm's organization and functions.

Question 5

A foreign corporation that has not obtained a certificate of authority to do business in a state can nevertheless maintain an action in the state's courts.

Question 6

Because the management of a close corporation can resemble that of a sole proprietorship,the firm need not meet all of the specific requirements set forth in state statutes for corporations.

Question 7

A corporation is an artificial being-intangible,invisible,and existing only in the contemplation of the law.

Question 8

Like the partners in a partnership,the shareholders in a corporation cannot change without affecting the continued existence of the firm.

Question 9

A shareholder in a professional corporation generally cannot be held liable for torts committed by other professionals at the firm,including malpractice and breaches of duty to the firms' clients.

Question 10

Corporate bylaws and resolutions of the corporation's board of directors provide guidelines but cannot grant or restrict corporate powers.

Question 11

A businessperson who enters into a contract with an investor on behalf of a future corporation is not personally liable on the deal,even though the firm is not yet formed,because the nature of investment is risk.

Question 12

Because state corporate laws differ,persons wishing to incorporate may look for the state that offers the most advantageous tax or other provisions.

Question 13

Because corporate officers have the implied power to bind the firm in matters directly connected to its business,there is no limit to what the officer can do.

Question 14

If the procedures for incorporation are not followed precisely,others may be able to challenge the existence of the corporation.

Question 15

A benefit corporation is designed to make a profit and thereby provide long-term shareholder benefit.

Question 16

Because a corporation may be liable for the misconduct of its employees,the firm needs to be careful about whom it hires and how much to monitor and supervise them.

Question 17

Individual state laws should be relied on to determine corporate law because,despite the existence and use of model corporation acts,there is considerable variation among the states.

Question 18

If a business says it is a corporation,and a third party deals with it as a corporation,neither party can question the validity of the business's status.

Question 19

Because bonds do not represent debt,they need never be repaid.

Question 20

A corporation is recognized under U.S.law as a person.

Question 21

If a board attempts to manipulate the shareholders' election of a director to reduce the shareholders' influence,they can challenge the election in court.

Question 22

If a director commits a breach of fiduciary duty,the shareholders have the inherent power to remove the director from office by a majority vote.

Question 23

When directors and officers do not act in the best interests of their corporations,the shareholders may sue them on the company's behalf.

Question 24

When deciding which form of business organization to choose,businesspersons normally take into account tax considerations.

Question 25

When it comes to managing a corporation,the corporation relies on its board of directors and officers.

Question 26

Integrated Devices,Inc. ,is a private,for-profit corporation that is owned by seven shareholders who are members of the same family.Integrated is

A) an S corporation.
B) a close corporation.
C) a benefit corporation.
D) a public corporation and a private corporation.

Question 27

Nevis and Olsen want to do business as a corporation-Pastries & Pies Inc.The procedure for forming this firm is prescribed by

A) city or county codes.
B) none of the choices.
C) federal administrative rules.
D) state law.

Question 28

To participate in a shareholders' meeting,a shareholder must present a proxy.

Question 29

Spices & Seasonings Inc.is a private,for-profit corporation that is owned by eight shareholders who are not members of the same family but are personally known to one another.To avoid management problems caused by sharing control with someone the shareholders do not know or like,the firm could

A) restrict the transferability of its shares to outside persons.
B) depart from all formalities required by traditional corporate law.
C) reorganize into a sole proprietorship or partnership.
D) hold special shareholders' or directors' meetings on an annual basis.

Question 30

Oil Industries Inc.is a private,for-profit corporation that is owned by five shareholders who are members of the same family.Po,the majority shareholder,misappropriates company funds.The shareholders whose interests are injured by Po's misconduct should

A) have their shares appraised and be paid the fair market value for them.
B) promote the transferability of the company's shares to outside persons.
C) reorganize the firm into a sole proprietorship or partnership.
D) hold a special shareholders' meeting to elect new directors.

Question 31

A shareholder's right to transfer his or her shares to another party can be subject to restrictions set out in the bylaws or a shareholder agreement.

Question 32

A breach of fiduciary duties by those who own a close corporation normally constitutes what is known as oppressive conduct.

Question 33

Shareholders exercise ownership control through the power of their votes.

Question 34

To prevent errors in business judgment,when directors transact business and vote on issues affecting the corporation,ordinary matters generally require a greater-than-majority vote.

Question 35

If a shareholder's derivative suit is successful,any damages recovered normally go into the corporation's treasury.

Question 36

AI Medical,Inc. ,is a private,for-profit corporation that is owned by six shareholders who are not members of the same family but are personally known to one another.They also serve as the directors and officers.To prevent a majority shareholder from dominating the firm,the corporation may

A) require more than a majority of directors approve any board action.
B) depart from all formalities required by traditional corporate law.
C) reorganize into a sole proprietorship or partnership.
D) hold special shareholders' or directors' meetings on an annual basis.

Question 37

All forms of business organizations limit the liability of their owners.

Question 38

To make informed decisions and supervise corporate officers and employees,the directors need an unrestricted right to inspect corporate books and records.

Question 39

Directors and officers whose failure to exercise due care results in harm to the corporation or the shareholders can be held liable for negligence unless the business judgment rule applies.

Question 40

When a shareholder commingles personal and corporate interests so that the firm has no separate identity,the shareholder may be held liable for the firm's debts.

Question 41

Paper & Scissors Inc.wants to incorporate.The primary document needed to incorporate a business is

A) the website of the secretary of state of the state of incorporation.
B) the minutes of the first organizational meeting.
C) the articles of incorporation.
D) the bylaws.

Question 42

As a director of InstaTalk Inc. ,Jim has a right of inspection.This right can be restricted by

A) the corporate articles.
B) the bylaws.
C) an act of the board.
D) none of the choices.

Question 43

Gil is an officer for HVAC Corporation.Due to Gil's choice of a certain supplier,HVAC's costs are somewhat higher than they might have been if a different supplier had been chosen.Gil is most likely liable for breach of

A) breach of trust and confidence.
B) breach of the business judgment rule.
C) negligence or mismanagement.
D) none of the choices.

Question 44

Daisy is a director of Extraction Corporation.She opposes an offer to merge Extraction with Fill Inc.because she would lose her board position.Daisy is most likely liable for breach of

A) the duty of care.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 45

Ruiz owns Solar Corporation.Ruiz commingles his personal interests with the corporation's interest to the extent that the firm has no separate identity.This most likely warrants

A) an adoption of new corporate bylaws.
B) a recognition of de facto corporate status.
C) a pierce of the corporate veil.
D) a fundamental change to the articles of incorporation.

Question 46

Buck is a director on the board of Construction Corporation.The board delegates work to Don,Construction's president,and other corporate officers.Buck fails to reasonably supervise the work.He is most likely liable for

A) negligence or mismanagement.
B) breach of the business judgment rule.
C) breach of the duty of loyalty.
D) none of the choices.

Question 47

Global Enterprises Inc.competes in many product,service,and geographic markets.Global's board consists of a large number of directors.The firm faces myriad complex business issues.To avoid its governance from becoming unwieldy,the company can delegate some of its functions to

A) its incorporators.
B) an executive committee.
C) its shareholders.
D) a quorum.

Question 48

Roz,a director of Soy Inc. ,is specially trained in petroleum trading.Soy's board approves several deals in which the company pays too much for soybeans.Roz approves all the deals without first reviewing them.Roz is most likely liable for breach of

A) the duty of care.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 49

Paul is a director on the board of Quality Tire Corporation.As a director,Paul may not

A) act in accord with his own knowledge and training.
B) use prudent business judgment in the conduct of corporate affairs.
C) delegate work to corporate officers.
D) engage in self-dealing.

Question 50

Owen is a director of Packaging Company.As a director,Owen's rights include a right to

A) access the corporation's books,records,facilities,and other property.
B) subordinate the corporation's welfare to his personal interest.
C) use confidential corporate information for personal advantage.
D) self-dealing.

Question 51

Burgers & Brew Inc.prepares its articles of incorporation.The articles are likely to include

A) the corporation's name.
B) the number of shares the corporation is authorized to issue.
C) all of the choices.
D) the corporation's registered agent.

Question 52

Welding Corporation makes a good faith attempt to incorporate but there is a defect in its incorporation.Welding undertakes business as a corporation.In this circumstance,the firm's existence may be challenged by

A) any third party.
B) the state.
C) a director,officer,or shareholder.
D) any corporation with which it does business.

Question 53

Kay and Leo form Metro Delivery Inc.Responsibility for all policymaking decisions necessary to the management of corporate affairs rests with Metro's

A) board of directors.
B) officers.
C) incorporators.
D) shareholders.

Question 54

Oversight Inc.'s board of directors votes to empower corporate officers to make decisions regarding ordinary,daily corporate affairs within well-defined guidelines.With respect to these affairs,Oversight's board

A) is relieved of its responsibility.
B) retains its responsibility.
C) shares the responsibility.
D) was never responsible.

Question 55

Kathy is a director of Line Production Inc.As a director,with respect to the corporation,Kathy is expected to subordinate

A) her personal interests to the corporation's welfare.
B) the corporation's welfare to her personal interests.
C) her knowledge and training in the corporation's interest.
D) her business judgment in the shareholders' interests.

Question 56

EZ Hauling holds itself out to customers as being a corporation but makes no attempt to incorporate.In this circumstance,EZ Hauling is most likely

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) ultra vires.

Question 57

Orin is a corporate officer for Pacific Trade Inc.In this capacity,Orin

A) authorizes major corporate policy decisions.
B) manages corporate day-to-day operations.
C) makes executive personnel decisions.
D) makes and announces financial decisions.

Question 58

Blue Sky Drones Inc.has three directors,a president,two vice presidents,a secretary,and a treasurer.Carol is a Blue Sky director.In most states,Carol can also hold a corporate office

A) if she was one of the firm's incorporators.
B) under any circumstances.
C) if she resigns as director.
D) if the shareholders consent.

Question 59

Health Food Inc.coordinates the purchase,sale,and delivery of organic products.The stated corporate purpose is to make a profit and to have a material positive impact on society and the environment.Health Food is

A) a nonprofit corporation.
B) not a corporation.
C) a benefit corporation.
D) a private corporation.

Question 60

Pipe Inc.'s stated purpose is to install plumbing.Pipe contracts with Quality Contracting to pour a new building's foundation despite lacking the skill and license to do such work.This is most likely

A) an ultra vires act.
B) within the corporation's express powers.
C) within the corporation's implied powers.
D) allowable and proper as an act to profit corporate shareholders.

Question 61

Erin,a shareholder of Finance Inc. ,demands the right to inspect corporate books and records to determine whether management has engaged in self-dealing that impacts the company.The firm refuses the request.On Erin's challenge,a court is most likely to hold that her request constitutes

A) harassment.
B) unreasonable access to trade secrets and other confidential information.
C) a proper purpose.
D) potential abuse.

Question 62

Guy is a director of Healthcare Corporation.Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes.His best defense against liability for these mistakes is

A) business success insurance.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 63

Avery wants to go into business as Boom! to make and market fireworks.When deciding which form of business organization would be most appropriate,Avery would normally take into account all of the following except

A) the liability of the owners.
B) the forms of competitors' business organizations.
C) tax considerations.
D) the need for capital.

Question 64

Brad is a shareholder of Cloud Servers Inc.He will be deemed to have a fiduciary duty to Cloud and its minority shareholders if he has a sufficient number of shares to

A) assert a preemptive right.
B) bring a shareholder's derivative suit.
C) exercise actual control over the corporation.
D) participate in a cumulative vote.

Question 65

Huan is a shareholder of Insulation Inc.When the directors fail to undertake an action to redress a wrong suffered by the firm,Huan files a suit on its behalf.Any damages recovered by the suit will go to the firm's

A) shareholders,excluding Huan.
B) treasury.
C) directors.
D) shareholders,including Huan.

Question 66

Ned and Olga are shareholders of Pizza Pies Inc.Ned's written authorization to Olga to vote Ned's shares at a shareholders' meeting is

A) a fundamental change.
B) a cumulative vote.
C) a proxy.
D) a quorum requirement.

Question 67

Ben is a director of Creation Corporation,an architectural firm.Without informing Creation,Ben goes into business with Design,Inc. ,a Creation competitor.Ben is liable for breach of

A) the duty of care.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 68

Mitch is a director and officer of Numero Uno,Inc.Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders.The shareholders accuse Mitch of breaching his fiduciary duty to the corporation.What is Mitch's best defense against this accusation? Later,the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation.Mitch is a director and shareholder of One-of-a-Kind.What is Mitch's responsibility in this situation?

Question 69

AstroStar,Inc.'s board of directors consists of three members-Eckhart,Dolan,and Macero.At a regular board meeting,the board selects Galiard as president of the corporation.Later,an audit reveals that during his term as president he has openly embezzled $500,000 from AstroStar.The same audit reveals that the board knew when it selected Galiard that he had been previously convicted of embezzlement.Can the corporation hold directors Eckhart,Dolan,and Macero personally liable?

Question 70

Doris wants to form a new firm-eBeats-to market a new app.Fees are required to form all of the following business organizations except

A) a sole proprietorship.
B) a corporation.
C) a limited partnership.
D) a limited liability company.

Question 71

Roy is a director of Sales Service Inc.Sales enters into a contract with TeleCenter Corporation in which Roy has a personal interest.Roy must

A) apply the "don't ask,don't tell" rule of personal conduct.
B) use the situation to his personal advantage.
C) make a full disclosure of the conflict of interest.
D) none of the choices.

Question 72

Don is a shareholder of Energy Renew Inc.When the directors fail to undertake an action to redress a wrong suffered by the firm,Don files a suit on its behalf.Don's suit is

A) a preemptive right.
B) a shareholder's derivative suit.
C) the duty of a majority shareholder.
D) unethical and illegal.