Deck 5: Corporate Formation and Financing

Question 1

One of the key advantages of the corporate form is the unlimited liability of its owners.

Answer 1

True

Question 2

An alien corporation is a corporation formed by a local corporation's competitor.

Answer 2

False

Question 3

In many states, close corporations have more flexibility in determining their rules of operation.

Answer 3

True

Question 4

The purpose of a corporation may not be specified in its articles of incorporation.

Question 5

Selecting the state in which to incorporate is an important step in the incorporation procedure.

Question 6

The state can dissolve a corporation for failing to pay taxes.

Question 7

A corporation does not have perpetual existence in most states unless the articles of incorporation state otherwise.

Question 8

A publicly held corporation is any corporation whose shares are publicly traded in a securities market.

Question 9

A foreign corporation normally does not need a certificate of authority to sell goods or services via the Internet.

Question 10

The corporation is a creature of statute.

Question 11

A corporation is not liable for the misconduct of its agents, officers, or employees.

Question 12

A corporate director "owns" the corporation.

Question 13

The articles of incorporation serve as a primary source of authority for a corporation's business operations.

Question 14

If a corporation has S corporation status, it must pay income taxes at the corporate level.

Question 15

A corporation cannot be formed for purposes other than making a profit.

Question 16

The U.S. Postal Service is a public corporation.

Question 17

A corporation possesses the same right of access to the courts as a citizen.

Question 18

An agreement between shareholders can restrict the transfer of a close corporation's stock.

Question 19

A corporation whose shares are held by relatively few persons is a close corporation.

Question 20

The board of directors makes corporate policy decisions.

Question 21

To pierce the corporate veil means to reveal the identity of its true owner.

Question 22

Allen wants Wilderness Outfitters to join with him to form and do business as Canyon River Rafting Corporation. A corporation can be owned by

A) ​natural persons only.
B) ​other businesses only.
C) ​other businesses or natural persons.
D) ​none of the choices.

Question 23

Ida and Jay are the shareholders and the directors of Keystone Property Management Inc. Lily and Mike are Keystone officers. The responsibility for the overall management of this firm rests with

A) ​Ida and Jay, as the directors.
B) ​Lily and Mike, as the officers.
C) ​Ida and Jay, as the shareholders.
D) ​all of the parties.

Question 24

Dennis and Eve want to form and do business as a corporation-Farm-2-Fork Inc. A corporation is

A) ​a natural being.
B) ​a tangible thing.
C) ​an artificial legal person.
D) ​a non-entity.

Question 25

The date when the principal of a bond is returned to the investor is the maturity date.

Question 26

In the absence of express constitutional, statutory, or other provisions, the corporation has no implied powers.

Question 27

Express powers of a corporation can be found in state corporation statutes.

Question 28

A business that holds itself out as being a corporation may not be able to deny corporate status, even if it makes no attempt to incorporate.

Question 29

A de jure corporation is one that is formed for a single purpose.

Question 30

In corporate law, acts of a corporation that are beyond its express or implied powers are de facto acts.

Question 31

Bylaws are the internal rules of management for a corporation.

Question 32

A court will pierce the corporate veil of a corporation when the corporate privilege is abused for personal benefit.

Question 33

Preferred stock is an equity security with preferences.

Question 34

In certain instances of fraud, a court may "pierce the corporate veil" to hold the shareholders individually liable.

Question 35

Ned and Olsen want to form and do business as a corporation-Pastries & Pies Inc. Its existence depends generally on

A) ​city or county corporate codes.
B) ​the Entrepreneur's Corporate Handbook.
C) ​the federal Administrative Procedure Act.
D) ​state law.

Question 36

Venture capital is capital provided to new business ventures by professional, outside investors.

Question 37

Rita and Susan want to form and do business as Trips & Travel, Inc. They will serve as the firm's directors and officers, and will initially hold all of the stock in the company. A corporation is owned by

A) ​the board of directors.
B) ​the officers.
C) ​the employees.
D) ​the shareholders.

Question 38

A court will not pierce the corporate veil of a corporation simply because it is too thinly capitalized.

Question 39

Stocks represent the borrowing of funds by firms.

Question 40

The true ownership of a corporation is represented by common stock.

Question 41

A firm named Biometric Research makes an attempt to incorporate for a purpose other than making a profit. Biometric is

A) ​a foreign corporation.
B) ​an alien corporation.
C) ​a nonprofit corporation.
D) ​not a corporation.

Question 42

Harry and Ilene want to market a new line of kayaks and related gear under the brand name Journeys as a corporation-Journeys Inc. To avoid income taxes at the corporate level, they should form

A) ​an alien corporation.
B) ​a close corporation.
C) ​an S corporation.
D) ​a private corporation.

Question 43

Burgers & Brews, Inc., files its articles of incorporation with the appropriate government agency. Not likely to appear in the articles is the name of

A) ​each incorporator.
B) ​each shareholder.
C) ​the corporation.
D) ​a registered agent.

Question 44

Jen and Kay would like to form Lunch Garden, Inc., to enter the food vending business. Most likely, the articles of incorporation for the firm will not include

A) ​the corporate name.
B) ​the name and address of a registered agent.
C) ​the number of shares that the corporation is authorized to issue.
D) ​the minutes of the first organizational meeting.

Question 45

Pro Audio, Inc., would like to change its corporate status to that of an S corporation. To qualify, Pro Audio must​

A) ​be a domestic corporation.
B) ​have more than one hundred shareholders.
C) ​be a benefit corporation.
D) ​all of the choices.

Question 46

Dollars & Sense, Inc., is incorporated in the state of New Jersey and is doing business in the state of New York. In New York, Dollars & Sense is properly referred to as

A) ​a domestic corporation.
B) ​a foreign corporation.
C) ​an alien corporation.
D) ​a public corporation.

Question 47

Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is

A) ​a natural person.
B) ​a tangible thing.
C) ​an artificial being.
D) ​a visible contemplation.

Question 48

Bay City Merchants Corporation has six shareholders, four of whom are members of the same family. All of Bay City's shareholders agree in writing to operate without shareholders' meetings. Under the Revised Model Business Corporation Act, this most likely warrants

A) ​no penalties or sanctions.
B) ​the imposition of a fine on Bay City.
C) ​the imprisonment of Bay City's shareholders.
D) ​the piercing of Bay City's corporate veil.

Question 49

Ben incorporates his app business as Clickology, Inc. Under most state corporation statutes, Clickology can have

A) ​only a finite, yet-to-be-determined existence.
B) ​only a one-year, nonrenewable existence.
C) ​only a one-year, renewable existence.
D) ​perpetual existence.

Question 50

Ruby Red Corporation is incorporated in South Carolina. In that state, Ruby Red is

A) ​a domestic corporation.
B) ​a foreign corporation.
C) ​an alien corporation.
D) ​a non-entity.

Question 51

Wiley incorporates his business as Wiley's Wire Inc. in Arizona. He and his group of shareholders intend to make a profit from their sales of fencing wire. Wiley's is

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

Question 52

The incorporation of the town of Halfway, Oregon, is approved by the state. Halfway is

A) ​a publicly held corporation.
B) ​a public corporation.
C) ​a private corporation.
D) ​not a corporation.

Question 53

Sean is the incorporator of Twisty's Pretzels Corporation. Ross is a shareholder, Phyllis is a director, and Velma is an officer. The day-to-day operations of Twisty's are overseen by

A) ​Velma.
B) ​Ross.
C) ​Sean.
D) ​Phyllis.

Question 54

The abbreviation "P.A." in the name "Conrad & Drake, Accountants, P.A." means that this organization is

A) ​a private association.
B) ​a professional association.
C) ​a public association.
D) ​a publicly administered corporation.

Question 55

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

A) ​an S corporation.
B) a close corporation.
C) ​a nonprofit corporation.
D) ​none of the choices.

Question 56

Owen is a registered agent for Pods & Phones, Inc., which incorporated in California. As a registered agent, Owen​

A) ​agreed to sell stock in the firm before it existed.
B) ​applied to California on the firm's behalf to obtain its corporate charter.
C) ​represents the firm as a marketing agent.
D) ​receives legal documents on behalf of the firm.

Question 57

Like the bylaws of other corporations, the bylaws of Rocks, Paper & Scissors, Inc.,

A) ​establish the operating name of the corporation.
B) ​establish the value and classes of corporate stock.
C) ​were adopted at its first organizational meeting.
D) ​were submitted for approval to the public official in charge.

Question 58

The shares of Home Mortgage Corporation are publicly traded in securities markets. Home Mortgage Corporation is

A) ​a close corporation.
B) ​a privately held corporation.
C) ​a public corporation.
D) ​a publicly held corporation.

Question 59

Flo and Glen form Health Food Inc. to coordinate the purchase, sale, and delivery of food products from organic farms to hospitals and other institutions. The stated 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

Boutique Bodega Corporation would like to change its corporate status to that of an S corporation. To qualify, the shareholders must not be

A) ​corporations.
B) ​estates.
C) ​individuals.
D) ​partnerships.

Question 61

Tech Talent, Inc., is a corporation. Techno Talent's implied powers enable it to

A) ​none of the choices.
B) ​depart significantly from traditional corporate formalities.
C) ​bind the corporation to an action that will greatly affect its purpose.
D) ​borrow funds and lend funds.

Question 62

Vince buys 500 shares of common stock in Water Services, Inc. As a shareholder of record, Vince owns a proportionate interest with regard to Water's

A) ​net assets.
B) ​control.
C) ​earnings.
D) ​all of the choices.

Question 63

Agents and employees of Deco Arts Corporation and Echo Imitations Inc. are convicted of conspiring to violate a federal law that is punishable by a term of imprisonment and a fine. Can the corporations be held liable for these crimes? If so, how can they be punished?

Question 64

Interstate Paving, Inc., issues bonds. Bonds​

A) ​are issued by businesses only.
B) ​are referred to as fixed-income securities.
C) ​feature voting rights.
D) ​require periodic interest payments from their owners.

Question 65

Wings2Go Corporation fails to hold an organizational meeting. In this circumstance, Wings2Go is most likely

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

Question 66

Hollywood Lights, Inc. substantially complies with all conditions precedent to incorporation. Hollywood is most likely

A) ​a corporation by estoppel.
B) ​a de facto corporation.
C) ​a de jure corporation.
D) ​a benefit corporation.

Question 67

Sierra is a holder of preferred stock in Rio Grande Irrigation, Inc. Sierra has priority over holders of Rio common stock as to

A) ​nothing.
B) ​payments of dividends.
C) ​the date on which Rio must repurchase the shares.
D) ​upward changes in the market price of the shares.

Question 68

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) ​a benefit corporation.

Question 69

Blair and Chanel are holders of common stock in Discount Retail Stores, Inc. Like other holders of common stock, they have a residual position in the overall financial structure of Discount Retail, because they

A) ​are guaranteed to receive more than the amount of their investment.
B) ​are the last to receive returns for their investment.
C) ​have priority to the firm's assets if it becomes insolvent.
D) ​reside in the state of the firm's incorporation.

Question 70

Equestrian Stables Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Equestrian Stables is most likely

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

Question 71

Rob owns Solar Panels Corporation. He uses Solarl's funds to pay his personal expenses, creates Thermal Power Inc. to engage in the same business as Solar, transfers Solar's assets to Thermal, and petitions Solar into bankruptcy. This most likely warrants

A) ​a bonus to Rob for financial maneuvers.
B) ​a discharge for Solar in bankruptcy.
C) ​a pierce of the corporate veil.
D) ​a review of Thermal's articles of incorporation.

Question 72

PrimarySource.com Corporation is a new online, textbook, and school supply business. How can PrimarySource.com obtain capital to finance its operations?