Question 1

The articles of incorporation must contain the name and address of every incorporator.

Accepted Answer

This is a requirement for articles of incorporation in most states.

Question 2

Which of the following criteria must be satisfied for a corporation to be treated as an S corporation?

Accepted Answer

To be treated as an S corporation, the corporation must meet several criteria, including having no more than 100 shareholders and having only one class of stock. Additionally, the corporation's shareholders must be individuals (including estates and certain trusts) who are citizens or residents of the United States. Shareholders who are nonresident aliens, corporations, or partnerships cannot own stock in an S corporation.

Question 3

________ is a type of equity security that represents the residual value of a corporation.

Accepted Answer

Common stock represents the ownership of a company and gives shareholders the right to vote at shareholder meetings and receive dividends after preferred stockholders are paid. It also entitles the holder to a share in the residual value of the corporation, or the remaining assets after all debts and liabilities have been paid.

Question 4

Private corporations range from small one-owner corporations to large multinational corporations such as Microsoft Corporation.

Accepted Answer

Private corporations can vary in size from small to large, with examples ranging from sole proprietorships to multinational corporations like Microsoft Corporation.

Question 5

Issued shares that have been repurchased by the corporation are referred to as ________ shares.

Accepted Answer

Repurchased shares are called treasury shares.

Question 6

A ________ is a preferred stockholder's right to be paid a stated dollar amount if a corporation is dissolved and its assets redistributed.

Accepted Answer

Liquidation preference is the right of the preferred stockholder to receive a specified amount of payment before the common stockholders in case of the corporation's dissolution and asset liquidation. Noncumulative preference refers to preferred stock that doesn't accumulate dividends if they are not paid out, while cumulative dividend preference refers to preferred stock that accrues unpaid dividends, which must be paid before any dividends are paid to common stockholders. Dividend preference refers to the priority of preferred stock dividends over common stock dividends.

Question 7

Which of the following is true of a note?

Accepted Answer

A note can be either unsecured or secured depending on whether it is backed by collateral. Option A is incorrect because a note can be short-term as well as long-term. Option B is incorrect because it only applies to secured debt securities. Option D is incorrect because not all notes contain a conversion feature.

Question 8

A long-term debt security that is secured by some form of collateral is referred to as a ________.

Accepted Answer

A bond is a long-term debt security that can be secured by collateral (making it a secured bond) or unsecured (unsecured bond). Treasury shares are a company's own shares that it has reacquired, a note is a debt security with a shorter maturity than a bond, and a debenture is a type of bond that is not secured by collateral.

Question 9

A corporation can be incorporated in several states.

Accepted Answer

The answer of A corporation can be incorporated in several...

Question 10

Which of the following is true of corporate bylaws?

Accepted Answer

Corporate bylaws are internal documents that govern the operations of a corporation, including the roles of directors and officers, meeting procedures, and other essential corporate governance matters. They do not have to be filed with any government official, unlike articles of incorporation which are filed with a state government to legally establish the corporation.

Question 11

A corporation is a foreign corporation in states other than the one in which it is incorporated.

Accepted Answer

A corporation is considered foreign in any state other than the one in which it is incorporated.

Question 12

Which of the following is true of a C Corporation?

Accepted Answer

Any corporation with more than 100 shareholders is automatically a C corporation for federal income tax purposes. A C Corporation pays taxes at the corporate level, and shareholders are required to pay taxes on their dividends. Nonresident aliens can be shareholders, but they will be subject to special tax rules.

Question 13

Which of the following is true of an S corporation?

Accepted Answer

An S corporation can have no more than 100 shareholders.

Question 14

Securities that establish a debtor-creditor relationship in which the corporation borrows money from the investor to whom a debt security is issued are known as ________.

Accepted Answer

The description matches that of fixed income securities, which include bonds, notes, and debentures. These types of securities represent debt obligations of the issuing corporation and offer a fixed rate of interest to the investor. The investor becomes a creditor of the corporation until the debt is repaid. A and B are incorrect because they refer to equity securities, and C does not establish a debtor-creditor relationship.

Question 15

A(n)________ is a debt security with a maturity of five years or less.

Accepted Answer

A note is a debt security with a maturity of five years or less. Bonds and debentures typically have longer maturity periods, while indentures refer to a legal agreement outlining the terms and conditions of a bond issuance.

Question 16

Which of the following shares have the right to vote?

Accepted Answer

Only outstanding shares have the right to vote. Unissued shares are not yet allocated to investors, treasury shares are shares that were previously issued and bought back by the company, and liquidated shares are shares that have been sold or redeemed. Only shareholders who own outstanding shares can exercise their voting rights during company meetings.

Question 17

Stock for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends is known as ________ stock.

Accepted Answer

Cumulative preferred stock requires any missed dividend payments to be accumulated and paid to preferred shareholders before common shareholders can receive any dividends. This means that if a company misses paying a dividend to preferred shareholders in one year, it must make up for it in future years before any dividends can be paid to common shareholders. Noncumulative preferred stock does not have this feature, as missed dividends do not accumulate in the future. Common stock is the basic stock issued by a company, while participating preferred stock allows preferred shareholders to receive additional dividends on top of their preferred dividend if the company exceeds certain profit thresholds.

Question 18

A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation are referred to as ________.

Accepted Answer

Bylaws are a detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation. Ultra vires rules refer to actions taken by a corporation that are beyond its legal authority. Articles of incorporation are the primary legal documents that establish a corporation. Corporation codes are laws that regulate the formation and operation of corporations.

Question 19

A contract between a corporation and a holder that contains the terms of a debt security is known as a(n)________.

Accepted Answer

An indenture is a legal and binding agreement between a corporation and a holder that outlines the terms of a debt security, such as a bond or note. It sets out the conditions under which the debt will be repaid, including the interest rate, maturity date, and any other relevant provisions. The other options listed are different types of contracts or agreements that serve different purposes in the context of corporate finance.

Question 20

Which of the following is true of treasury shares?

Accepted Answer

Treasury shares are shares that were issued and later reacquired by the corporation. They do not have voting rights while held by the corporation, nor do they receive dividends, making option B correct.

Quiz 16: Corporations and Corporate Governance