Question 1

Under Subchapter S of the Internal Revenue Code, a corporation's income is taxed only at the shareholder level.

Accepted Answer

Under Subchapter S of the Internal Revenue Code, an S corporation's income, deductions, and tax credits flow through to shareholders annually, meaning income is taxed at the shareholder level, not at the corporate level.

Question 2

Subchapter S is a section of the Model Business Corporation Act that provides special benefits for small corporations.

Accepted Answer

Subchapter S refers to a section of the Internal Revenue Code that allows small corporations to elect a special tax status, enabling them to pass income directly to shareholders and avoid double taxation. It is not part of the Model Business Corporation Act, which is a model set of laws to guide states in the development of their corporate statutes.

Question 3

A benefit corporation must periodically report on its promotion of the public benefit and of the best interests of those materially affected by the corporation's conduct.

Accepted Answer

Benefit corporations are legally required to produce a periodic report that assesses their performance against a third-party standard in promoting public benefit and considering the interests of those materially affected by their operations.

Question 4

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation must have bylaws on file with the office of the secretary of state or some other public office.

Accepted Answer

Under the Statutory Close Corporation Supplement to the Model Business Corporation Act (MBCA), there is no requirement for a close corporation to have its bylaws filed with the office of the secretary of state or any other public office. The bylaws are internal documents and do not need to be filed publicly.

Question 5

Shareholders do not have limited liability for corporate debts.

Accepted Answer

Shareholders of a corporation have limited liability, meaning their personal assets are not at risk for corporate debts. If the corporation goes bankrupt or cannot pay its debts, shareholders can only lose the amount of money they invested in the company.

Question 6

The Revised Act provides that at least two persons need to act as incorporators, though more may do so.

Accepted Answer

The Revised Corporation Code of the Philippines allows a single person to form a corporation by acting as the sole incorporator.

Question 7

Norez Corporation is incorporated in the state of Nevada. It now wants to open a retail outlet in Utah. Norez must obtain a certificate qualifying it to do business in the state of Utah .

Accepted Answer

Since Norez Corporation is incorporated in Nevada, to legally conduct business in Utah, it must register as a foreign corporation in Utah and obtain a certificate of authority, often referred to as qualifying to do business in the state.

Question 8

Title to corporate property belongs to the shareholders.

Accepted Answer

Title to corporate property legally belongs to the corporation itself, which is a separate legal entity from its shareholders.

Question 9

Under the RMBCA, a pre-incorporation subscription may be revoked at any time without the consent of the subscribers.

Accepted Answer

Under the Revised Model Business Corporation Act (RMBCA), a pre-incorporation subscription for shares is irrevocable for six months unless the subscription agreement provides otherwise or all the subscribers agree to revocation.

Question 10

A corporation owned by a single person is treated under the law as the same entity as that person.

Accepted Answer

A corporation, even if owned by a single person, is legally considered a separate entity from its owner, providing limited liability and distinct legal rights and obligations.

Question 11

Snazzy Sneakers Co. sues SureFast Glue Corporation for breach of contract for $2,400 of shoe glue that was not delivered according to their agreement. SureFast may assert as a defense to payment that Snazzy Sneakers is not a de jure corporation.

Accepted Answer

SureFast Glue Corporation's defense based on Snazzy Sneakers Co. not being a de jure corporation is not relevant to the breach of contract claim regarding the delivery of goods. The issue at hand is whether SureFast fulfilled their contractual obligation to deliver the shoe glue, not the corporate status of Snazzy Sneakers.

Question 12

Once a shareholder sells the stock of the corporation, since the ownership of the corporation changes, a new corporation is formed.

Accepted Answer

Selling stock does not result in the formation of a new corporation. The original corporation continues to exist and operate with a change in ownership.

Question 13

A benefit corporation , also called a public benefit corporation or B-corporation, is a corporate entity whose legally defined goals are only having a positive impact on society and the environment, not making a profit.

Accepted Answer

A benefit corporation aims to have a positive impact on society and the environment while also being profitable. It balances profit and purpose, not solely focusing on social and environmental benefits.

Question 14

Under the RMBCA, the bylaws may be amended and must be publicly filed with the articles of incorporation.

Accepted Answer

Under the Revised Model Business Corporation Act (RMBCA), bylaws may be amended by the corporation's board of directors or shareholders, but unlike the articles of incorporation, bylaws do not need to be filed with the state.

Question 15

Estoppel may create a corporation.

Accepted Answer

Estoppel cannot create a corporation; it can only prevent a party from denying the existence of a corporation under certain conditions, typically in dealings where a business has been treated as if it were a corporation by others.

Question 16

Most states have special incorporation statutes governing nonprofit corporations.

Accepted Answer

Most states in the United States have specific statutes that govern the formation, operation, and dissolution of nonprofit corporations, distinguishing them from for-profit corporations. These statutes address issues such as tax exemptions, governance, and the distribution of assets.

Question 17

The modern approach follows the common law rule in holding that a corporation cannot commit a criminal act.

Accepted Answer

The modern approach holds that a corporation can be held criminally liable for certain actions, such as environmental violations, antitrust violations, or tax fraud. This is known as corporate criminal liability.

Question 18

A corporation is considered to be a person within the meaning of the Fifth Amendment protection against self-incrimination.

Accepted Answer

Corporations, as legal entities, do not have the Fifth Amendment protection against self-incrimination; this protection applies to natural persons, not to corporate entities.

Question 19

Carroll, Daniels, and Elmore organized their veterinary practice as a professional corporation. This organization of professionals will be treated as a partnership for liability purposes.

Accepted Answer

A professional corporation is a specific type of corporation for professionals, where the corporation itself, rather than the individual members, generally assumes liability for the business's debts and obligations, differing from a partnership where partners can be personally liable.

Question 20

A corporation has no constitutional protection against unreasonable searches and seizures.

Accepted Answer

The Fourth Amendment of the United States Constitution protects individuals and corporations alike from unreasonable searches and seizures.

Quiz 33: Nature and Formation of Corporations