Question 1

Regardless of what state a corporation files in,that business will need to produce an annual report and pay a fee or tax to the state.

Accepted Answer

To retain its status as a corporation in good standing,a corporation must file an annual report with the state and pay an annual franchise fee or tax.

Question 2

Promoters are personally liable on a preincorporation contract but are released from liability when the corporation adopts the contract.

Accepted Answer

Promoters remain liable on a preincorporation contract even after the corporation's adoption of the contract,since adoption does not automatically release the promoter.

Question 3

If the secretary of state's office approves a company's articles of incorporation then it is returned with a stamp indicating "Filed" and with a receipt for the fees paid.

Accepted Answer

If approved then a business' articles of incorporation will be stamped "Filed" and returned to the corporation along with a receipt for payment of fees.

Question 4

Watered shares are shares issued for consideration that has been overvalued impermissibly by the board of directors.

Accepted Answer

Watered shares are shares issued for consideration that has been overvalued impermissibly by the board of directors.

Question 5

Under the MBCA,an incorporator may become jointly and severally liable for preincorporation contracts just by being an incorporator.

Accepted Answer

No special liability attaches to a person merely because she serves as an incorporator.

Question 6

Only when the promoter is liable on the preincorporation contract is the other party liable on the contract.

Accepted Answer

Only when the promoter is liable on the preincorporation contract is the other party liable on the contract.

Question 7

In order to capitalize a newly formed corporation,a company will usually seek cash in exchange for equity securities,debt securities,or both.

Accepted Answer

In order to capitalize a newly formed corporation,a company will usually seek cash in exchange for equity securities,debt securities,or both.

Question 8

Under the Model Business Corporation Act,a corporation may not issue its shares in return for any benefit to the corporation.

Accepted Answer

The MBCA permits shares to be issued in return for any tangible or intangible property or benefit to the corporation,including cash,promissory notes,services performed for the corporation,contracts for services to be performed for the corporation,and securities of the corporation or another corporation.

Question 9

A promoter is not an agent of the future corporation.

Accepted Answer

A promoter of a nonexistent corporation is not an agent of the prospective corporation.

Question 10

Two corporations in a state may have the same name.

Accepted Answer

A corporation must have a name that is distinguishable from the name of any other corporation incorporated or qualified to do business in the state.

Question 11

Under the Model Business Corporation Act (MBCA),a prospective shareholder may not revoke a preincorporation subscription for a one-year period,in the absence of a contrary provision in the subscription.

Accepted Answer

Under the Model Business Corporation Act (MBCA),a prospective shareholder may not revoke a preincorporation subscription for a six-month period,in the absence of a contrary provision in the subscription.

Question 12

Memberships in a nonpublic corporation are generally freely transferable.

Accepted Answer

Generally,memberships in a nonpublic corporation are not freely transferable.

Question 13

There is no limit on the number of members in a nonprofit corporation.

Accepted Answer

A nonprofit corporation may admit members whether or not they pay,and there is no statutory limit on the number of members a nonprofit corporation may have.

Question 14

A right of first refusal on a share certificate allows the corporation to match the offer that a selling shareholder receives for his shares.

Accepted Answer

A right of first refusal on a share certificate allows the corporation to match the offer that a selling shareholder receives for his shares.

Question 15

As per the Model Nonprofit Corporation Act (MNCA),a nonprofit corporation need not have members for its existence.

Accepted Answer

As per the Model Nonprofit Corporation Act (MNCA),a nonprofit corporation need not have members for its existence.

Question 16

A corporation is required to reimburse a promoter for her reasonable expenses incurred on behalf of the corporation prior to incorporation.

Accepted Answer

A corporation is generally not required to compensate a promoter for her promotional services,or even her expenses,unless the corporation has agreed expressly to compensate the promoter.The justification for this rule is that the promoter is self-appointed and acts for a corporation that is not in existence.

Question 17

Mandatory dividend provisions enacted in corporate laws have generally been held legal.

Accepted Answer

Mandatory dividend provisions have generally been held illegal as unduly restricting the powers of the board of directors.

Question 18

Corporations are generally liable on preincorporation contracts signed by their promoters.

Accepted Answer

A nonexistent corporation has no liability on contracts made by a promoter prior to its incorporation.

Question 19

A passive investor who believes she has invested in a corporation has no liability for the obligations of the business if the corporation has not in fact been formed.

Accepted Answer

A party to a contract involving a corporation may claim nonexistence of the corporation in order to avoid a contract made in the name of the corporation.So,a passive investor who believes she has invested in a corporation has no liability for the obligations of the business if the corporation has not in fact been formed.

Question 20

An organizer is the individual that incorporates a business.

Accepted Answer

A promoter is the individual that incorporates a business,organizes its initial management,and raises its initial capital.

Quiz 42: Organization and Financial Structure of Corporations

Regardless of what state a corporation files in,that business will need to produce an annual report and pay a fee or tax to the state.

Promoters are personally liable on a preincorporation contract but are released from liability when the corporation adopts the contract.

If the secretary of state's office approves a company's articles of incorporation then it is returned with a stamp indicating "Filed" and with a receipt for the fees paid.

Watered shares are shares issued for consideration that has been overvalued impermissibly by the board of directors.

Under the MBCA,an incorporator may become jointly and severally liable for preincorporation contracts just by being an incorporator.

Only when the promoter is liable on the preincorporation contract is the other party liable on the contract.

In order to capitalize a newly formed corporation,a company will usually seek cash in exchange for equity securities,debt securities,or both.

Under the Model Business Corporation Act,a corporation may not issue its shares in return for any benefit to the corporation.

A promoter is not an agent of the future corporation.

Two corporations in a state may have the same name.

Under the Model Business Corporation Act (MBCA),a prospective shareholder may not revoke a preincorporation subscription for a one-year period,in the absence of a contrary provision in the subscription.

Memberships in a nonpublic corporation are generally freely transferable.

There is no limit on the number of members in a nonprofit corporation.

A right of first refusal on a share certificate allows the corporation to match the offer that a selling shareholder receives for his shares.

As per the Model Nonprofit Corporation Act (MNCA),a nonprofit corporation need not have members for its existence.

A corporation is required to reimburse a promoter for her reasonable expenses incurred on behalf of the corporation prior to incorporation.

Mandatory dividend provisions enacted in corporate laws have generally been held legal.

Corporations are generally liable on preincorporation contracts signed by their promoters.

A passive investor who believes she has invested in a corporation has no liability for the obligations of the business if the corporation has not in fact been formed.

An organizer is the individual that incorporates a business.