Question 1

What powers does a corporation normally possess?

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Question 2

Claire opened Claire's Beauty Parlor in her home.She solicited funds to begin the business from Jack,who believed that the business was incorporated.Claire had,in fact,never filed the papers.One day,Claire fell asleep while giving a customer a perm and the solution caused her customer severe burns.The customer sued the Beauty Parlor for $500,000,an amount enormously in excess of the business assets.Under the Revised Model Act,what would be the result?

Accepted Answer

Under the Revised Model Business Corporation Act, individuals acting on behalf of a corporation that has not yet been formed can be held personally liable for their actions. Since Claire was the one directly involved in the negligent act, she would be personally liable. Jack, who merely provided funds under the belief that the business was incorporated, would not be held personally liable for Claire's actions.

Question 3

Which of the following would not usually be found in the articles of incorporation of a corporation?

Accepted Answer

The number of directors necessary for a quorum is typically found in the bylaws of a corporation, not in the articles of incorporation. The articles of incorporation generally include the name of the corporation, the names and addresses of the incorporators, and the number of authorized shares.

Question 4

Mark complied with all formation requirements for incorporating his taxicab business.He is the sole shareholder in the corporation.The corporation owns two automobiles that Mark frequently uses for his own personal use.In addition,he sometimes deposits the money he takes in during the day into his personal checking account.One day,an employee of the company,while driving one of the company vehicles,accidentally hits a pedestrian in a crosswalk.The pedestrian sues both Mark and the taxi company for $100,000.The corporate assets are only $32,000.Is the corporation liable for the acts of its employee? Will Mark be personally liable under the facts?

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Question 5

Which of the following is not a requirement of a Subchapter S corporation?

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Question 6

Under which of the following provisions of the U.S.Constitution is a corporation not a "person"?

Accepted Answer

Corporations are considered "persons" under the Due Process and Equal Protection Clauses of the Fifth and Fourteenth Amendments, respectively, and they are also protected under the Fourth Amendment. However, the right against self-incrimination under the Fifth Amendment specifically applies to natural persons, not corporations.

Question 7

What is a Subchapter S Corporation,and what are its requirements?

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Question 8

Discuss what is required in most states to form a corporation.

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Question 9

Identify each of the following corporations by type.
a.Dr. Smith and Dr. Jones are both medical doctors who practice together. They incorporate their medical practice so that they can offer themselves and their employees better employment benefits.
b.A group of concerned citizens obtains a corporate charter from the state to form a local Water Planning and Management Corporation that is authorized to do water planning on a local level and to grant permits for such purposes as the installation of ditches, and the encouragement of good water usage practices in their jurisdictional area.
c.Agatha and Betty, who are sisters, form a corporation in which they are the sole shareholders. They plan to operate a large retail store that sells collectibles. Agatha is the president and Betty is the chairperson of the board of directors.
d.Bill and Carl form a corporation to prevent spouse and child abuse. The corporation operates a shelter for battered women and homeless children.
e.Zeron Corporation is incorporated in the state of West Virginia. It decides to expand its business to Kentucky. What type of corporation is it in West Virginia? What type of corporation is it in Kentucky?

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Question 10

Name the classifications of corporations.

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Question 11

What are the consequences of a defective incorporation?

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Question 12

General Supply owns all the stock of Playne Pencils.A Playne employee commits a tort for which the employer is liable.The suit results in a judgment for $1 million against Playne.Playne's assets total $650,000,but General Supply's assets are in the millions.In which of the following situations would the judgment have to be paid by General?

Accepted Answer

If Playne's income and General Supply's income are held in one account, it suggests that the two companies are not maintaining separate financial identities. This could lead to a court "piercing the corporate veil," making General Supply liable for Playne's debts.

Question 13

Courts have responded by piercing the veil when the shareholders have:

Accepted Answer

Courts may pierce the corporate veil when any of the conditions mentioned in choices (a), (b) or (c) exist. Therefore, the correct answer is option (d), "All of the above."

Question 14

The Revised Act authorizes shareholders in closely held corporations to adopt shareholder agreements that depart from statutory norms by altering the governance of the corporation.These agreements:

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Question 15

Which of the following is untrue regarding closely held corporations?

Accepted Answer

Shareholders of closely held corporations typically have a greater degree of control and involvement in the management and decision-making processes of the business compared to shareholders of publicly traded corporations.

Question 16

Define "promoter" in reference to a corporation.

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Question 17

Identify and give the basic characteristics of each of the following specialized types of corporations.
a.Professional corporations
b.Public corporations
c.Nonprofit corporations

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Question 18

The president of Hi-Glow Cosmetics sends his top chemist to Hi-Glow's competitor's labs to steal its formula for shiny lipstick.The chemist gets caught and is sent to jail.Can Hi-Glow be found to be criminally liable?

Accepted Answer

The president of Hi-Glow Cosmetics authorized the theft, making the company criminally liable for the actions of its agent. The doctrine of ultra vires (a) is not applicable in this case, as stealing a competitor's formula is not outside of Hi-Glow's authorized activities. Though corporations cannot be sent to jail themselves (c), they can be fined or face other legal consequences for their actions.

Question 19

What is the doctrine of ultra vires? What is the effect of an ultra vires contract?

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Question 20

What are the principal attributes of a corporation?

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Quiz 33: Nature and Formation of Corporations