Question 1

An organizer is the individual that incorporates a business.

Accepted Answer

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

Question 2

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 3

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 4

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 5

General shareholders will be paid dividends before Preferred shareholders receive them from a corporation.

Accepted Answer

Preferred shareholders own share that have preferences with regard to assets or dividends over other classes or share like General shareholders.

Question 6

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 7

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 8

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 9

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 10

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 11

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

Accepted Answer

A corporation is generally not required to reimburse a promoter for his reasonable expenses incurred on behalf of the corporation prior to incorporation because the promoter is self-appointed and has acted for a corporation that is not in existence.

Question 12

Two corporations in a state may have the same names.

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 13

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

Question 14

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 15

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 16

Memberships in a nonpublic corporation are freely transferable.

Accepted Answer

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

Question 17

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

Accepted Answer

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

Question 18

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 19

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

Accepted Answer

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

Question 20

If the secretary of state's office approves a company's articles of incorporation then it is return with a stamp indicated 'filed' and with a receipt for the fees paid.

Accepted Answer

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

Quiz 42: Organization and Financial Structure of Corporations

An organizer is the individual that incorporates a business.

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.

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

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

General shareholders will be paid dividends before Preferred shareholders receive them from a corporation.

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

A promoter is not an agent of the future corporation.

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.

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

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

Two corporations in a state may have the same names.

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

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

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

Memberships in a nonpublic corporation are freely transferable.

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

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

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

If the secretary of state's office approves a company's articles of incorporation then it is return with a stamp indicated 'filed' and with a receipt for the fees paid.