Question 1

Common stock is the last stock in line for any corporate payouts, including dividends and liquidation payments.

Accepted Answer

Common stock represents ownership in a company, but it is subordinate to preferred stock and debt in terms of receiving payouts. Preferred stockholders and creditors are paid before common stockholders in the event of a liquidation or bankruptcy. Similarly, dividends are typically paid to preferred stockholders before common stockholders, and common stock dividends may be reduced or eliminated entirely if the company's financial situation requires it.

Question 2

When a company dissolves, preferred stockholders typically have the right to receive their share of corporate assets before common shareholders.

Accepted Answer

This is true. Preferred stockholders usually have priority when it comes to receiving corporate assets during the dissolution of a company.

Question 3

Terminating a corporation is a three-step process: dissolution, winding up, and termination.

Accepted Answer

Terminating a corporation typically involves a two-step process: dissolution and winding up. Termination is not a separate step but rather the end result of the winding-up process.

Question 4

A promoter is personally liable on any contract he or she signs before the corporation is formed.

Accepted Answer

Promoters act on behalf of a corporation that has not yet been formed, therefore they may be held personally liable for any contracts they sign. Once the corporation is formed, the liability passes on to the corporation itself.

Question 5

When a corporation accepts legal responsibility for a contract, it is called novation.

Accepted Answer

Novation refers to the act of replacing an old obligation with a new one by substituting a new party into an existing contract or creating a new contract, not merely a corporation accepting legal responsibility for a contract.

Question 6

A corporation is required to have at least one director, no matter how many shareholders it has.

Accepted Answer

The answer of A corporation is required to have at...

Question 7

The person who creates a corporation is called the

Accepted Answer

The answer of The person who creates a corporation is...

Question 8

Sara decided to incorporate her business under the name Gomo, Inc. Before Gomo was incorporated, Sara signed a contract in the name of Gomo, Inc. to lease a store front. Sara did not tell the other party that Gomo was not yet formed. Sara is personally liable on the lease.

Accepted Answer

Since Gomo, Inc. was not yet formed at the time the lease contract was signed, there was no legal entity to assume the obligations and liabilities of the lease. Therefore, Sara would be personally liable for any breaches of the lease contract.

Question 9

To adopt a contract means to form a new contract with different parties.

Accepted Answer

To adopt a contract means to accept or agree to the terms of an existing contract, not to form a new one with different parties.

Question 10

Stock is divided into categories called series, and these series can be further divided into subcategories called classes.

Accepted Answer

The answer of Stock is divided into categories called series,...

Question 11

Incorporators are required to sign the charter, deliver it to the proper state officials, and purchase a certain percentage of the initial stock offering.

Accepted Answer

Incorporators are required to sign the charter and deliver it to the proper state officials, but they are not required to purchase a certain percentage of the initial stock offering.

Question 12

The lawyer who forms the corporation cannot legally serve as its incorporator.

Accepted Answer

The lawyer who forms the corporation can legally serve as its incorporator. The incorporator is the person who signs the articles of incorporation and files them with the state to form the corporation. As long as the lawyer is not prohibited from serving as an incorporator by state law or the rules of professional conduct, they can serve in this role.

Question 13

A corporation officially states its purpose is "to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Idaho." Under corporate law, this purpose is too broad. A corporation's purpose must be more narrowly defined.

Accepted Answer

Under the General Corporation Law of many states, including Idaho, a corporation is allowed to state a broad purpose for engaging in any lawful activity, without the need to narrowly define its specific business activities.

Question 14

Which state does your textbook cite as being particularly attractive to companies looking to incorporate?

Accepted Answer

Delaware is known for its business-friendly laws and low taxes, making it a popular choice for businesses to incorporate in. The state has a specialized court, the Court of Chancery, which is exclusively dedicated to hearing corporate legal disputes. Additionally, Delaware does not require companies to have a physical location in the state, making it an appealing option for businesses based in other parts of the country.

Question 15

A business corporation can be incorporated under either state law or federal law.

Accepted Answer

The answer of A business corporation can be incorporated under...

Question 16

Carey decided to incorporate her business under the name yStar Inc. Before yStar was incorporated, Carey signed a contract in the name of yStar, Inc. to have some office space remodeled. Which statement is correct?

Accepted Answer

yStar will only be liable on the contract if, after incorporation, it adopts the contract either explicitly or through actions that imply acceptance of the contract's terms. Before incorporation, the corporation technically does not exist and cannot enter into contracts.

Question 17

Zach decides to incorporate his business under the name of "Zamm." In addition to "Zamm," the Model Act requires that Zach include one of the following words: "corporation," "incorporated," "limited," or "company."

Accepted Answer

The Model Business Corporation Act requires that a corporation's name must include one of those words (or abbreviations thereof) to clearly indicate that it is a corporation, distinguishing it from other types of business entities.

Question 18

A corporation must have a registered agent within the state of incorporation only if the corporation maintains an office in that state.

Accepted Answer

A corporation must have a registered agent in the state of incorporation regardless if it maintains an office in that state or not. The registered agent is responsible for receiving legal documents and official correspondence on behalf of the corporation.

Question 19

The Levitt Corporation charter authorizes 500,000 shares of stock. This stock is referred to as

Accepted Answer

The fact that the Levitt Corporation charter authorizes 500,000 shares of stock means that this is authorized stock, which is the maximum number of shares a company can issue according to its charter. Treasury stock refers to shares of a company's own stock that have been bought back and are held in the company's treasury. Preferred stock is a type of stock that has priority over common stock in terms of dividend payments and liquidation preferences. Common stock is the most basic type of stock and represents ownership in a company.

Question 20

Laurie is incorporating her business. Laurie's home state is Wisconsin. Business will be conducted in California, Michigan, Pennsylvania, and Virginia. Laurie

Accepted Answer

Laurie can incorporate her business in any state, regardless of where the business operates or where she resides. Many businesses choose to incorporate in states with favorable corporate laws and tax structures, such as Delaware, but it is not a requirement.

Quiz 33: Life and Death of a Corporation