Question 1

Who elects the officers of a corporation?

Accepted Answer

The directors of a corporation are responsible for electing the officers who will manage the day-to-day operations of the company.

Question 2

Under most state statutes, a corporation may

Accepted Answer

Most state statutes allow corporations to include provisions in their charter or bylaws that indemnify directors and officers, but this indemnification is typically limited to situations where the director or officer has not engaged in intentional misconduct or bad faith. Therefore, choice A is the best answer. Choice B is incorrect because it suggests that directors could be indemnified under any circumstances, which is not typically allowed under state law. Choice C is also incorrect because it suggests that negligent conduct would not be covered by indemnification, which is not always the case. Finally, choice D is incorrect because most state statutes allow corporations to include provisions regarding indemnification of directors and officers.

Question 3

Corporate stock can be divided into categories called ________, which can be further divided into ________.

Accepted Answer

Corporate stock can be divided into categories called classes, which can be further divided into series. This allows for different types of stock within a company, each with its own set of rights, privileges, or restrictions.

Question 4

Conversion rights

Accepted Answer

Conversion rights allow investors to convert their shares from one class to another, such as from preferred stock to common stock. This can be beneficial if the investor wants to change their investment strategy or there is a significant shift in the company's financial situation. However, conversion rights do not necessarily impact the order of payment upon dissolution, entitlement to dividends, or prevent dilution of ownership.

Question 5

In incorporating E-prise, the promoter gave an incorrect ZIP Code for the registered agent. All of the other requirements for incorporation were met. E-prise is a(n)

Accepted Answer

A de jure corporation is one that has fully complied with all the statutory requirements for incorporation, except for minor errors that do not affect the legality of its formation, such as providing an incorrect ZIP Code.

Question 6

Fashions, Inc. has 12 shareholders. The company is subject to the Model Act. What officers is Fashions, Inc. required to have?

Accepted Answer

The answer of Fashions, Inc. has 12 shareholders. The company...

Question 7

Fashions, Inc. has 12 shareholders. There is no shareholder agreement concerning the board of directors. The company is subject to the Model Act. How many directors is Fashions, Inc. required to have?

Accepted Answer

The answer of Fashions, Inc. has 12 shareholders. There is...

Question 8

MegaCorp is incorporated in the state of Delaware and is registered only in Delaware. Jolene purchased a MegaCorp product from a company's sales representative following a presentation in Michigan. Jolene was seriously injured by the product in Michigan. Under the Model Act, if Jolene sues in Michigan, can MegaCorp defend the suit there?

Accepted Answer

According to the Model Act, MegaCorp, as a corporation incorporated in Delaware and only registered in Delaware, can defend itself against a lawsuit in any state without being required to register in that state. Therefore, MegaCorp can defend against Jolene's lawsuit in Michigan even though it is not registered to do business in that state.

Question 9

Wizardry Corporation's purpose clause in its charter states the following: "To operate a home-cleaning service business." After a few years of successful operation, Wizardry is offered the challenge of landscaping a neighboring business. If Wizardry accepts the offer, it would be violating its charter under

Accepted Answer

The ultra vires doctrine states that a corporation cannot engage in activities beyond the scope of its stated purpose in its charter. If Wizardry accepts the offer to do landscaping for the neighboring business, it would be engaging in an activity that is outside of its stated purpose in its charter, and therefore violating the ultra vires doctrine.

Question 10

What are some of the advantages for a business to incorporate in Delaware?

Accepted Answer

The answer of What are some of the advantages for...

Question 11

What is the first step that must be taken to terminate a corporation?

Accepted Answer

The first step to terminate a corporation is to hold a vote among the shareholders for dissolution. This is because the shareholders are the owners of the corporation and have the power to decide whether or not to continue its existence. Once the vote is held and a majority agrees to dissolve, then the other steps such as filing for dissolution and winding up the business can be taken.

Question 12

What is an exculpatory clause?

Accepted Answer

An exculpatory clause is a provision in a contract or statute that relieves a party from liability for damages or wrongdoing. In the context of corporate governance, it specifically refers to clauses that protect directors from personal liability to the corporation and its shareholders for actions taken in good faith on behalf of the company.

Question 13

Mike is planning on incorporating his business in the state of Delaware. Which of the following regarding the name of Mike's business is TRUE?

Accepted Answer

CA) Delaware law allows the use of words like "Association" or "Institute" in a company name, providing flexibility in naming.C) Delaware requires that a corporation's name must include one of the words: Corporation, Incorporated, Company, or Limited, or their abbreviations, to clearly indicate that it is a corporation.

Question 14

The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance their expansion plans. The executives

Accepted Answer

The number of shares that Jornaginn Corporation can sell is limited by the number of shares authorized in the corporate charter. However, the corporation can increase the authorized number of shares by amending the charter and paying a fee. Therefore, the corporation can sell the additional 50,000 shares after amending the charter.

Question 15

Who signs the charter and files it with the secretary of state?

Accepted Answer

The incorporator is the person responsible for signing and filing the charter (also known as articles of incorporation) with the secretary of state. The chairman of the board, company president, or promoter may have involvement in the process but are not directly responsible for filing the charter.

Question 16

Under the Model Act, a corporation must have at least one director unless all shareholders agree to eliminate the board or the corporation has fewer than _____ shareholders.

Accepted Answer

Under the Model Act, a corporation must have at least one director, unless all shareholders agree to eliminate the board or the corporation has fewer than 50 shareholders. Therefore, the correct answer is C) 50.

Question 17

What term identifies stock that has been authorized and sold?

Accepted Answer

Outstanding stock refers to the total number of shares that have been authorized and sold, and are currently held by shareholders.

Choice A (authorized and paid stock) is not a commonly recognized term.

Choice C (treasury stock) refers to shares that have been bought back by the company and are held as a form of corporate treasury. These shares are not considered outstanding.

Choice D (authorized and unissued stock) refers to shares that have been authorized by the company but have not yet been sold to investors. These shares are also not considered outstanding.

Question 18

Hank owns 100 shares of cumulative preferred stock in Wayside Transport, Inc. Kelsey owns 50 non-cumulative preferred shares, and Oleg owns 120 shares of common stock. Wayside does not pay dividends in 2015. In 2019

Accepted Answer

Preferred stockholders, both cumulative (Hank) and non-cumulative (Kelsey), have priority over common stockholders (Oleg) for dividend payments. Cumulative preferred stockholders (Hank) are entitled to dividends in arrears before current dividends are paid out, while non-cumulative preferred stockholders (Kelsey) cannot claim missed dividends from previous years.

Question 19

MegaCorp is incorporated under Delaware law. It is registered to do business in New York. Legally, in New York MegaCorp is known as what kind of corporation?

Accepted Answer

Since MegaCorp is incorporated under Delaware law but registered to do business in New York, it is considered a foreign corporation in New York.

Question 20

Which of the following states that a corporation cannot undertake any transaction unless its charter permits it?

Accepted Answer

The ultra vires doctrine states that a corporation cannot undertake any transaction unless its charter permits it.

Quiz 33: Life and Death of a Corporation