Exam 22: Corporations: Formation and Organization

No shareholder of an S corporation may be a nonresident alien.

If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization is a[n] _______________ corporation.

Decisions of courts in _______________ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there.

Which of the following occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist?

Reference - Self-Centered President. Tina is the new president of "We ManageYou," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares while majority shareholders own 8,000 shares. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the duties of an officer. She explains to him that only the corporation can be charged with liability in such cases. Is Tina accurate that she owes no duties to shareholders?

By way of which of the following may corporations distribute their income to shareholders?

In which of the following does a shareholder sue alleging that he has suffered damages caused by the corporation?

Which of the following is false regarding the liability of directors and officers for criminal behavior?

Directors and officers have a fiduciary duty of care.

Corporations have implied powers.

Each director has one vote.

Mary is a director of a company that develops expensive residential subdivisions. The company is considering attempting to purchase a large section of land on which to put a development. Mary happens to own some of the land. What duty, if any, does she have regarding disclosure and why or why not; what steps, if any should be taken by the board when considering the matter; and may the board take action that benefits Mary personally?

In order to prevent a defective corporation from escaping corporate responsibility a court may hold that that the entity is a[n] _______________.

Which of the following are directors who are not officers or employees of the corporation?

In a consolidation, shareholders of the new corporation create new articles of incorporation called _______________.

Which of the following was the result on appeal in J-Mart Jewelry Outlets, Inc. v. Standard Design, the case in the text in which a creditor of a defunct corporation sued the major shareholder seeking to pierce the corporate veil and hold the shareholder personally responsible for corporate debts after the shareholder paid off his personal credit cards using corporate funds and paid the corporation $1 for a new Cadillac?

Which of the following is a term for stock issued to individuals below its fair market value?

A[n] _______________ corporation is a business incorporated in another country.

Which of the following is needed in order for a business to qualify as an S corporation?

Reference - Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Are Jack and Bobby correct that tax liability will likely be greater with a corporate form of business (not an S corporate form) and why?