Deck 18: Corporations

Question 1

A key advantage of the corporate form is the unlimited liability of its owners.

Answer 1

False

Question 2

The directors of a benefit corporation must, during the decision-making process, consider the impact of a decision on society and the environment.

Answer 2

True

Question 3

A corporation is not liable for the misconduct of its agents or officers.

Answer 3

False

Question 4

Because a close corporation is one whose shares are held by a relatively small group of persons, the firm often operates like a partnership.

Question 5

Shareholders' assumption of personal liability, as guarantors, for the obligations of a corporation can enable the firm to obtain credit.

Question 6

A court will pierce the corporate veil of a corporation when the corporate privilege is abused for personal benefit.

Question 7

A foreign corporation that has not obtained a certificate of authority to do business in a state can nevertheless maintain an action in the state's courts.

Question 8

Corporate resolutions of the corporation's board of directors provide guidelines but cannot grant or restrict corporate powers.

Question 9

If a business says it is a corporation, and a third party deals with it as a corporation, neither party can question the validity of the business's status.

Question 10

To pierce the corporate veil means to reveal the identity of its true owner.

Question 11

Individual state laws should be relied on to determine corporate law because, despite the existence and use of model corporation acts, there is considerable variation among the states.

Question 12

A businessperson who enters into a contract with an investor on behalf of a future corporation is not personally liable on the deal, even though the firm is not yet formed, because the nature of investment is risk.

Question 13

Stocks, or equity securities, represent the purchase of ownership in a business corporation.

Question 14

A corporation needs to be careful about whom it hires because a firm may be liable for the misconduct of its employees.

Question 15

To pierce the corporate veil is to disregard the corporate entity and hold the directors liable for a corporate obligation.

Question 16

If the procedures for incorporation are not followed precisely, others may be able to challenge the existence of the corporation.

Question 17

Because state corporate laws differ, persons wishing to incorporate may look for the state that offers the most advantageous tax or other provisions.

Question 18

A corporation is intangible and invisible, and exists only in the contemplation of the law.

Question 19

Corporate officers have responsibility for all policymaking decisions necessary to the management of corporate affairs.

Question 20

A close corporation need not meet all of the specific requirements set forth in state statutes for corporations because it is essentially a sole proprietorship.

Question 21

If a director commits a breach of fiduciary duty, the shareholders have the inherent power to remove the director from office by a majority vote.

Question 22

A corporation's authority to act and its liability for those actions is, with respect to the firm's owners,

A) proportional.
B) one and the same.
C) joint and several.
D) separate and apart.

Question 23

A shareholder's right to transfer his or her shares to another party can be subject to restrictions set out in the bylaws or a shareholder agreement.

Question 24

The board of directors hires the corporation's officers, but normally can remove them only for cause.

Question 25

Every form of business organization is a legal entity separate and distinct from its owner or owners.

Question 26

All forms of business organizations limit the liability of their owners.

Question 27

Under the business judgment rule, directors cannot be held liable for bad faith, fraud, or a breach of fiduciary duties.

Question 28

All of a certain corporation's small number of shareholders agree that the firm can operate without directors, bylaws, shareholder meetings, stock certificates, and formal records of shareholders' decisions. This firm is most likely

A) a close corporation.
B) a corporation by estoppel.
C) a de facto corporation.
D) a de jure corporation.

Question 29

To prevent a majority shareholder from dominating the management and operation of a close corporation, the firm should

A) require more than a majority of directors approve any board action.
B) restrict the transferability of shares to outside persons.
C) reorganize into a sole proprietorship or partnership.
D) hold special shareholders' or directors' meetings on an annual basis.

Question 30

A breach of fiduciary duties by those who own a close corporation normally constitutes oppressive conduct.

Question 31

Shareholders, not directors, make major corporate policy decisions.

Question 32

When directors do not act in the best interests of their corporations, the shareholders may sue them on the company's behalf.

Question 33

Sweetwater Corporation is incorporated in Texas. Outside that state, within the United States, the firm is

A) a domestic corporation.
B) a foreign corporation.
C) an alien corporation.
D) a corporation by estoppel.

Question 34

The management of any form of business organization is completely at the owners' discretion and does not affect liability for the firm's obligations.

Question 35

A corporate officer is liable to the corporation or its shareholders for a bad business decision.

Question 36

If a shareholder's derivative suit is successful, any damages recovered normally go into the corporation's treasury.

Question 37

If a board attempts to manipulate the shareholders' election of a director to reduce the shareholders' influence, the shareholders can challenge the election in court.

Question 38

Under the doctrine of respondeat superior, a corporation can be held liable for

A) acts perpetrated by its market competitors.
B) breaches of contract by its customers and suppliers.
C) torts committed by its agents or officers.
D) none of the choices.

Question 39

To make informed decisions and supervise corporate officers and employees, the directors need an unrestricted right to inspect corporate books and records.

Question 40

A corporate director is not liable to the corporation or its shareholders for an honest mistake of judgment.

Question 41

Initiating and negotiating the sale and lease of corporate assets outside the regular course of business is a responsibility of the corporation's

A) board of directors.
B) high-level managers.
C) chief executive officer.
D) shareholders.

Question 42

Apt Adapt Inc. is formed to coordinate the design and delivery of projects and products to help communities cope with the effects of climate change. The stated purpose is to have a material positive impact on society and the environment, and to make a profit. Apt Adapt is

A) a nonprofit corporation.
B) not a corporation.
C) a benefit corporation.
D) a public corporation.

Question 43

Limited liability business forms, such as LLCs, LPs, and LLPs, offer tax advantages that are similar to those offered by

A) an S corporation.
B) a benefit corporation.
C) a close corporation.
D) any corporation.

Question 44

To avoid sharing control with someone they do not know or like, it would be most effective for the shareholders of a close corporation to

A) require more than a majority of directors approve any board action.
B) restrict the transferability of shares to outside persons.
C) reorganize into a sole proprietorship or partnership.
D) hold special shareholders' or directors' meetings on an annual basis.

Question 45

Instead of issuing securities, Artificial Intelligence Inc. pursues other sources of funds. To obtain venture capital financing, the firm will most likely

A) borrow funds to be returned on a designated maturity date.
B) give up a share of its ownership.
C) pool funds to invest in a business venture.
D) pay periodic dividends.

Question 46

Metro Moving Service holds itself out to customers as being a corporation but makes no attempt to incorporate. In this circumstance, the outfit is most likely

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) ultra vires.

Question 47

Because it may result in a piercing of the corporate veil, shareholders' continuous use of corporate property should most especially be avoided by

A) a benefit corporation.
B) a publicly held corporation.
C) no corporation-corporate shareholders' liability is limited.
D) a close corporation.

Question 48

Masonry Inc.'s stated purpose is to perform the stonework on buildings and other structures. Masonry contracts with New Contracting to pour the pilings for a bridge's foundation despite lacking the skill and license to do the work. This is most likely

A) an ultra vires act.
B) within the corporation's express powers.
C) within the corporation's implied powers.
D) allowable and proper as an act to profit corporate shareholders.

Question 49

Nile is a holder of preferred stock in Oasis Hotels Inc. Nile

A) has no ownership interest in the corporation.
B) has priority over holders of common stock as to payment of dividends.
C) follows common stockholders as to payment on the firm's termination.
D) has a proportionate interest in the corporation with regard to control.

Question 50

With respect to a corporation, an officer's rights are defined by

A) employment contracts.
B) state statutes.
C) court review.
D) shareholder votes.

Question 51

Rex forms Shell Company to assume debts that he does not wish to pay. The firm is not intended to make a profit, and Rex does not provide it with sufficient capital. This most likely warrants

A) tricking Rex into disclosing Shell's true purpose to Rex's creditors.
B) recognizing Shell as a de facto corporation.
C) piercing Shell's corporate veil.
D) requiring Rex to commingle his personal funds and Shell's funds.

Question 52

Market Data Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Market Data is most likely

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) ultra vires.

Question 53

Eton owns Freight Company. He uses the firm's funds to pay his personal expenses, creates Go Trucking Inc. to engage in the same business, transfers Freight's assets to Go Trucking, and petitions Freight into bankruptcy. This most likely warrants

A) a bonus to Eton for effectively eliminating the firm's debts.
B) a discharge for Freight in bankruptcy.
C) a pierce of the corporate veil.
D) the application of the doctrine of corporation by estoppel to Go Trucking.

Question 54

With the exception of malpractice, liability for torts committed by others in a firm cannot be imposed on the shareholders of

A) a professional corporation.
B) a benefit corporation.
C) a close corporation.
D) any corporation.

Question 55

To avoid potential liability for misconduct in corporate operations, directors can refrain from reasonable supervision of work delegated to

A) corporate officers.
B) corporate employees.
C) board committees.
D) none of the choices.

Question 56

To help small businesses raise capital, the Securities and Exchange Commission allows the companies to advertise investment opportunities to the public. This most likely encourages

A) venture capitalizing.
B) crowdfunding.
C) piercing the corporate veil.
D) private equity capitalizing.

Question 57

To bring a corporation into existence requires securing a corporate name that

A) is the same or deceptively similar to the name of an existing corporation.
B) is selected by the state of incorporation, for convenience and cost.
C) promises to attract financial support from investors.
D) is available as a domain name, subject to state approval.

Question 58

Kathy is a director of Line Production Inc. As a director, with respect to the corporation, Kathy is expected to subordinate

A) her personal interests to the corporation's welfare.
B) the corporation's welfare to her personal interests.
C) her knowledge and training in the corporation's interest.
D) her business judgment in the shareholders' interests.

Question 59

Corporate shareholders will most likely be held personally liable for the firm's debts if they

A) insist on separating their personal interests from those of the firm.
B) refuse to transfer their shares to dilute control of the firm.
C) encourage the firm to unsuccessfully enter a new market.
D) use the firm to perpetrate a fraud.

Question 60

Welding Corporation makes a good faith attempt to incorporate but there is a defect in its incorporation. Welding undertakes business as a corporation. In this circumstance, the firm's existence may be challenged by

A) any third party.
B) the state.
C) a director, officer, or shareholder.
D) any corporation with which it does business.

Question 61

Erin, a shareholder of Finance Inc., demands the right to inspect corporate records to determine whether management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin's challenge, a court is most likely to hold that her request constitutes

A) harassment.
B) unreasonable access to trade secrets and other confidential information.
C) a proper purpose.
D) potential abuse.

Question 62

To be certain to transact business in states other than its state of formation with no limitations, Real Estate Investment Trust should choose as its form of business organization

A) a limited liability company.
B) a corporation.
C) a limited partnership.
D) a limited liability company.

Question 63

Doris wants to form a new firm-eBeats-to market a new app. Fees are required to form all of the following business organizations except

A) a sole proprietorship.
B) a corporation.
C) a limited partnership.
D) a limited liability company.

Question 64

Han is a shareholder of Insulation Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Han files a suit on its behalf. Any damages recovered by the suit will go to the firm's

A) shareholders, excluding Han.
B) treasury.
C) directors.
D) shareholders, including Han.

Question 65

Bern is Coffee Company's majority shareholder. Bern decides to sell his Coffee stock. The sale will be an effective transfer of the control of the company. Does Bern owe a duty to the firm or its minority shareholders in this situation?

Question 66

Carmen and Diego are shareholders of Espresso Inc. Carmen's written authorization to Diego to vote her shares at a shareholders' meeting is

A) a corporate resolution.
B) a cumulative vote.
C) a proxy.
D) a quorum requirement.

Question 67

Roy is a director of Sales Inc. Sales enters into a contract with TeleCenter Corporation in which Roy has a personal interest. Roy must

A) apply the "don't ask, don't tell" rule of personal conduct.
B) use the situation to his personal advantage.
C) make a full disclosure of the conflict of interest.
D) none of the choices.

Question 68

Deb is a director and Erv is an officer of Fast Food Inc. Liability for the firm's intentional disregard of consumer-protection statutes may extend to

A) Deb only.
B) Erv only.
C) Deb and Erv
D) none of the choices.

Question 69

AstroStar Inc.'s board of directors consists of three members-Eckhart, Dolan, and Macero. At a regular board meeting, the board selects Galiard as president of the corporation. Later, an audit reveals that during his term as president he has openly embezzled $500,000 from AstroStar. The same audit reveals that the board knew when it selected Galiard that he had been previously convicted of embezzlement. Can the corporation hold directors Eckhart, Dolan, and Macero personally liable?

Question 70

Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes. He may be protected from liability for these mistakes by

A) business success insurance.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 71

Daisy is a director of Excavation Corporation. She opposes an offer to merge Excavation with Fill Inc. because she would lose her board position. Daisy is most likely liable for breach of

A) the duty of care.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 72

Afton wants to go into business as Boom! to make and market fireworks. When deciding which form of business organization would be most appropriate, Afton would normally take into account all of the following except

A) the liability of the owners.
B) the forms of competitors' business organizations.
C) tax considerations.
D) the need for capital.