Deck 20: Corporations

Question 1

Under the duty of loyalty, directors must refrain from self-dealing.

Answer 1

True

Question 2

With preemptive rights, shareholders preempt the decisions of directors and officers with respect to corporate policy.

Answer 2

False

Question 3

There are never any important consequences if the procedures for incorporation are not followed precisely.

Answer 3

False

Question 4

In corporate law, acts of a corporation that are beyond its express or implied powers are de facto or de jure acts.

Question 5

One factor that frequently causes the courts to pierce the corporate veil is that a corporation was set up never to make a profit.

Question 6

Shareholders can elect and remove the directors of the corporation.

Question 7

Shareholders are not personally liable for the debts of a corporation.

Question 8

Every shareholder is entitled to examine specified corporate records but only in person, not through an agent.

Question 9

If a corporation has S corporation status, it can avoid the imposition of income taxes at the corporate level.

Question 10

A director or officer must exercise due care in performing their duties, including acting in good faith.

Question 11

A corporation can be dissolved voluntarily but not by a shareholders' vote.

Question 12

The articles of incorporation serve as a primary source of authority for the corporation's future organization and business functions.

Question 13

To pierce the corporate veil means to shield the shareholders from personal liability.

Question 14

A court will pierce the corporate veil of a corporation that is formed to accomplish an illegitimate objective.

Question 15

A simple majority vote of the shares represented at a shareholders' meeting is usually required to pass resolutions.

Question 16

As a general rule, shareholders make daily business decisions for a corporation.

Question 17

For shareholders to act during a meeting, a quorum must be present.

Question 18

When the corporation is harmed by the actions of a third party, the directors can bring a lawsuit in the name of the corporation against that party.

Question 19

Since stock is intangible personal property, the ownership right to stock exists independently of a stock certificate.

Question 20

Stocks represent the borrowing of funds by firms.

Question 21

Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delite's

A)board of directors.
B)incorporators.
C)officers.
D)shareholders.

Question 22

The corporation is a creature of the common law.

Question 23

A new position on a board of directors can be created by an amendment to the articles of incorporation.

Question 24

The ordinary rules of agency normally apply to the employment of corporate officers.

Question 25

A director must always vote on a proposed transaction in which he or she has a personal interest.

Question 26

Deepwater Dredging Company holds itself out to others as being a corporation but makes no attempt to incorporate. Estuary Marina signs a contract with Deepwater and Deepwater fails to perform. Estuary Marina files a suit against the firm. The court will likely hold that Deepwater is

A)a corporation by estoppel.
B)an alien corporation.
C)an S corporation.
D)a close corporation.

Question 27

Dollars & Sense, Inc., is incorporated in the state of New Jersey and is doing business in the state of New York. In New York, Dollars & Sense is properly referred to as

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

Question 28

Smoke & Mirrors Inc. can be compelled to dissolve by

A)any of the choices.
B)its competitors.
C)dissatisfied clients and customers.
D)a court order.

Question 29

A corporation possesses the same right of access to the courts as a natural person.

Question 30

Corporate bylaws may specify that a director can be removed for cause.

Question 31

Some state statutes allow corporations to set a quorum for a meeting of the board of directors at less than a majority of the directors.

Question 32

Shareholders appoint corporate officers and other executive employees.

Question 33

A state court can dissolve a corporation for fraudulent conduct by its directors.

Question 34

The board of directors hires officers to run the daily business of a corporation.

Question 35

Firms are obligated to return a principal amount per share to each holder of common stock.

Question 36

Venture capital is capital provided to new business ventures by professional, outside investors.

Question 37

One of the key advantages of the corporate form is the unlimited liability of its owners.

Question 38

A receiver is always appointed by a court if the dissolution of a corporation is involuntary.

Question 39

The incorporation of the town of Halfway, Oregon, is approved by the state. Halfway is

A)a publicly traded corporation.
B)a public corporation.
C)a private corporation.
D)not a corporation.

Question 40

When deciding which form of business organization would be the most appropriate, businesspersons normally take into account the ease of creation.

Question 41

Sports Data Stream Inc. is a start-up business. To obtain financing, the corporation makes use of a cooperative activity in which people network and pool funds and other resources via the Internet. This is

A)the issuance and sale of securities.
B)private equity capital.
C)venture capital.
D)crowdfunding.

Question 42

Shannon is an officer for Turista Shirts Corporation. Due to a bad business decision, made on a reasonable basis, on Shannon's part, the company's sales decrease. Shannon is most likely liable for breach of

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

Question 43

Aviators Source Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Aviators Source's board could transact its business is

A)all of the directors authorized in the articles or bylaws.
B)a majority of the board of directors.
C)any odd number.
D)one.

Question 44

David wants to go into business as Explosive Bursts to make and market fireworks. When deciding which form of business organization would be most appropriate, David 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.Fact Pattern 20-1 Ray is a shareholder of Small Biz Company (SBC).When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.

Question 45

Wiley incorporates his business as Wiley Wire Corporation in Texas. He and his group of shareholders intend to make a profit from their sales of fencing wire. Wiley Wire Corporation is

A)a nonprofit corporation.
B)not a corporation.
C)an alien corporation.
D)a private corporation.

Question 46

Bea is a shareholder of Chocolate Confections Corporation. The right to inspect corporate books and records is

A)held by Bea only if she is a director.
B)held by Bea, without restrictions.
C)held by Bea, with some restrictions.
D)not held by Bea.

Question 47

Hudson and Ilsa want to market a new line of kayaks and related gear under the brand name Journeys as a corporation-Journeys Inc. To avoid income taxes at the corporate level, they should form

A)an alien corporation.
B)a C corporation.
C)an S corporation.
D)a private corporation.

Question 48

Nora is a director of Outback Outfitters, Inc. Under the standard of due care owed by directors of a corporation, Nora's decisions must be informed and

A)made after reasonable investigation.
B)unquestionable.
C)indefensible.
D)perfect.

Question 49

Refer to Fact Pattern 20-1. Any damages recovered by Ray's suit will go to

A)Ray.
B)SBC.
C)SBC's directors.
D)the state in which SBC is incorporated.

Question 50

Doris wants to go into business as eBeats to market a new fitness app. Organizational 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 51

Farrah and Grant are shareholders of Hong Kong Restaurants, Inc. As shareholders, they must approve

A)conducting a merger.
B)deciding to pursue new business opportunities.
C)none of the choices.
D)negotiating a contract between management and labor.

Question 52

Ernst is a director of Fine Art Dealers, Inc. Ernst is trained in art valuation. Fine Art makes several purchases in which it pays too much for artwork. Ernst approves all the transactions without reading the details. Ernst is most likely liable for breach of

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

Question 53

Sierra is a holder of preferred stock in Rio Grande Irrigation & Development Corporation. Sierra has priority over holders of Rio common stock as to

A)nothing.
B)payments of dividends.
C)the date on which Rio must repurchase the shares.
D)upward changes in the market price of the shares.

Question 54

The board of Management Consultants, Inc. (MCI), can delegate work to

A)MCI's incorporators.
B)MCI's officers.
C)MCI's shareholders.
D)no one.

Question 55

Clive, Domina, and Elgar are the first directors on the board of Face x Face Corporation, a social media host. Subsequent directors are elected by a majority vote of Face x Face's

A)users.
B)employees.
C)officers.
D)shareholders.

Question 56

Refer to Fact Pattern 20-1. Ray's suit is a shareholder's

A)business-judgment rule suit.
B)derivative suit.
C)duty-of-care suit.
D)duty-of-loyalty suit.

Question 57

Brandi is a shareholder of Cloud Servers & Routers Inc.. Brandi will be deemed to have a fiduciary duty to Cloud and its minority shareholders if she has a sufficient number of shares to

A)assert the business judgment rule.
B)bring a shareholder's derivative suit.
C)exercise de facto control.
D)participate in a cumulative vote.

Question 58

Holly is a director of International Gourmet Spices, Inc. As a director, with respect to the corporation, Holly is

A)a fiduciary.
B)an incorporator.
C)an officer.
D)an employee.

Question 59

Godfrey is elected as a director for Healthful Snax, Inc. He will most likely serve for a term of

A)about ten years.
B)less than one year.
C)life.
D)one year.

Question 60

Ida, Jerzy, and Kit are the directors of Liberty Convenience Stores, Inc. Liberty has nine officers and forty-six shareholders. Dividends are ordered by the firm's

A)board of directors.
B)minority shareholders.
C)officers.
D)majority shareholders.Fact Pattern 20-1 Ray is a shareholder of Small Biz Company (SBC).When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.

Question 61

Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is

A)a natural person.
B)a tangible thing.
C)an artificial person.
D)a virtual presence.

Question 62

Ben incorporates his app products business as Clickology, Inc. Under most state corporation statutes, Clickology can have

A)only a finite, yet-to-be-determined existence.
B)only a one-year, nonrenewable existence.
C)only a one-year, renewable existence.
D)perpetual existence.

Question 63

Dante and Eden want to form and do business as Farm-to-Fork Restaurant Corporation. Its existence depends generally on

A)city or county corporate codes.
B)the Entrepreneur's Corporate Handbook.
C)the federal Administrative Procedure Act.
D)state law.

Question 64

Bread & Brews, Inc., files its articles of incorporation with the appropriate government agency. Least likely to appear in the articles is the name of

A)each of the corporation's incorporators.
B)each of the corporation's shareholders.
C)the corporation.
D)the corporation's initial registered agent.

Question 65

A firm named Biometric Research Corporation makes an attempt to incorporate for a purpose other than making a profit. Biometric is

A)a foreign corporation.
B)an alien corporation.
C)a nonprofit corporation.
D)not a corporation.

Question 66

Miracle Mobile Devices, Inc., is a private, for-profit corporation that is owned by five shareholders who are members of the same family. Miracle is

A)a publicly traded corporation.
B)a close corporation.
C)a nonprofit corporation.
D)none of the choices.

Question 67

Tech Talent & Personnel, Inc., is a corporation. Tech Talent's implied powers enable it to

A)none of the choices.
B)depart significantly from traditional corporate formalities.
C)bind the corporation to an action that will greatly affect its purpose.
D)borrow and lend funds.

Question 68

Rita and Susan want to form and do business as Trips & Travel Agency, Inc. They will serve as the firm's directors and officers, and will initially hold all of the stock in the company. A corporation is owned by

A)the board of directors.
B)the officers.
C)the employees.
D)the shareholders.

Question 69

Rob owns Solar Fuel Corporation. Rob uses Solar Fuel's funds to pay his personal expenses, creates Thermal Power Corporation to engage in the same business as Solar Fuel, transfers Solar Fuel's assets to Thermal Power, and petitions Solar Fuel into bankruptcy. This most likely warrants

A)a bonus to Rob for financial maneuvers.
B)a discharge for Solar Fuel in bankruptcy.
C)a pierce of the corporate veil.
D)a review of Thermal Power's articles of incorporation.

Question 70

Mitch is a director and officer of Numero Uno, Inc. Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduciary duty to the corporation. What is Mitch's best defense against this accusation? Later, the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation. Mitch is a director and shareholder of One-of-a-Kind. What is Mitch's responsibility in this situation?

Question 71

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

Question 72

Lewis is a director of Mines & Refineries, Inc. Using information that is not available to the public, Lewis makes a profit trading in Mines & Refineries stock. Lewis is most likely liable for breach of

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