Deck 36: Corporate Formation and Financing

Question 1

A publicly held corporation is one that is owned by a few shareholders who are often family members,relatives,or friends.

Answer 1

False

Question 2

The concept of centralized management indicates that the management of the corporation is separated from the ownership of the corporation.

Answer 2

True

Question 3

Nonprofit corporations can be formed only for certain purposes.

Answer 3

True

Question 4

Corporations must be incorporated in the states in which they do most of their business.

Question 5

A corporation formed for scientific purposes would be a profit corporation.

Question 6

Professional corporations in some states do not provide limited liability with respect to the professional malpractice of other shareholders.

Question 7

Shareholders are elected by the board of directors so that they can make policy decisions.

Question 8

A corporation's existence is not affected by the death or insanity of a shareholder.

Question 9

A corporation cannot be established that has a fixed termination date.

Question 10

Corporations exist in perpetuity unless a specific duration is stated in the corporation's articles of incorporation.

Question 11

A state may require a foreign corporation to "qualify" in that state before the corporation may do business within that state.

Question 12

Corporations are the most dominant form of business organization in the United States.

Question 13

A corporation is a domestic corporation in the state in which it is incorporated.

Question 14

A corporation can sue or be sued in its own name.

Question 15

The Revised Model Business Corporation Act is a federal statute effecting corporations.

Question 16

Most corporations are private.

Question 17

Shareholders have unlimited liability that can exceed the extent of their capital contributions.

Question 18

Park districts may be formed as corporations.

Question 19

The law governing the formation and operation of corporations is all at the state level.

Question 20

Shareholders that are involved in the management of a corporation are most likely involved in a closely held corporation.

Question 21

The articles of incorporation must be approved by the state before the corporation can officially come into existence.

Question 22

Corporations generally become bound to promoters' contracts as soon as the corporation is formed.

Question 23

A corporation can be formed for "any lawful purpose."

Question 24

The liquidation preference of preferred stock means that preferred shareholders receive more in the event of a corporation's liquidation.

Question 25

A promoter can be held liable on a contract entered into on behalf of a corporation that is not yet formed.

Question 26

A corporation's articles of incorporation and bylaws must be filed with the appropriate state agency.

Question 27

A novation is frequently used to transfer liability on contracts from promoters to the corporation that they have formed and to release the promoter from liability.

Question 28

The procedure for incorporating a corporation is the same in every state.

Question 29

An alien corporation is a corporation that does business in a state other than the one in which it is incorporated.

Question 30

Preferred stock generally pays a higher rate of return than common stock.

Question 31

A note is a debt security that has an original maturity of 5 years or less.

Question 32

The bylaws of a corporation must be filed with the appropriate government official.

Question 33

Every corporation must have a registered office and registered agent and these must be identified in the articles of incorporation.

Question 34

A corporation must generally choose a state for incorporation where it has a business presence.

Question 35

Preferred stockholders have limited liability just like common stockholders.

Question 36

Convertible preferred stock is stock that can be converted to stock of another corporation.

Question 37

Under certain circumstances,a corporation can elect to be taxed similarly to a partnership.

Question 38

The bylaws must be adopted at the organizational meeting of the initial board of directors.

Question 39

The board of directors,as well as the shareholders,has the right to amend the bylaws of a corporation.

Question 40

A debenture is a long-term secured debt instrument.

Question 41

Which of the following is true?

A) Foreign corporations and alien corporations both refer to corporations incorporated in other nations.
B) Foreign corporations are corporations that are formed in other nations originally,but are now incorporated in the local state.
C) Alien corporations are corporations that are incorporated in other nations,and foreign corporations are corporations that are incorporated in other states.
D) The law of most states usually treats alien corporations and foreign corporations differently.

Question 42

A private corporation is one which:

A) has a small number of owners who are often members of the same family
B) does not prepare financial statements
C) is owned by private entities
D) does not make public disclosure of information

Question 43

Termination only occurs after the winding up of the corporation's affairs.

Question 44

A foreign corporation is one that:

A) is incorporated in another state
B) is incorporated in another country
C) is incorporated in one state,but does business in other states
D) is incorporated in one state,but does business in other nations

Question 45

If a corporation is properly incorporated in one state and wants to do business in a second state,the corporation:

A) must incorporate in the second state
B) must do nothing because being incorporated in one state entitles the corporation to do business in all states
C) register with the Interstate Commerce Commission
D) may be required to obtain a certificate of authority from the second state

Question 46

An ultra vires act will generally cause dissolution of the corporation.

Question 47

The uniform law,issued in 1984 by the Committee on Corporate Laws of the American Bar Association,that regulates the formation,operation,and termination of corporations is:

A) the Model Business Corporation Act
B) the Uniform Commercial Code
C) the Revised Model Business Commercial Code
D) the Standard Incorporation Act

Question 48

A "closely held corporation" is a corporation that is owned by:

A) a large number of members of the public
B) the government
C) doctors,lawyers,or other professionals
D) a few shareholders,usually family members
E) a nonprofit organization

Question 49

A professional corporation is one that:

A) is formed with the assistance of a lawyer
B) has been in existence long enough to reasonably assure that it will be profitable in the near future
C) is typically used as a form of doing business by doctors and lawyers
D) does not have shareholders

Question 50

Which of the following is not true about promoters of a corporation?

A) A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if,after the corporation is formed,the third party agrees to a novation.
B) A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if,at the time the contract is entered into,the third party agrees to a novation to occur automatically upon the valid creation of the corporation.
C) The creation of the corporation does not automatically release the promoter from contracts entered into on behalf of the corporation.
D) If the corporation fails to come into existence,the promoter cannot be held liable on a contract entered into on behalf of the corporation.

Question 51

Corporations' express powers come from both federal and state statutes,among other sources.

Question 52

A voluntary dissolution of a corporation generally requires approval by a majority of the shares entitled to vote.

Question 53

What makes a publicly held corporation different from a public corporation?

A) A publicly held corporation has many shareholders rather than being a corporation owned by a governmental entity.
B) A publicly held corporation is entitled to limited liability,but a public corporation is not.
C) A publicly held corporation must have a charitable purpose,but a public corporation need not have a charitable purpose.
D) They are two terms that have the same meaning.

Question 54

Corporations formed under general incorporating laws may engage in businesses such as banking,insurance,and the operation of public utilities.

Question 55

Which of the following is not a characteristic of a corporation?

A) unlimited liability of owners
B) free transferability of shares
C) perpetual existence
D) centralized management

Question 56

A promoter enters into a contract on behalf of a proposed corporation.The corporation has not yet come into existence.Which of the following statements best describes the promoter's liability on this contract?

A) If the corporation never comes into existence,the promoter will be liable on this contract.
B) Once the corporation comes into existence,the promoter is automatically released from this contract.
C) If a novation occurs,the promoter is released from this contract.
D) Even if the corporation is never formed,the promoter is not liable on this contract.
E) both A and C

Question 57

When a promoter enters into a contract on behalf of a corporation that is not yet formed,the corporation will become liable on the contract:

A) at the time the promoter enters into the contract
B) when the corporation comes into existence
C) once the corporation has elected its initial board of directors
D) only if the corporation,once formed,agrees to be liable on the contract
E) only in the case of a novation

Question 58

A nonprofit corporation is:

A) any corporation that has never made a profit
B) any corporation that does not intend to make a profit
C) a corporation formed for charitable,educational,religious,or scientific purposes that cannot make a profit
D) a corporation formed for charitable,educational,religious,or scientific purposes that can make a profit,although any profit may not be distributed to its members,officers,or directors

Question 59

Implied powers are nonexistent in terms of accomplishing a corporate purpose.

Question 60

The dissolution of a corporation impairs all rights and remedies available against the corporation or its directors,or officers,or shareholders.

Question 61

The bylaws of a corporation:

A) take precedence over the articles of incorporation
B) must be filed in the appropriate state office
C) are not binding on the officers and directors of the corporation
D) govern the internal management of the corporation and typically would include the time and place of the annual shareholders' meeting

Question 62

Which of the following is true about the registered agent of a corporation?

A) The registered agent is the chief promoter in the formation of the corporation.
B) The registered agent is the entity designated to receive service of process on behalf of the corporation.
C) The registered agent must be an individual person.
D) The registered agent is the party authorized to enter into contracts on behalf of the corporation.
E) The registered agent is the corporation's outside legal counsel.

Question 63

Which of the following numbers of shares could properly exist in a corporation?

A) 100,000 authorized,90,000 issued,and 80,000 outstanding
B) 100,000 authorized,90,000 outstanding,and 80,000 issued
C) 100,000 issued,90,000 outstanding,and 80,000 authorized
D) 100,000 outstanding,90,000 issued,and 80,000 authorized
E) A or C

Question 64

The City of Maysville has formed a separate corporation to operate the water system for the city.This corporation is best described as what type of corporation?

A) public
B) private
C) profit
D) nonprofit
E) closely held

Question 65

A corporation can be dissolved:

A) by the board of directors with shareholder approval
B) by the secretary of state for certain failures by the corporation
C) through a judicial proceeding
D) All of these are correct.

Question 66

In order to be effective,shareholder approval for an amendment to the articles is needed:

A) for all amendments
B) only for amendments that are not filed
C) for all amendments except those not affecting the rights attached to shares of stock
D) only for amendments that the board does not approve

Question 67

Which of the following best describes how a corporation,which has not made any special tax elections,and its shareholders,are taxed?

A) The corporation is not taxed,but the shareholders are taxed on their dividends.
B) The corporation is taxed,but the shareholders are not taxed on their dividends.
C) The corporation is taxed,and the shareholders are taxed on their dividends.
D) Neither the corporation nor its shareholders are taxed.
E) They are taxed as a partnership is taxed.

Question 68

The first meeting of the board of directors after the bylaws are filed is called the:

A) promoters' meeting
B) adoption meeting
C) initiation meeting
D) organizational meeting
E) novation meeting

Question 69

Corporations receive powers from which of the following sources?

A) state constitutions
B) the articles of incorporation
C) bylaws
D) B and C only
E) A,B,and C

Question 70

The DEF Corporation is incorporated in Texas.It wishes to do business in Oklahoma.Before DEF can legally do business in Oklahoma,which of the following must it do?

A) Nothing; DEF automatically has a constitutional right to do business in Oklahoma.
B) DEF must incorporate in Oklahoma.
C) DEF must qualify (register) to do business in Oklahoma.
D) DEF must domicile itself in Oklahoma.
E) Since DEF is a Texas corporation,it cannot do business in Oklahoma.

Question 71

If preferred stock is "participating," this means that the preferred shareholders:

A) are entitled to share,to some extent,in dividends over and above the stated dividend on the preferred stock
B) are entitled to vote along with common shareholders
C) have an absolute right to receive their dividends
D) are part of the management of the corporation
E) are not entitled to preference in receiving dividends

Question 72

Jill invests $1,000 to buy 10 shares of Good Corporation.The corporation goes bankrupt having no assets and $1 million in liabilities.The most Jill can lose is the $1,000 she invested.This is an example of the corporate characteristic of:

A) limited liability
B) free transferability of shares
C) perpetual existence
D) centralized management
E) double taxation

Question 73

Which of the following would not be a typical item of business at the organizational meeting of a corporation?

A) adoption of bylaws
B) election of corporate officers
C) selection of promoters
D) authorizing the issuance of shares of stock
E) choosing an auditor

Question 74

Generally,in order to adopt an amendment to the articles of incorporation of an existing corporation,what must be done?

A) The shareholders must vote in favor of the amendment.
B) The promoters must file the amendment in the state of incorporation.
C) The board of directors must adopt a resolution recommending the amendment and the shareholders must vote to approve the amendment.
D) The board of directors must adopt a resolution approving the amendment.
E) The board of directors must vote on the amendment as provided in the bylaws.

Question 75

Which of the following statements is true?

A) The number of shares provided for in the articles of incorporation is called authorized shares.
B) A corporation may not repurchase its own shares after they have been issued.
C) A corporation may vote its treasury stock.
D) The corporation must sell all of the authorized stock.

Question 76

The person empowered by the corporation to receive notice of lawsuits against it is called the:

A) incorporator
B) promoter
C) registered agent
D) president
E) director du jour

Question 77

Which of the following generally does not need to be included with the articles of incorporation?

A) the period of duration of the corporation
B) the classes and preferences of stock
C) whether preemption rights are given to the stockholders
D) a copy of the bylaws
E) the names of the incorporators

Question 78

If a corporation commits an ultra vires act,which of the following is not an available remedy?

A) The shareholders may sue for an injunction prohibiting the act.
B) The shareholders may sue the officers and/or directors for damages.
C) The state attorney general may bring criminal charges against the officers and/or directors.
D) The state attorney general may sue to dissolve the corporation.

Question 79

In a corporation,out of the number of shares authorized,the number outstanding,and the number issued,which must be at least as large as the other two?

A) issued
B) outstanding
C) authorized
D) None of these are correct.

Question 80

What is the significance of the term "preferred" in reference to preferred stock?

A) It is viewed to generally be a better investment than common stock.
B) Preferred stockholders usually have better voting rights than common stockholders.
C) Preferred stockholders receive preference over creditors of the corporation in the event of liquidation.
D) Preferred stockholders receive certain preferences over common stockholders with respect to dividends or with respect to assets in the event of liquidation.
E) Only shareholders owning a certain minimum amount of common stock are entitled to purchase preferred stock.