Deck 19: Corporations

Question 1

Better Built Storage Buildings,Inc.wants to incorporate in Delaware but has no office there.It must:

A) open an office so it has an official address in Delaware where the Secretary of State can contact the business.
B) hire a registered agent to serve as its official presence in Delaware.
C) incorporate only where it actually does business so anyone who wants to sue the corporation can serve the complaint in-state.
D) give the Secretary of State of Delaware the address and phone number of its corporate office and a list of its top executives so the Secretary of State of Delaware can make sufficient contact out of state.

Answer 1

B

Question 2

The shareholders decide how much directors will be paid since the Model Act prohibits directors from setting their own compensation.

Answer 2

False

Question 3

Shyff decided to incorporate his business under the name of "Zamm." In addition to "Zamm," the Model Act requires that Shyff include one of the following words: "corporation," "incorporated," "limited," or "company" or an abbreviation thereof.

Answer 3

True

Question 4

When establishing takeover defenses,shareholder welfare must be the board's primary concern.

Question 5

Under corporate law,a corporation's official statement of purpose as "to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Idaho" is too broad.A corporation's purpose must be more narrowly defined.

Question 6

Sara decided to incorporate her business under the name Loro,Inc.Before Loro was incorporated,Sara signed a contract in the name of Loro,Inc.to lease a storefront.Sara did not tell the other party that Loro was not yet formed.Sara is personally liable on the lease.

Question 7

A business corporation can only be incorporated under state law.

Question 8

Defining a corporation with such information as the corporate name,the number and type of authorized shares of stock,identification of the purpose and the agent,is done through the:

A) charter.
B) articles of incorporation.
C) certificate of organization.
D) All of the above. All of these terms are used to identify the same document.

Question 9

Laurie is incorporating her business.The business's home state is Wisconsin.Business will be conducted in California,Michigan,Pennsylvania,and Virginia.Laurie:

A) must incorporate the business in Wisconsin, the home state.
B) must incorporate the business in Wisconsin, California, Michigan, Pennsylvania, and Virginia.
C) must incorporate in Delaware.
D) can incorporate the business in any state.

Question 10

Owners of preferred stock typically have a preference in liquidation.

Question 11

After a new corporation adopts a contract that was signed by the promoter before the corporation was actually formed,the corporation is liable on the contract and the promoter no longer has any liability on the contract.

Question 12

Shareholders have the authority to manage the corporate business.

Question 13

Terminating a corporation is a three-step process: dissolution,winding up,and termination.

Question 14

Foster,Asher,and Jefferies are the incorporators of Moreland,Inc.They will elect the first set of directors.

Question 15

A corporate charter is filed with:

A) a state's Secretary of State office.
B) a state's Treasury and/or Revenue Division.
C) the United States Department of Commerce.
D) All the above.

Question 16

The "business judgment rule" has been abandoned in most states.

Question 17

Larry has owned $5,000 of stock in E-prise,Inc.for the past 18 months.Under SEC rules,Larry can require that one proposal be placed in the company's proxy statement to be voted on at the shareholder meeting.

Question 18

Casey decided to incorporate her business under the name yStar Inc.Before yStar was incorporated,Casey signed a contract in the name of yStar,Inc.to have some office space remodeled.Which statement is correct?

A) yStar is liable on the contract because the contract was signed in its name.
B) yStar becomes liable on the contract as soon as it is incorporated.
C) yStar is liable on the contract if the contractor knows that the corporation does not yet exist.
D) yStar will be liable on the contract only if the corporation adopts the contract.

Question 19

The Williams Act regulates tender offers only if the target company's stock is publicly traded.

Question 20

A derivative lawsuit is filed by the directors on behalf of the corporation against third parties who have committed wrongful acts and/or breaches of contract.

Question 21

Moreno is the CEO and Dalton is the CFO of the Sells Corporation,a public corporation which has been in business for eight years.Moreno and Dalton failed to personally certify the company's financial statements.Under the Sarbanes-Oxley Act:

A) Moreno and Dalton are subject to criminal penalties.
B) Moreno, but not Dalton, is subject to criminal penalties.
C) Dalton, but not Moreno, is subject to criminal penalties.
D) there are no consequences, since the Act does not apply to Sells Corporation.
E) Moreno and Dalton may be requested to certify the statements, but there are no civil or criminal penalties for their failure to do so.

Question 22

Maureen,a shareholder of Metra,Inc.,was unhappy with how the corporation was being managed.Maureen wanted to be a member of Metra's board of directors.Which statement is correct?

A) If Maureen owns at least 1 percent or $2,000 of Metra's stock, she can require the company to include her name as a candidate for the board of directors in its proxy statement.
B) If Maureen has a proper purpose, she can require the company to include her name as a candidate for the board of directors in its proxy statement.
C) If Maureen can show cause, she can require the company to include her name as a candidate for the board of directors in its proxy statement.
D) Maureen cannot require that the company put her name in the proxy statement; she must prepare and distribute her own proxy.

Question 23

Which of the following is not true in applying the Williams Act?

A) An individual or group acquiring more than 5 percent of a company's publicly traded stock must file a public disclosure document with the SEC.
B) A bidder must keep a tender offer open for at least 30 business days initially.
C) If any substantial change is made in the terms of the tender offer, it must be kept open for at least ten business days following the change.
D) Any shareholder may withdraw acceptance of the tender offer at any time while the offer is still open.

Question 24

If a court determines a manager's corporate decision amounted to self-dealing:

A) the business judgment rule will not apply.
B) the transaction being challenged will be automatically voided.
C) the manager is automatically personally liable to the corporation.
D) All the above.

Question 25

Who establishes executive compensation?

A) The board of directors.
B) The shareholders.
C) The officers themselves.
D) An independent CPA firm.

Question 26

Fashions,Inc.has 52 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?

A) None.
B) One.
C) Two.
D) Five.

Question 27

The proceeds,if any,of a derivative lawsuit go to:

A) the shareholders of the corporation.
B) the shareholders who actually filed the lawsuit.
C) the board of directors.
D) the corporation.

Question 28

Jenny is an officer of a corporation.She made a difficult business decision.When challenged about her decision,the court ruled she had acted in good faith and that the business judgment rule applied.As such:

A) Jenny will not be held personally liable for a decision that results in money losses to the company.
B) Jenny's decision will be reviewed by a court.
C) Jenny is immune from a lawsuit.
D) Jenny must resign from the board.

Question 29

To be successful in a court challenge regarding an executive's compensation,shareholders must prove that:

A) the board was grossly uninformed before it set the compensation amount.
B) the executive's performance caused the business to become unprofitable.
C) the amount of the executive's compensation was too high in relation to the compensation of the typical employee within the company.
D) the compensation level is not in the company's best interests.

Question 30

Which of the following is correct concerning anti-takeover efforts?

A) Most states have passed laws to deter hostile takeovers, but these statutes have not totally eliminated hostile takeovers.
B) Federal statutes have been more effective than state statutes in eliminating hostile corporate takeovers.
C) The most effective federal statute has been the Poison Pill Act.
D) Both (b) and (c) are correct.

Question 31

Shareholder proposals on the company proxy statement:

A) must be stated in the form of a request or recommendation according to SEC rules.
B) may only be implemented by the company if they receive support from at least a simple majority of the shareholders.
C) are, in about half of the cases, withdrawn before a vote because the company decides to implement the proposal.
D) may address only corporate-governance issues, such as cumulative voting or executive compensation, but may not address the shareholder's political agenda, such as saving the environment.

Question 32

For the business judgment rule to apply:

A) there must be a conflict of interest.
B) the director must exercise extraordinary care.
C) the director must act in the best interests of the corporation.
D) All of the above.

Question 33

What is meant by the term "piercing the corporate veil"?

A) Corporate directors and/or officers may be held personally liable to a person damaged by an act of the corporation.
B) Corporate shareholders may be held personally liable to a person damaged by an act of the corporation.
C) Both of the above.
D) None of the above.

Question 34

Alex is on the board of directors of Computers Plus.Computers Plus is looking for a warehouse to purchase.Alex owns a warehouse.In order for Alex to sell his warehouse to Computers Plus:

A) the transaction must be fair to both Alex and Computers Plus.
B) the disinterested members of the board of directors may approve the transaction.
C) he must resign his position on the board of directors of Computers Plus before any negotiations for the warehouse begin.
D) a court must review the opportunity to determine its favorability.

Question 35

In the late 1960s a shareholder of the company that owned the Chicago Cubs baseball team sued the company because the directors refused to install lights in Wrigley Field.The court decided that the directors:

A) had a rational purpose for not installing lights and were not liable for doing anything improper.
B) were not protected by the business judgment rule.
C) had not acted with any rational purpose and were liable to its shareholders for damages caused by their actions.
D) None of the above.

Question 36

Corporate debt:

A) must be described and authorized in the corporate charter.
B) may include debentures, which are long-term unsecured debt.
C) may include bonds, which are short-term secured debt.
D) may include notes, which are typically payable between five and ten years from their issuance.

Question 37

MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called:

A) authorized and unissued.
B) authorized and issued.
C) treasury stock.
D) repurchased stock.

Question 38

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

A) cannot sell that many shares unless they were authorized initially in the corporate charter.
B) can sell as many shares as the market will bear.
C) are limited by the number of shares authorized in the corporate charter, but this number can be increased by amending the charter and paying a fee.
D) can sell the shares only if the shares have a par value which is close to the current market price.

Question 39

The business judgment rule:

A) permits directors to do their job.
B) keeps judges out of corporate management.
C) encourages directors to serve.
D) accomplishes all of the above goals.

Question 40

A board of directors is considering whether to invest a great deal of money into research and development.Such a decision could have a long-term beneficial effect for the company's future.As an alternative,the board could forego the expenditure into research and development and buy back its own shares in order to immediately increase the company's reserves.Which of the below groups would most likely favor the option to increase the company's reserves and not invest in more research and development?

A) Management.
B) Shareholders.
C) Stakeholders other than the shareholders.
D) Each of the above groups would probably feel the same way.

Question 41

One of the directors of Independent Pallet Mill purchases 100 acres of timberland.In order for him to sell the timber from this land to Independent,what must he do? If he does not act properly in this situation,what duty would he violate,and what would be the result?

Question 42

Discuss how a corporation is terminated.

Question 43

Identify four circumstances that might persuade a court to pierce the corporate veil.

Question 44

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

Question 45

Discuss how the Sarbanes-Oxley Act affects Haletronne Co.,a publicly traded corporation.