Deck 37: Corporate Formation and Financing

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

A corporation is recognized under U.S. law as a person.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

A business firm whose shares are held by a single person may be a sole proprietorship, but it cannot a corporation.

Question 9

A shareholder in a professional corporation generally cannot be held liable for malpractice by other professionals at the firm.

Question 10

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

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 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 13

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

Question 14

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 15

In many states, close corporations have more flexibility in determining their rules of operation.

Question 16

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 17

A benefit corporation is designed to make a profit and thereby provide long-term shareholder benefit.

Question 18

The implied powers of a corporation can be found in the state and federal constitutions.

Question 19

Like the partners in a partnership, the shareholders in a corporation cannot change without affecting the continued existence of the firm.

Question 20

A corporation whose shares are held by relatively few persons is a close corporation .

Question 21

When a shareholder commingles personal and corporate interests so that the firm has no separate identity, the shareholder may be held liable for the firm's debts.

Question 22

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

Question 23

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 24

A de jure corporation is one that is formed to accomplish a single purpose within a limited time.

Question 25

Common stockholders and preferred stockholders benefit when the market price of the stock increases.

Question 26

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

Question 27

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 28

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 29

The primary document needed to incorporate a business is the articles of incorporation-the primary source of authority for the firm's organization and functions.

Question 30

Issuing securities is the only way for a new corporation to raise capital.

Question 31

Because bonds do not represent debt, they need never be repaid.

Question 32

Because corporate officers have the implied power to bind the firm in matters directly connected to its business, there is no limit to what the officer can do.

Question 33

The day-to-day operations of a corporation are overseen by

A)the directors.
B)the officers.
C)the owners.
D)the shareholders.

Question 34

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 35

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

Question 36

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

Question 37

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 38

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

Question 39

A corporation is

A)a natural being.
B)a tangible thing.
C)an artificial legal person.
D)a non-entity.

Question 40

The primary document needed to incorporate a business is the bylaws-the primary source of guidelines for the firm's management and operation.

Question 41

Most likely to appear in the articles of incorporation are the names of the company's initial

A)officers and employees.
B)shareholders and creditors.
C)market and competitors.
D)registered office and agent.

Question 42

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 43

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 44

Local Oil Inc. is a private, for-profit corporation that is owned by five shareholders who are members of the same family. Mace, the majority shareholder, misappropriates company funds. The shareholders whose interests are injured by Mace's misconduct should

A)have their shares appraised and be paid the fair market value for them.
B)promote the transferability of the company's shares to outside persons.
C)reorganize the firm into a sole proprietorship or partnership.
D)hold a special shareholders' meeting to elect new directors.

Question 45

Precision Pipe Inc.'s stated purpose is to install plumbing. Precision Pipe contracts with Quality Contracting to pour a new building's foundation despite lacking the skill and license to do such 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 46

Any corporation whose shares are publicly traded in securities markets is

A)a benefit corporation.
B)a private corporation.
C)a public corporation.
D)a publicly held corporation.

Question 47

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 48

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 49

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 50

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 51

The primary document needed to incorporate a business is

A)the website of the secretary of state of the state of incorporation.
B)the minutes of the first organizational meeting.
C)the articles of incorporation.
D)the bylaws.

Question 52

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

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

Question 53

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 54

Robotics Inc. is a corporation. Its express powers can be found in

A)all of the choices.
B)its articles of incorporation.
C)the law of the state of incorporation.
D)the state and federal constitutions.

Question 55

An S corporation avoids taxes at

A)none of the choices.
B)the market level.
C)the corporate level.
D)the shareholder level.

Question 56

Cattle Ranch Inc. is a for-profit corporation that is owned by six shareholders who are members of the same family. Cattle Ranch is

A)an S corporation.
B)a close corporation.
C)a benefit corporation.
D)a public corporation and a private corporation.

Question 57

The first step in the incorporation of a business firm is to

A)identify the appropriate market and adopt a business plan.
B)select the state of incorporation.
C)secure promises of financial support from potential investors.
D)hold the first organizational meeting.

Question 58

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 59

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 60

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 61

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 62

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 63

How many directors serve on a corporation's board can be set forth in the corporation's bylaws.

Question 64

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 65

Corporate bonds

A)represent the true ownership of a corporation.
B)have priority over holders of common stock as to payment of dividends.
C)require a corporation to remain profitable until maturity.
D)provide a proportionate interest in a corporation with regard to control.

Question 66

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

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

Question 67

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 68

Funds invested in an existing corporation to buy and reorganize it, and possibly sell shares in the reorganized company in an initial public offering, are known as

A)preferred shares of corporate stock.
B)private equity capital.
C)crowdfunds.
D)corporate bonds.

Question 69

The initial board of directors of a corporation is normally appointed by the incorporators when the corporation is created.

Question 70

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 71

Every corporation is governed by a committee of managerial employees.

Question 72

Quorum requirements vary among jurisdictions.

Question 73

Medical and investment professionals network and pool funds to invest in Medical Online Consult Inc. This is

A)venture capitalizing.
B)crowdfunding.
C)piercing the corporate veil.
D)ultra vires .

Question 74

PrimarySource.com Corporation is a new online educational-resource business. How can PrimarySource.com obtain capital to finance its operations?

Question 75

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

Question 76

Agents and employees of Deco Arts Corporation and Echo Imitations Inc. are convicted of conspiring to violate a federal law that is punishable by a term of imprisonment and a fine. Can the corporations be held liable for these crimes? If so, how can they be punished?

Question 77

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 78

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 79

The board of directors conducts business by holding formal meetings with recorded minutes.

Question 80

When it comes to managing a corporation, the corporation relies on its board of directors and officers.