Deck 39: Corporate Formation and Financing

Question 1

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

Answer 1

True

Question 2

Preferred stock is an equity security with preferences.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

The registered agent is the person who can receive legal punishment (such as fines and imprisonment) on behalf of the corporation.

Question 5

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

Question 6

The Revised Model Business Corporation Act gives a close corporation less flexibility in determining its rules of operation.

Question 7

Bonds represent the borrowing of funds by firms.

Question 8

A foreign corporation normally does not need a certificate of authority to sell goods or services via the Internet or by mail.

Question 9

The corporation is a creature of the common law.

Question 10

A court will pierce the corporate veil of a corporation that is formed to evade an existing legal obligation.

Question 11

The alter-ego theory is applied when a corporation is so dominated and controlled by an individual or group that the separate identities of the person (or the group) and the corporation are no longer distinct.

Question 12

A corporation has perpetual existence unless the articles of incorporation state otherwise.

Question 13

When a corporation earns profits, it must pass them on to shareholders in the form of dividends.

Question 14

Voting rights in a corporation apply only to the election of the firm's board of directors.

Question 15

There are no important consequences if the procedures for incorporation are not followed precisely.

Question 16

A publicly held corporation is any corporation whose shares are publicly traded in a securities market.

Question 17

The state can suspend the entity's corporate status until the taxes are paid or even dissolve the corporation for failing to pay taxes.

Question 18

Preferred stock is included among the liabilities of a business because it is equity.

Question 19

In the absence of express constitutional, statutory, or other provisions, the corporation has no implied powers.

Question 20

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

Question 21

Urban Commerce, Inc., issues bonds, which are also known as

A) cumulative investments.
B) fixed-income securities.
C) equity securities.
D) preferred stock.

Question 22

Dollars & Sense, Inc., is incorporated in the state of New Jersey and is doing busi?ness 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 23

The shares of Home Mortgage Corporation are publicly traded in securities mar?kets. Home Mortgage Corporation is

A) a close corporation.
B) a privately held corporation.
C) a public corporation.
D) a publicly held corporation.

Question 24

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

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

Question 25

Bay City Merchants Corporation has six shareholders, four of whom are members of the same family. All of Bay City's shareholders agree in writing to operate without shareholders' meetings. Under the Revised Model Business Corporation Act, this most likely warrants

A) no penalties or sanctions.
B) the imposition of a fine on Bay City.
C) the imprisonment of Bay City's shareholders.
D) the piercing of Bay City's corporate veil.

Question 26

Memphis Music Makers Inc.'s stated purpose is to sell musical instruments. If chief executive officer Neal contracts with Open Season Firearms in Memphis Music's name to sell a shotgun, he has likely committed

A) an ultra vires act.
B) a de facto act.
C) a de jure act.
D) a legal act.

Question 27

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

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

Question 28

Blair and Chanel are holders of common stock in Discount Retail Stores, Inc. Like other holders of common stock, they have a residual position in the overall financial structure of Discount Retail, because they

A) are guaranteed to receive more than the amount of their investment.
B) are the last to receive returns for their investment.
C) have priority to the firm's assets if it becomes in?solvent.
D) reside in the state of the firm's incorporation.

Question 29

The abbreviation "P.A." in the name "Conrad & Drake, Accountants, P.A." means that this organization is

A) a private association.
B) a professional association.
C) a public association.
D) a publicly administered corporation.

Question 30

Tech Personnel, Inc., is a corporation. Tech Personnel'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 funds and lend funds.

Question 31

Boutique Bodega Corporation would like to change its corporate status to that of an S corporation to avoid in?come taxes at the corporate level. To qualify, the shareholders must not be

A) corporations.
B) estates.
C) individuals.
D) partnerships.

Question 32

Deepwater Dredging & Excavation holds itself out to others as being a corporation but makes no attempt to incorporate. Estuary Marina signs a contract with Deepwater that is not performed. 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) ultra vires.

Question 33

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 34

Miracle Mobile Devices, Inc., is a private, for-profit corporation that (1) was formed for the purpose of manufactur?ing and distributing a newly pat?ented tablet, (2) is owned by five share?holders, (3) is subject to double taxation, and (4) has made no public offering of its shares. Miracle is

A) an S corporation.
B) a close corporation.
C) a nonprofit corporation.
D) a professional corporation.

Question 35

Like the bylaws of other corporations, the bylaws of Equipment Leasing, Inc.,

A) establish the operating name of the corporation.
B) establish the value and classes of corporate stock.
C) were adopted at its first organizational meeting.
D) were submitted for approval to the public official in charge.

Question 36

Neci and Olwen want to form and do business as a corporation-Pastries & Pies Inc. A corporation is a legal entity created and recognized by

A) a central federal administrative agency.
B) a city or county clerk's office.
C) an artificial legal person.
D) state law.

Question 37

Rhys owns Solar Fuel Corporation. Rhys 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 Rhys 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 38

Hudson and Ilka 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) a C corporation.
B) a close corporation.
C) an S corporation.
D) a private corporation.

Question 39

Qiara is a holder of preferred stock in Rio Grande Irrigation & Development, Inc. Qiara 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 40

Demario and Evander want to form and do business as a corporation-Farm-2-Fork Restaurant Inc. A corporation is

A) a natural being.
B) a tangible thing.
C) an artificial person.
D) ultra vires.

Question 41

Dennis is a promoter for the soon-to-be-incorporated firm of eBroadcast Sports, Inc. Dennis signs a contract with Fitz & Geraldo, Accountants, to render their services before eBroadcast Sports is incorporated and for one year after the in?corporation. eBroadcast Sports is incorporated. Three months later, after Fitz & Geraldo has continued performing under the contract, the eBroadcast Sports board of directors tells the accountants that it is canceling their con?tract. Fitz & Geraldo files a suit against Dennis and eBroadcast Sports, alleging breach of contract. Will Fitz & Geraldo prevail?

Question 42

Fitness Workout, Inc., is a small business. Siblings Grady and Heidi, and nine other members of their family, own all of its stock. Currently, the firm's income is taxed at the corporate level and, after being distributed to the family members, at the shareholder level. Can Fitness Workout retain its corporate status but oth?er?wise avoid this double taxation? If so, how?