Deck 24: Corporate Formation, financing, and Termination

Question 1

Usually,a private equity firm buys an entire corporation and may later reorganize it as a publicly held corporation.

Answer 1

True

Question 2

A corporation is liable for the torts committed by its officers within the course and scope of their employment.

Answer 2

True

Question 3

Stocks represent the borrowing of funds by firms.

Answer 3

False

Question 4

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

Question 5

To pierce the corporate veil means to ignore the corporate structure,exposing the shareholders to personal liability.

Question 6

Normally,corporate shareholders are personally liable for the obligations of the corporation.

Question 7

Common stock provides a proportionate interest in the corporation with regard to control.

Question 8

A merger involves the legal combination of two or more corporations,only one of which continues to exist.

Question 9

After a consolidation,there is only one surviving corporation.

Question 10

A close corporation cannot operate as an S corporation.

Question 11

A corporate director is the owner of the corporation.

Question 12

A holding company is a company whose business activity consists of holding shares in another company.

Question 13

A court will not pierce the corporate veil of a corporation that is merely too "thinly" capitalized.

Question 14

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

Question 15

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

Question 16

A court will not pierce the corporate veil of a corporation that is formed merely to evade an existing legal obligation.

Question 17

Bonds represent the purchase of ownership in a business firm.

Question 18

When the corporate privilege is abused for personal benefit,the courts will require the owners to assume personal liability.

Question 19

Preferred shares normally have a fixed maturity date on which the firm must pay them off.

Question 20

Common stock provides a proportionate interest in the corporation with regard to net assets.

Question 21

When a corporation is dissolved voluntarily,the corporation must notify its creditors of the dissolution.

Question 22

Dissolution can be brought about voluntarily by the directors and shareholders of a corporation.

Question 23

Inez and Jason are the shareholders and directors of Kleen Kustodial Corporation.Lily and Moe are Kleen's officers.As in other corporations,the responsibility for the overall management of Kleen rests with

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

Question 24

Fact Pattern 24-1
Mountaintop Clearview Corporation authorizes Niles, its employee, to oversee its timber operation. In the course of his employment, Niles disposes of the operation’s waste illegally. Orson is a Mountaintop shareholder.



-Refer to Fact Pattern 24-1.With respect to Mountaintop and Niles,liability for this crime most likely rests with

A)neither Mountaintop nor Niles.
B)Mountaintop and Niles.
C)Mountaintop only.
D)Niles only.

Question 25

Federal securities laws strictly control the terms,duration,and circumstances under which most tender offers are made.

Question 26

Once a dissenting shareholder elects appraisal rights,the shareholder loses his or her shareholder status.

Question 27

Felicity and Gideon want to form and do business as Home Healthcare Corporation.A corporation is

A)a natural being.
B)a tangible thing.
C)an artificial person.
D)a visible radiance.

Question 28

Ivy and Justin want to form and do business as Kayak Adventures Corporation.A corporation can be owned by

A)natural persons only.
B)artificial persons only.
C)artificial or natural persons.
D)neither "artificial" nor "natural" persons.

Question 29

The state can bring an action to dissolve a corporation that has failed to pay its annual taxes.

Question 30

A short-form merger is the legal combination of two or more corporations online.

Question 31

In some circumstances,a shareholder may petition a court to have the corporation dissolved.

Question 32

A corporation that is selling all of its assets must obtain approval only from its board of directors.

Question 33

A corporate takeover is the process of acquiring control over a corporation by the purchase of a substantial number of the voting shares of its stock.

Question 34

Shareholder appraisal rights do not usually extend to short-form mergers.

Question 35

Fact Pattern 24-1
Mountaintop Clearview Corporation authorizes Niles, its employee, to oversee its timber operation. In the course of his employment, Niles disposes of the operation’s waste illegally. Orson is a Mountaintop shareholder.



-Refer to Fact Pattern 24-1.Liability for Niles's act most likely rests with Orson to

A)no extent.
B)the proportionate extent of the number of shares Orson owns.
C)the amount of Orson's investment in the firm.
D)the full extent.

Question 36

When a corporation is dissolved voluntarily,the corporation must file articles of dissolution with the state.

Question 37

The board of directors of each corporation involved must approve a share exchange.

Question 38

The officers employees of each corporation involved must approve a merger.

Question 39

In a share exchange,some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation.

Question 40

Generally,a corporation that purchases the assets of another corporation is automatically responsible for the liabilities of the selling corporation.

Question 41

Sullivan and Taylor want to form a corporation to provide catering services.The first step in the incorporation procedure is to

A)file the articles of incorporation.
B)hold the first organizational meeting.
C)secure a corporate name.
D)select a state in which to incorporate.

Question 42

Omega Corporation makes and markets digital timers,clocks,and related products.Like other business corpoations,Omega issues securities to

A)increase its market share.
B)obtain financing.
C)reduce its production costs.
D)safeguard its facilities.

Question 43

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

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

Question 44

A merger between Grain Mills Corporation and Farm2Fork Distribution Inc.can be expressed as Grain Mills + Farm2Fork =

A)Farm2Fork.
B)Harvest Dining Corporation.
C)Harvest Dining Corporation + EZ Brewing Company.
D)EZ Brewing Company.

Question 45

Fact Pattern 24-2
Bertram, Claudia, and Dynah form Eat Local, Inc., a closely held corporation, and agree to restrict the transfer of its stock to anyone else. The agreement provides that if one of the shareholders dies, his or her shares of stock in Eat Local will be divided to maintain the proportionate control of the survivors.

-Refer to Fact Pattern 24-2.Later,Bertram dies.With respect to the stock transfer restriction agreement,Bertram's death most likely

A)triggers the division provision.
B)invalidates the entire agreement.
C)voids the division provision only.
D)violates the entire agreement.

Question 46

The abbreviation "P.A." in the name "Painless Dental,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 47

Caffeine Café,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 48

Jen files a suit against Kopper Kettle Company.While the suit is pending,Kopper Kettle merges with Luminous Pans,Inc. ,with Luminous absorbing Kopper Kettle.Now,liability in the suit,if any,rests with

A)Jen.
B)Kopper Kettle.
C)Luminous.
D)no one.

Question 49

Superior Home Products,Inc. ,is a corporation.Superior's implied powers enable it to

A)amend the articles of incorporation.
B)bring a derivative suit.
C)declare dividends.
D)perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

Question 50

Penn files a suit against Roadway Sign Company While the suit is pending,Roadway consolidates with Synchronized Signal Corporation to form Traffic Management,Inc.Now,liability in the suit,if any,rests with

A)Traffic.
B)Roadway and Synchronized.
C)Penn.
D)no one.

Question 51

Corn Candy Corporation (CCC)has a right of action against Bio Farms,Inc.CCC merges with Agri Sweeteners,Inc. ,with Agri absorbing CCC.After the merger,CCC's right of action against Bio Farms can be exercised by

A)CCC.
B)Agri Sweeteners.
C)Bio Farms.
D)no one.

Question 52

Ridgeway Sand & Gravel Corporation and Quick-Set Paving Company combine so that all that remains after the papers have been signed is Ridgeway.This is

A)a consolidation.
B)a merger.
C)a purchase of assets.
D)a share exchange.

Question 53

Mari buys 500 shares of common stock in National Livestock Traders,Inc.As a shareholder of record,Mari owns a proportionate interest in terms of

A)control,earnings,and net assets.
B)control only.
C)earnings and net assets only.
D)neither control nor earnings and net assets.

Question 54

Fact Pattern 24-2
Bertram, Claudia, and Dynah form Eat Local, Inc., a closely held corporation, and agree to restrict the transfer of its stock to anyone else. The agreement provides that if one of the shareholders dies, his or her shares of stock in Eat Local will be divided to maintain the proportionate control of the survivors.

-Refer to Fact Pattern 24-2.A reasonable purpose for a stock transfer restriction in a closely held corporation,like the agreement between Bertram,Claudia,and Dynah,is

A)a desire to limit the participation of outsiders in the firm.
B)a goal to restrain insiders from taking advantage of their position.
C)an attempt to restrain the free flow of commerce among investors.
D)a wish to restrict the transfer of the shareholders' physical assets.

Question 55

Eager Beaver Corporation fails to hold a meeting to adopt bylaws.Under this circumstance,Eager Beaver will still be treated as a legal corporation in those states that recognize the common law doctrine of

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

Question 56

Realty Credit Company and Second Mortgage Corporation plan to consolidate.Most likely,the articles of consolidation will be filed with

A)the county recording office.
B)the Securities and Exchange Commission.
C)the state's secretary of state.
D)the U.S.Department of Justice.

Question 57

Office Company and Keen Company wish to combine all assets,stock,and personnel into a new firm to be called OK Corporation.This is

A)a consolidation.
B)a merger.
C)a share exchange.
D)a takeover.

Question 58

Wild & Scenic River Tours,Inc. ,is a corporation.Wild & Scenic has the implied power to

A)issue stocks and bonds.
B)execute contracts and negotiable instruments.
C)buy and sell (or lease)property.
D)perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

Question 59

Raw Resources Corporation authorizes Stefan,its employee,to oversee its mining operation.In the course of this employment,Stefan commits a tort.Liability for this tort most likely rests with

A)neither Raw Resources nor Stefan.
B)Raw Resources and Stefan.
C)Raw Resources but not Stefan.
D)Stefan but not Raw Resources.

Question 60

Rapid Pest Control itself out to others as being a corporation but makes no attempt to incorporate.Ponce signs a contract with Rapid Pest Control that is not performed.Ponce files a suit against the firm.The court will likely hold that Rapid Pest Control is

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

Question 61

Incredible eSales Corporation is a new Internet business.How can Incredible eSales obtain capital to finance its operations?

Question 62

Salt Corporation wants to acquire or merge with Pepper Corporation.The board and the shareholders of Pepper are resisting.Salt should

A)file a plan of merger with the secretary of state.
B)file an article of merger with Pepper.
C)make a tender offer to the shareholders of Pepper.
D)make a tender offer to the shareholders of Salt.

Question 63

Mall Stores Corporation owns 95 percent of the shares of Niche Retail Corporation.Mall Stores combines with Niche Retail,but only Mall Stores continues to exist.This transaction was

A)a consolidation.
B)a share exchange.
C)a short-form merger.
D)a termination.

Question 64

Realty Credit Company and Security Mortgage Corporation plan to consolidate.Most likely,the articles of consolidation will be filed with

A)the county recording office.
B)the local realtors' association.
C)the state's secretary of state.
D)the federal Bureau of Land Management.

Question 65

Vacation Adventures,Inc. ,and Wild River Tour Company plan to merge.Most likely,the articles of merger will be filed with

A)the county recording office.
B)the local chamber of commerce.
C)the state's secretary of state.
D)the national travel agents' association.

Question 66

Vision Optical Company and Wide Eyes Open,Inc.decide to combine.Xavier,a Wide Eyes shareholder,is dissatisfied with the price that he will receive for his stock.In the absence of fraud or other illegal conduct,Xavier's exclusive remedy is to

A)exercise an appraisal right.
B)file a suit to delay the process.
C)refuse to agree to the deal,which cannot then proceed.
D)urge other shareholders to insist on a higher price.

Question 67

Nadia is a shareholder of Open Air Productions,Inc.Nadia could normally exercise appraisal rights if Open Air participated in

A)a share exchange.
B)a dissolution.
C)a takeover.
D)a winding up.

Question 68

Through a certain transaction,Corporate Properties,Inc. ,acquires all of the shares of Downtown Realty Corporation for some of Corporate Properties's shares.Both Corporate Properties and Downtown Realty continue to exist.This is

A)a consolidation.
B)a share exchange.
C)a short-form merger.
D)a hold-up.

Question 69

Marbled Meats Corporation (MMC)proposes to combine with Natural Farms,Inc. ,and asks MMC shareholders to vote on the proposal.Omar,an MMC shareholder,votes against it,but is outvoted by the other shareholders.Is there an action that Omar can take to avoid being forced to go along with the transaction If so,what can he do? After the combination,Natural Farms ceases to exist.MMC is the surviving firm.What type of combination is this?

Question 70

Ewa is a shareholder of Farm Fresh Foods,Inc. ,whose management is considering a tender offer by Growers Market Corporation.Ewa elects appraisal rights.This affects

A)Farm Fresh's consideration of the offer.
B)Ewa's shareholder status.
C)Growers Market's offer.
D)nothing.

Question 71

Like other corporations,Biopesticide Corporation can extend its operations through

A)a share exchange.
B)a dissolution.
C)a termination.
D)a winding up.

Question 72

The term for the legal death of the artificial "person" of Skytop Services,Inc. ,or any other corporation,is

A)surviving corporation.
B)dissolution.
C)takeover.
D)winding up.