Deck 22: Corporations: Formation and Organization

Question 1

In most states, a corporation's bylaws can negate preemptive rights.

Answer 1

True
Explanation: In most states, a corporation's bylaws can negate preemptive rights.

Question 2

When directors or officers violate their duty of loyalty, they are self-dealing.

Answer 2

True
Explanation: When directors or officers violate their duty of loyalty, they are self-dealing.

Question 3

Shareholders may not be held personally liable for a defective corporation's actions.

Answer 3

False
Explanation: Shareholders may be personally liable for a defective corporation's actions.

Question 4

Courts have refused to find that corporations have rights under the U.S. Constitution.

Question 5

Closely held corporations generally offer stock for sale to the general public.

Question 6

A board of directors may take no action that benefits a director in his or her personal capacity.

Question 7

Directors and officers have a fiduciary duty of care.

Question 8

Corporations are not required to indicate in the name of the corporation that the business is incorporated.

Question 9

No shareholder of an S corporation may be a nonresident alien.

Question 10

Corporations have only those powers that states grant them.

Question 11

Each director has one vote.

Question 12

Merger requires shareholder approval, but consolidation does not.

Question 13

A shareholder may not be held personally liable to a corporation for receiving watered stock.

Question 14

Corporations have implied powers.

Question 15

A corporation must be dissolved if over 50% of the shareholders die.

Question 16

The articles of incorporation determine who has the power to amend the corporate bylaws after the first organizational meeting.

Question 17

Shareholders are directly responsible for the daily management of a corporation.

Question 18

A corporation must be incorporated in the state in which it has its principal place of business.

Question 19

A shareholder can sue a director or officer if the shareholder feels that the director or officer has caused harm to the business by violating a fiduciary duty.

Question 20

Consolidations today are rare.

Question 21

Which of the following is false regarding a nonprofit corporation?

A) A nonprofit corporation may not earn profits.
B) Nonprofit corporations do not have shareholders.
C) An objective of a nonprofit corporation is not to earn profit.
D) Nonprofit corporations do not issue stock.
E) Churches and charitable organizations are examples of nonprofit corporations.

Question 22

Which of the following is needed in order for a business to qualify as an S corporation?

A) No more than 100 shareholders.
B) Only individuals, trusts, and in some circumstances corporations as shareholders.
C) At least $10,000 in capital.
D) No more than 100 shareholders; only individuals, trusts, and in some circumstances corporations as shareholders, and at least $10,000 in capital.
E) No more than 100 shareholders and only individuals, trusts, and in some circumstances corporations as shareholders; but there is no requirement of at least $10,000 in capital.

Question 23

Which of the following is a term for profits kept by a corporation for reinvestment?

A) Added earnings
B) Retained earnings
C) Approved income
D) Added profit
E) Saved profit

Question 24

A corporation is a[n] _______________ corporation in the state in which it is incorporated.

A) Domestic
B) Home
C) Recognized
D) Approved
E) Certified

Question 25

In regard to the board of directors of a corporation, German law is similar to the U.S. in that a one-tier board system is in effect.

Question 26

A[n] _______________ corporation is a business incorporated in another country.

A) Visiting
B) Foreign
C) Interstate
D) Alien
E) Approved

Question 27

Which of the following generally does not offer stock to the public?

A) Alien corporations
B) Foreign corporations
C) Closely held corporations
D) Carefully held corporations
E) Minority shareholder controlled corporations

Question 28

By way of which of the following may corporations distribute their income to shareholders?

A) Allocations
B) Grants
C) Dividends
D) Provisions
E) Allowances

Question 29

If corporations act beyond their express and implied powers, the act is called a[n] _______________ act.

A) Respondeat superior
B) Ultra vires
C) Res ipsa loquitur
D) Stare decisis
E) Res propertie

Question 30

Aggressors often try to win the favor of a few institutional investors that own large block of shares.

Question 31

Which of the following references the liability of corporations for torts and crimes committed by their agents during the scope of their employment?

A) Stare decisis
B) Res ipsa loquitur
C) Respondeat superior
D) Absoluta respond
E) None of these

Question 32

A _______________ corporation is a corporation created by the government to help administer law.

A) Public
B) Private
C) Closely held
D) Domestic
E) Publicly held

Question 33

Federal securities law does not require that target corporations assist aggressors in any way.

Question 34

A corporation is a[n] _______________ corporation in states in which it conducts business but is not incorporated.

A) Visiting
B) Foreign
C) Interstate
D) Intrastate
E) Approved

Question 35

When do corporations commit ultra vires acts most frequently?

A) When they create contracts outside the scope of their powers.
B) When they hire incompetent managers.
C) When they hire employees with criminal backgrounds.
D) When they refuse to declare dividends.
E) When they refuse to declare a stock split.

Question 36

Private persons create _______________ corporations for private purposes.

A) Public
B) Private
C) True
D) Domestic
E) Publicly held

Question 37

Which of the following is generally true regarding management of a corporation?

A) Shareholders do not participate in corporate management.
B) Shareholders elect a board of directors.
C) The board of directors selects officers to manage the day-to-day business of the corporation.
D) Shareholders do not participate in corporate management, shareholders elect a board of directors, and the board of directors selects officers to manage the day-to-day business of the corporation.
E) Shareholders do not participate in corporate management and shareholders elect a board of directors, but shareholders select officers to manage the day-to-day business of the corporation.

Question 38

Which of the following do state incorporation statutes typically grant to corporations?

A) The power of perpetual existence.
B) The power to sue and be sued in the corporation's name.
C) The power to make charitable donations.
D) The power of perpetual existence, the power to sue and be sued in the corporation's name, and the power to make charitable donations.
E) The power of perpetual existence and the power to sue and be sued in the corporation's name, but not the power to make charitable donations.

Question 39

Which of the following is acceptable in the name of a corporation to signify that the business is a corporation?

A) Company
B) Corporation
C) Inc.
D) Company, Corporation, and Inc.
E) Company and limited, but not Inc.

Question 40

Which of the following is a document a corporation files with the state explaining its organization?

A) Certificate of organization
B) Articles of incorporation
C) Proof of incorporation
D) Proof of capitalization
E) Establishment of corporation

Question 41

How are directors chosen after incorporation?

A) By majority vote of the shareholders.
B) By majority vote of all officers.
C) By a two-thirds vote of shareholders.
D) The president appoints them in his or her discretion.
E) By a unanimous vote of the shareholders.

Question 42

If a corporation has fewer than ________________ shareholders, the Revised Model Business Corporation Act allows companies to eliminate the board of directors entirely.

A) 100
B) 50
C) 30
D) 25
E) None of these because the Revised Model Business Corporation does not allow companies to eliminate the board of directors entirely.

Question 43

How are directors chosen during incorporation?

A) Either the incorporators appoint them or the corporate articles name them.
B) Either the incorporators appoint them or by a majority vote of the shareholders.
C) Only by the incorporators appointing them.
D) Only by the corporate articles naming them.
E) Only by the president appointing them.

Question 44

Which of the following types of securities represent ownership in a corporation?

A) Debt
B) Equity
C) Finance
D) Formal
E) Certified

Question 45

If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization is a[n] _______________ corporation.

A) Illegal
B) Defunct
C) Uncertified
D) Defective
E) Expelled

Question 46

In order to prevent a defective corporation from escaping corporate responsibility a court may hold that that the entity is a[n] _______________.

A) Corporation in fact
B) Unrealized corporation
C) Corporation by estoppel
D) Corporation by reservation
E) Partnership liability

Question 47

Owners of which of the following types of stock enjoy preferences with respect to assets and dividends?

A) Acknowledged
B) Complex
C) Simple
D) Preferred
E) Common

Question 48

Owners of which of the following types of stock own a portion of a corporation but do not enjoy any preferences?

A) Acknowledged
B) Complex
C) Simple
D) Preferred
E) Common

Question 49

For which of the following may a director generally be removed?

A) At the will of the president.
B) In the discretion of the shareholders upon majority vote.
C) In the discretion of the shareholders upon a two-thirds vote.
D) In the discretion of other directors upon a majority vote.
E) For cause.

Question 50

According to the Revised Model Business Corporation Act, which of the following should articles of incorporation include?

A) The name of the corporation.
B) The name of the registered agent.
C) The names and addresses of the incorporators.
D) The name of the corporation, the name of the registered agent, and the names and addresses of the incorporators.
E) The name of the corporation and the registered agent, but not the names and addresses of the incorporators.

Question 51

Which of the following in the corporate formation process provides basic information about the corporation?

A) The articles of subscription
B) The agreement to promote
C) The agreement to subscribe
D) The agreement to incorporate
E) The articles of incorporation

Question 52

Which of the following is a term for a requirement that a minimum number of directors be present at a meeting for decisions made at the meeting to be valid?

A) Quorum
B) Substantial group
C) Adequate group
D) Adequate assembly
E) None of these because there is no such requirement so long as all directors had notice and an opportunity to attend the meeting at issue

Question 53

How is the number of corporate directors determined?

A) In the discretion of the president of the corporation.
B) By vote of the stockholders in compliance with state law.
C) According to the corporate articles or bylaws in compliance with state law.
D) According to the number of shares issued.
E) According to the amount of profit projected by incorporators for the first year.

Question 54

Which of the following is an individual who applies to the state for incorporation on behalf of a corporation?

A) A promoter
B) An incorporator
C) A facilitator
D) An obtainer
E) A certification analyst

Question 55

Which of the following is a corporation that has not substantially met the requirements of the state incorporation statute, but courts recognize it as a corporation for most purposes to avoid unfairness to third parties who believed it was properly incorporated?

A) A de jure corporation
B) A de facto corporation
C) A corporation by estoppel
D) A corporation by reservation
E) None of these because an alleged corporation that has not substantially complied with state requirements for incorporation is not considered a corporation at all although it may be considered a partnership in order to protect innocent parties.

Question 56

When a corporation is incorporated, the secretary of state usually issues a[n] _______________, a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

A) Approval of incorporation
B) Certificate of incorporation
C) Authorization of incorporation
D) Certification of incorporation
E) Chronicle of incorporation

Question 57

Which of the following types of securities represent loans to a corporation?

A) Debt
B) Equity
C) Finance
D) Formal
E) Certified

Question 58

Although most states allow for longer terms, for how long do directors typically serve?

A) Three years
B) Two years
C) One year
D) Four years
E) Five years

Question 59

Which of the following is another name for debt securities?

A) Stocks
B) Bonds
C) Certificates of deposit
D) Stocks, bonds, and certificates of deposit
E) Stocks and bonds, but not certificates of deposit.

Question 60

Corporate _______________ are rules and regulations that govern the corporation's internal management.

A) Bylaws
B) Requirements
C) Statutes
D) Authorizations
E) Prohibitions

Question 61

Which of the following gives preference to shareholders to purchase shares of a new issue of stock?

A) Acknowledged rights
B) Superior rights
C) Preemptive rights
D) Selective rights
E) Benefit rights

Question 62

The Securities and Exchange Commission has established that any shareholder who owns more than _______________ worth of stock in the corporation can submit proposals to be included in proxy materials.

A) $4,000
B) $3,000
C) $2,000
D) $1,000
E) None of the these because shareholders may not present proposals in proxy materials

Question 63

Which of the following is true regarding stock certificates?

A) Each certificate includes the corporation's name.
B) Each certificate includes the number of shares represented by the certificate.
C) A shareholder's ownership in the corporation does not depend on her possession of the physical stock certificate.
D) Each certificate includes the corporation's name, each certificate includes the number of shares represented by the certificate, and a shareholder's ownership in the corporation does not depend on her possession of the physical stock certificate.
E) Each certificate includes the corporation's name and each certificate includes the number of shares represented by the certificate, but a shareholder's ownership in the corporation does depend on her possession of the physical stock certificate.

Question 64

Which of the following may be issued to shareholders as proof of ownership in the corporation?

A) Stock subscriptions
B) Stock acknowledgements
C) Paper documentation
D) Stock certificates
E) Acknowledgement documents

Question 65

Which of the following owns a corporation?

A) Directors
B) Officers
C) Shareholders
D) Affiliates
E) The state

Question 66

Which of the following are outside directors who have business contacts with the corporation?

A) Approved directors
B) Outside directors
C) Inside directors
D) Affiliated directors
E) Unaffiliated directors

Question 67

Which of the following are directors who are also officers or employees of the corporation?

A) Approved directors
B) Outside directors
C) Inside directors
D) Affiliated directors
E) Unaffiliated directors

Question 68

Which of the following references shares that have a fixed face value noted on the stock certificate?

A) No-par value shares
B) Par-value shares
C) Watered stock
D) Valued stock
E) No-valued stock

Question 69

Which of the following is a form of self-dealing?

A) Business self-dealing
B) Personal self-dealing
C) Corporate self-dealing
D) Business self-dealing, personal self-dealing, and corporate self-dealing
E) Business self-dealing and personal self-dealing, but not corporate self-dealing

Question 70

Decisions of courts in _______________ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there.

A) New York
B) California
C) Florida
D) Delaware
E) New Jersey

Question 71

Which of the following is a right of corporate directors?

A) The right of compensation
B) The right of participation
C) The right of inspection
D) The right of indemnification
E) All of these

Question 72

Which of the following is a term for stock issued to individuals below its fair market value?

A) No-par stock
B) Reduced stock
C) Watered stock
D) Less-value stock
E) Unapproved stock

Question 73

Generally, a quorum of shareholders exists when shareholders holding more than _______________ percent of the outstanding shares are present.

A) 80
B) 70
C) 60
D) 50
E) 25

Question 74

How much must a shareholder who signs a stock subscription pay for no-par shares?

A) The depreciated value
B) At least the value on the last sale
C) The value as set by the board of directors
D) The value as voted upon by shareholders
E) The fair market value

Question 75

Which of the following is false regarding officers of a corporation?

A) Officers are executive managers.
B) Officers run the day-to-day business of the corporation.
C) In most cases an individual may serve as both a director and an officer.
D) The rules of agency do not apply to the work of officers.
E) Qualifications required of officers are set forth in the corporate articles and bylaws.

Question 76

Which of the following are directors who are not officers or employees of the corporation?

A) Approved directors
B) Outside directors
C) Inside directors
D) Affiliated directors
E) Unaffiliated directors

Question 77

While ordinary decisions made by directors require a _______________ vote, more important decisions sometimes require a _______________ vote.

A) Majority; two-thirds
B) Majority; three-fourths
C) Two-thirds; three fourths
D) One-third; majority
E) Majority; unanimous

Question 78

A common corporate practice in Japan is for multiple corporations, banks, and companies to form hierarchical conglomerates known as _______________.

A) Balmas
B) Coriseus
C) Keiretsus
D) Doresus
E) Benyets

Question 79

Which of the following is false regarding the liability of directors and officers for criminal behavior?

A) Directors and officers can be held personally responsible for their own crimes.
B) Directors and officers can be held personally responsible for the crimes of other employees within the organization when they have failed to adequately supervise the employee's behavior.
C) An officer can be held criminally liable for conduct of an employee if the court determines that a responsible person would have known about and could have prevented the illegal activity.
D) Directors and officers who use insider information to trade the corporation's stock for a profit can be held liable for breaching their fiduciary duty.
E) According to the responsible person doctrine, a court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.

Question 80

Which of the following are outside directors who do not have business contacts with the corporation?

A) Approved directors
B) Outside directors
C) Inside directors
D) Affiliated directors
E) Unaffiliated directors