Deck 41: History and Nature of Corporations

Question 1

Greater contacts are needed to subject a corporation to property taxation in a state than are needed to subject it to state income and sales taxation.

Answer 1

False

Question 2

A state's courts may exercise jurisdiction over a foreign corporation that has contacts in the state.

Answer 2

True

Question 3

Which of the following is correct about the history of corporations?

A) In the late 18^th century, general incorporation statutes emerged in the United States.
B) From the 18^th century onward, France started giving privileges of incorporation to mercantile ventures.
C) Early American corporations received special privileges from state legislatures.
D) In England, the corporate form was used extensively after the 16^th century.

Answer 3

A

Question 4

The directors and officers of a corporation need to be its shareholders.

Question 5

Under the general incorporation law, the minimum number of owners a business needs to be incorporated as a for-profit corporation is:

A) 10.
B) 5.
C) 1.
D)20.

Question 6

The purpose behind the Model Business Corporation Act is to exploit the maximum potential of workers in a corporation.

Question 7

Which of the following legal provisions treats a corporation as a person?

A) Corporation law
B) The law of contract
C) The Constitution of the United States
D) The law of torts

Question 8

It is possible to create a corporation without a government's permission.

Question 9

The mere presence of a Nevada corporation's vacant property in California is sufficient to subject the corporation to taxes in California.

Question 10

Mary Lee James, a certified public accountant at Edgewater, Florida, wishes to incorporate. According to the corporate law requirements, she needs to incorporate under the:

A) common corporation law.
B) professional corporation acts.
C) special professional charter.
D) general incorporation law.

Question 11

A foreign corporation must incorporate in each state in which it does intrastate business.

Question 12

A foreign corporation is one that conducts its business in a state where it is not incorporated.

Question 13

Transfer of corporate assets to shareholders for less than fair market value is called "looting."

Question 14

A corporation is a legal entity independent of its owners.

Question 15

A corporation with one person who is the only shareholder, officer, and director will have its corporate veil pierced, making that person personally liable for all the obligations of the dominated corporation.

Question 16

The corporate form of business has facilitated the rapid growth of development by allowing businesses to attain economies of scale compared to other forms of businesses by:

A) giving businesses a greater capacity to raise capital.
B) imposing unlimited management responsibilities on the owners.
C) maximizing the owners' liabilities.
D) granting the persons who control a corporation limited flexibility in operating it.

Question 17

Government-owned corporations are created primarily to allow their owners to have limited liability.

Question 18

In order to pierce the corporate veil, a creditor needs to show that each shareholder does not actively participate in the management of the corporation.

Question 19

There is a similar set of legal rules that apply to both foreign and alien corporations.

Question 20

A corporation with a reasonable debt-to-equity ratio will not have its veil pierced on the grounds of thin capitalization.

Question 21

Not-for-profit corporations are regulated primarily by the:

A) states.
B) federal court.
C) federal government.
D) Supreme Court.

Question 22

A state may impose its laws on a foreign corporation if such imposition does not violate the Constitution of the United States, notably the Due Process Clause of the Fourteenth Amendment and the Commerce Clause. The leading case in this area is the _____ case.

A) International Shoe
B) Katris v. Carroll
C) Ryan v. Cerullo
D) World-Wide Volkswagen Corp. v. Woodson

Question 23

A state law regulating the activities of a foreign corporation does not unduly burden interstate commerce if:

A) the law serves both the state's and the foreign corporation's legitimate interest.
B) the state has chosen the least burdensome means of promoting that interest.
C) the legitimate state interest outweighs the statute's burden on interstate commerce.
D) a foreign corporation enters interstate commerce to do intrastate business in a state.

Question 24

The Model Business Corporation Act (MBCA) was prepared and authorized by the:

A) federal government.
B) state governments, acting together.
C) state governments, acting separately.
D) American Bar Association's Committee on Corporate Laws.

Question 25

In which of the following classes of corporation are the controlling shareholders the only managers of the business?

A) For-profit corporation
B) Close corporation
C) Not-for-profit corporation
D) Publicly held corporation

Question 26

Most of the states have passed _____ to permit their courts to exercise jurisdiction under the decision of the International Shoe case.

A) international statutes
B) amendments to the state constitution
C) amended commerce laws
D) long-arm statutes

Question 27

Which of the following classes of corporation may not distribute surplus revenue from its operations to its members?

A) An S corporation
B) For-profit corporation
C) Not-for-profit corporation
D) Publicly held corporation

Question 28

Which of the following corporation classes' profits are taxed only at the shareholder level?

A) An S corporation
B) For-profit corporation
C) Not-for-profit corporation
D) Publicly held corporation

Question 29

Toywood Inc., headquartered in Vermont, specializes in manufacturing non-toxic wooden toys in its two mechanized units in Vermont and New Hampshire. Its flagship store is located in Philadelphia, PA. It will be considered a(n) _____ corporation in PA.

A) domestic
B) alien
C) domicile
D) foreign

Question 30

What is the number of events considered sufficient under the minimum contacts test to confer jurisdiction on a state's courts?

A) 10
B) 20
C) 1
D) 5

Question 31

The maximum number of shareholders that are allowed in a Subchapter S corporation is:

A) 50.
B) 75.
C) 100.
D)500.

Question 32

Which of the following classes of corporation has members rather than shareholders?

A) S corporation
B) For-profit corporation
C) Publicly held corporation
D) Not-for-profit corporation

Question 33

Which of the following is true about an S corporation?

A) It is taxed at both the corporate and shareholder levels.
B) It may only have 500 or less shareholders.
C) An S corporation election requires the consent of a majority of its shareholders.
D) Shareholders of an S corporation may be only individuals or trusts.

Question 34

A Subchapter S corporation is typically treated like a _____ for federal income tax purposes.

A) for-profit corporation
B) partnership
C) publicly held corporation
D) not-for-profit corporation

Question 35

The law of piercing the corporate veil is an example of a _____ law protecting the creditors of corporations.

A) commerce
B) common
C) constitutional
D) statutory

Question 36

Outland Corporation is incorporated in Wyoming, where it has its executive office. It has a manufacturing plant in Utah, and a warehouse in New Mexico, where most of its sales are made. Outland is subject to taxation in:

A) Wyoming, Utah, and New Mexico.
B) Wyoming and Utah only.
C) Wyoming and New Mexico only.
D) New Mexico only.

Question 37

Which of the following statements is true of not-for-profit corporations?

A) They provide services to their members.
B) They must distribute all of their surplus revenues to their shareholders.
C) They must distribute all of their excess revenues to charities.
D) They issue stocks only to their owners.

Question 38

Most of the common law of corporations deals with:

A) creditor and shareholder rights.
B) incorporation of not-for-profit organizations.
C) promoter and manager rights.
D) incorporation of sole proprietorships.

Question 39

Under the _____ Clause, the power to regulate interstate trade is given to the federal government.

A) Due Process
B) Corporate
C) Commerce
D) Doing Business

Question 40

According to the Supreme Court of the United States, a foreign corporation may be brought into a state's court in connection with its activities within the state, provided that the state does not violate the corporation's due process rights under the Fourteenth Amendment of the Constitution and its rights under the:

A) Foreign Business Clause.
B) Domestic Business Clause.
C) Commerce Clause.
D) Doing Business Clause.

Question 41

Big Corporation (BC) was dominated by its president, Mr. Vincent. He used his dominance for an improper purpose-defrauding lenders to the corporation. As a result, a court can:

A) impose criminal penalties on him.
B) make him personally liable on the debts to those lenders.
C) terminate the corporate charter of BC.
D) compel him to resign.

Question 42

Nearly all corporations whose veils are pierced are:

A) close corporations.
B) government-owned corporations.
C) publicly held corporations.
D) nonprofit corporations.

Question 43

Ala Foreign Corporation is incorporated in the state of Alabama. However, it is running 90 percent of its operations from the state of Indiana. Such a type of corporation is called a(n):

A) government-owned corporation.
B) foreign corporation.
C) alien corporation.
D) pseudo-foreign corporation.

Question 44

QT Inc., is incorporated in Alabama, has offices in Nebraska, has a manufacturing plant in Delaware, and conducts most of its sales from Virginia. Regulation of its internal affairs will be exercised only by:

A) Alabama.
B) Nebraska.
C) Delaware.
D) Virginia.

Question 45

To prove domination, it is _____ to show that there is only one shareholder.

A) neither sufficient nor necessary
B) sufficient
C) both necessary and sufficient
D) necessary

Question 46

Jim created a shoe-manufacturing corporation by contributing $1,000. He stayed as the sole shareholder and director of the corporation. To inject further capital into the corporation, he loaned the corporation $100,000 and secured the loan in exchange for all the corporation's assets. Five years into operations, the corporation has still failed to make profits and consequently files for bankruptcy. Who has been defrauded?

A) Ordinary shareholders
B) Preferred shareholders
C) Nonshareholder creditors
D) Board of directors

Question 47

Katie Kuric is the only shareholder, director, and officer of two corporations, Multimedia Corporation and Kuric Network Television Corporation (KNT). Multimedia produces television shows and movies. KNT broadcasts television programming over the air and on cable. KNT purchases much of its TV programs and movies from Multimedia. KNT often pays Multimedia for the TV shows and movies more than a year after payment is due, without being required to pay interest or a late payment penalty. What risk is Katie taking by allowing KNT to pay Multimedia late?

A) None, because KNT and Multimedia are separate and distinct legal entities.
B) None, because only Multimedia is harmed by this arrangement, and Katie owns both corporations.
C) KNT's veil will be pierced because KNT is evading an obligation with Multimedia.
D) KNT's veil will be pierced because Multimedia's creditors are being defrauded.

Question 48

A pastor of a church (a nonprofit corporation) believes that his salary is too small to cover his meager expenses. When repeated requests to management and superiors do not lead to a salary increase, he starts supplementing his salary with church donations. What risk is he running?

A) None, because the pastor and the church are separate and distinct legal entities.
B) None, because the pastor's meager salary justifies this action.
C) The veil between the pastor and the church will be pierced because the pastor's act is immoral.
D) The veil between the pastor and the church will be pierced because the pastor's act is defrauding church members.

Question 49

Anderson incorporated his new company, Pearl Inc., in the business of manufacturing rubber. After some years, he opened his own subsidiary rubber manufacturing company. The new subsidiary company is a success. Meanwhile, the workers of Pearl Inc., claimed that payment of bonus is due and they are demanding the same from the subsidiary company. In this case, are both Pearl Inc., and its subsidiary liable?

A) Yes, they are liable because it is provided under corporation law.
B) Yes, they are liable because both are the same entity in the eyes of the law.
C) No, they are not liable because it is not a subsidiary of Pearl Inc.
D) No, they are not liable because a subsidiary is not liable for parent's debts as provided under the law.

Question 50

Harold and Dorothy own all of the shares of Ace Corporation. Robert, Ace's landlord, sued Ace for unpaid rent. Robert received a $10,000 judgment against Ace. When Robert tried to collect on the judgment, he discovered that Ace Corporation had no assets. He then discovered that Harold and Dorothy no longer operate Ace Corporation. They now operate Optimus Corporation as the only shareholders. Harold and Dorothy had no assets in their names. However, upon further investigation, Robert discovered that Optimus had numerous assets. He reviewed the financial documentation, discovering that Optimus pays for Harold and Dorothy's mortgage, medical bills, and grocery bills. Can a court pierce the corporate veil? Discuss.

Question 51

Which of the following documents is required for a foreign corporation to do intrastate business in a state?

A) Domicile certificate
B) Certificate of authority
C) Commerce certificate
D) Tax returns certificate

Question 52

Which of the following activities is classified as doing business for the purpose of intrastate business qualification?

A) Owning or using real estate for general corporate purposes.
B) Soliciting orders by mail that require acceptance outside the state.
C) Selling products or services through independent contractors.
D) Conducting an isolated transaction that is completed within 30 days.

Question 53

In which of the following situations will a business incorporated in Ohio be required to qualify to do business in Kentucky?

A) The business maintains a stock of goods in Kentucky from which it sells to customers in Kentucky.
B) The business owns a building in Kentucky, which it holds for investment.
C) The business sends a sales agent to Kentucky to solicit orders from customers in Kentucky, while orders are brought back to and accepted in Ohio.
D) The business sells its goods to customers in Kentucky through independent distributors located in Kentucky.

Question 54

Fantase Corporation has a union contract. To avoid the contract, the shareholders plan to form a new corporation. They also elect to transfer their business interest to the new corporation. Is the new corporation liable to the employees for union contract?

Question 55

Since the level of doing business that constitutes intrastate business for qualification purposes has been difficult to define, the Model Business Corporation Act lists several activities that do not require qualification. One such activity is:

A) owning or using real estate for general corporate purposes.
B) soliciting orders by mail that require acceptance outside the state.
C) entering into contracts relating to local business or sales.
D) maintaining a stock of goods within a state from which to fill orders.

Question 56

Forming a business with a high debt-to-equity ratio is an example of:

A) circumventing a statute.
B) thin capitalization.
C) creditor domination.
D) looting.

Question 57

Rement Corporation is incorporated under the laws of New Jersey. Rement maintains a sales agent in New York City, who makes contracts in New York City. Can New York impose an income tax on Rement's profits from its New York sales at the same rate it taxes income from domestic New York corporations?

Question 58

Wheelies is an auto parts retailer. It operates a retail megastore in a city where the city ordinance prohibits retailers from being open on consecutive Sundays. The management of Wheelies realizes that their maximum sales happen on Sundays. They create a wholly-owned subsidiary, CarBasics, and start leasing the megastore building and its inventory to CarBasics every alternate Sunday. Who is liable for violating the city ordinance?

A) Neither Wheelies nor CarBasics
B) Wheelies only
C) CarBasics only
D) Both Wheelies and CarBasics

Question 59

The National Collegiate Athletic Association Inc., (NCAA) is incorporated in Indiana. The NCAA accredits college athletic programs and sanctions and regulates athletic competitions among its member colleges. The NCAA selects New Orleans, Louisiana as the site of its men's college basketball 1999 Final Four, with Tulane University as the host school. To assist Tulane's hosting of the Final Four, NCAA officials make several trips to New Orleans in the course of one year. For nine days immediately and during the Final Four, NCAA officials are in New Orleans. Altogether, NCAA officials spend 23 days in New Orleans. Is the NCAA required to qualify to do business in Louisiana?

Question 60

Tennessee-Alabama Fireworks Company (TAF) is incorporated in Tennessee. It maintains year-round retail stores in Tennessee and Alabama. It also sells fireworks to individual consumers at a gas station parking lot in Indiana for a period of 20 days before the Fourth of July. Must TAF qualify to do business in Indiana?