Deck 39: A: Corporate Formation and Financing

Question 1

Bonds represent the purchase of ownership in a business firm.

Answer 1

False

Question 2

A corporation is referred to as a domestic corporation by its home state.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

A corporation has perpetual existence regardless of what the articles of incorporation state.

Question 5

Express powers of a corporation are found in its articles of incorporation.

Question 6

When a corporation earns profits,it must distribute them to shareholders.

Question 7

The primary document needed to incorporate a business is the articles of incorporation.

Question 8

A corporation is recognized as a "person."

Question 9

A new corporation's name can be deceptively similar to,but not the same,as the name of an existing corporation doing business within the state.

Question 10

Implied powers of a corporation are expressed in state statutes.

Question 11

In some states,the courts will treat a corporation as a legal corporation despite a defect in its formation.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

A publicly held corporation is a private corporation.

Question 18

An S corporation is treated the same as a regular corporation for tax purposes

Question 19

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

Question 20

The first step in the incorporation process is to select a state in which to operate.

Question 21

Ruby Red Corporation has six shareholders,four of whom are members of the same family.All of Ruby'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 Ruby.
C)the imprisonment of Ruby's shareholders.
D)the piercing of Ruby's corporate veil.

Question 22

A firm named Scientific Discovery Corporation (SDC)makes an attempt to incorporate for a purpose other than making a profit.SDC is

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

Question 23

Financial Innovations,Inc. ,issues bonds,which are also known as

A)cumulative investments.
B)debt securities.
C)equity securities.
D)preferred stock.

Question 24

Like the bylaws of other corporations,the bylaws of Farmland Equipment,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 25

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 26

Gelato Ice,Inc. ,is incorporated in the state of New Jersey and is doing busi?ness 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 27

Finn and Glenda want to form and do business as Hobby Crafts Corporation.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 28

Lita is a holder of preferred stock in Mighty Clean Detergents,Inc.Lita has priority over holders of Mighty common stock as to

A)nothing.
B)payments of dividends.
C)the date on which Mighty must repurchase the shares.
D)upward changes in the market price of the shares.

Question 29

Fact Pattern 39-1B
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 39-1B.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 30

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 31

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

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

Question 32

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 33

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

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

Question 34

Niki owns O.K.Oil Corporation.Niki uses O.K.'s funds to pay her personal expenses,creates Pure Fuel Corporation to engage in the same business as O.K. ,transfers O.K.'s assets to Pure Fuel,and petitions O.K.into bankruptcy.This most likely warrants

A)a bonus to Niki for financial maneuvers.
B)a discharge for O.K.in bankruptcy.
C)a pierce of the corporate veil.
D)a review of Pure Fuel's articles of incorporation.

Question 35

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 36

Dag and Elke are holders of common stock in Fragrances,Inc.(FI).Like other holders of common stock,they have a residual position in the overall financial structure of FI,because they

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

Question 37

Frida and Gregor want to market a new line of fishing gear.To avoid income taxes at the corporate level,they should form

A)a C corporation.
B)a closely held corporation.
C)an S corporation.
D)a private corporation.

Question 38

Fact Pattern 39-1B
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 39-1B.A reasonable purpose for a stock transfer re?striction 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 39

Inez and Jason are the shareholders and directors of Kleen Kustodial Corporation.Lily and Moe are Kleen's officers.As with 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 40

Miracle Vacuum,Inc. ,is a private,for-profit corporation that (1)was formed for the purpose of manufactur?ing and distributing a newly pat?ented appliance, (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 closely held corporation.
C)a nonprofit corporation.
D)a professional corporation.

Question 41

Starr Cardio,Inc. ,is a small business.Ted,Uma,and eleven other members of the Starr family own all of its stock.Currently,Starr's income is taxed at the corporate level and,after being distributed to the family members,at the shareholder level.Can Starr retain its corporate status but oth?er?wise avoid this double taxation? If so,how?

Question 42

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