Corporations

Question 1

Skyla and Terry want to form and do business as Unique Boutique Corporation. Its existence depends generally on

a. city or county corporate codes.
b. the Entrepreneur’s Corporate Handbook.
c. the federal Administrative Procedure Act.
d. state law.

Answer 1

d. state law.

Question 2

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.

Answer 2

a. the board of directors.

Question 3

George is the founder of Excellent Exotics Corporation. Wilson is a shareholder and director and Bill is an officer. The daily business operations of Excellent Exotics are overseen by

a. Bill.
b. Wilson.
c. George.
d. George and Wilson.

Answer 3

a. Bill.

Question 4

Jean and Olivia want to form and do business as Cake Cups Corporation. A corporation is

a. a natural person.
b. a tangible thing.
c. an artificial legal person.
d. a visible radiance.

Answer 4

c. an artificial legal person.

Question 5

Ruby Red Corporation is incorporated in South Carolina. In that state, Ruby Red is

a. a domestic corporation.
b. a foreign corporation.
c. an alien corporation.
d. a non-entity.

Answer 5

a. a domestic corporation.

Question 6

Painless Dental Equipment Company is incorporated in Colorado. In Wyoming, Painless is

a. a domestic corporation.
b. a foreign corporation.
c. an alien corporation.
d. a non-entity.

Answer 6

b. a foreign corporation.

Question 7

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

a. a nonprofit corporation.
b. not a corporation.
c. an alien corporation.
d. a private corporation.

Answer 7

d. a private corporation.

Question 8

Smalltown, Alabama is incorporated by the government. Smalltown is

a. a foreign corporation.
b. a public corporation.
c. a private corporation.
d. an alien corporation.

Answer 8

b. a public corporation.

Question 9

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.

Answer 9

c. a nonprofit corporation.

Question 10

Yellowbox, a DVD rental company, would like to change its corporate status to that of an S corporation to avoid in¬come taxes at the corporate level. To qualify, Yellowbox must

a. be located in the United States.
b. have more than one hundred shareholders.
c. be a non-profit corporation.
d. have more than one class of stock.

Answer 10

a. be located in the United States.

Question 11

Myron and Norah would like to form Originals, Inc., to do business in the art market. Generally, the articles of incorporation for a corporation do not include

a. the corporate name.
b. the nature and purpose of the corporation.
c. the capital structure of the corporation.
d. the minutes of the first organizational meeting.

Answer 11

d. the minutes of the first organizational meeting.

Question 12

Perfect Tone Phones, Inc., is a corporation. Perfect Tone’s implied powers enable it to

a. amend the articles of incorporation.
b. bring a derivative suit.
c. declare dividends.
d. borrow funds, lend funds, and extend credit.

Answer 12

d. borrow funds, lend funds, and extend credit.

Question 13

When a conflict arises among the documents that involve Express Flights Corporation, the first priority for resolving the conflict is given to

a. resolutions of the board of directors.
b. Express Flights’s bylaws.
c. state statues.
d. the U.S. Constitution.

Answer 13

d. the U.S. Constitution.

Question 14

Lyla is a common shareholder in Norman’s Nutty Nuts Corporation. As a common shareholder, Lyla is

a. guaranteed regular payments of dividends.
b. not guaranteed any payments of dividends.
c. not given any voting rights.
d. liable for all of Norman’s Nutty Nuts’s debts.

Answer 14

b. not guaranteed any payments of dividends.

Question 15

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which

a. governs Spex.
b. is governed by the Spex incorporators.
c. is governed by the Spex officers.
d. is governed by the Spex shareholders.

Answer 15

a. governs Spex.

Question 16

Great Gates, Inc. has a board of ten directors. Great Gates’ bylaws do not state any quorum requirements. In most states, a quorum for Great Gates will be defined as

a. two directors.
b. six directors.
c. nine directors.
d. ten directors.

Answer 16

b. six directors.

Question 17

RayAnn is a corporate officer for Timmy’s Trees, Inc. As a corporate officer, RayAnn is

a. the head of the board of directors.
b. involved in the day-to-day operations of Timmy’s Trees.
c. not involved in the day-to-day operations of Timmy’s Trees.
d. in charge of selecting members of the board of directors.

Answer 17

b. involved in the day-to-day operations of Timmy’s Trees.

Question 18

Nina is a director of Omega, Inc. Under the standard of due care owed by di¬rectors of a corporation, Nina’s decisions must be

a. ambiguous and questionable.
b. arguable and defensible.
c. informed and reasonable.
d. perfect and unassailable.

Answer 18

c. informed and reasonable.

Question 19

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

a. a fiduciary.
b. a forum.
c. a proxy.
d. a quorum.

Answer 19

a. a fiduciary.

Question 20

Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coast’s employees include its

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

Answer 20

c. officers.

Question 21

Rafi, a director of Super Service Station Corporation, does not attend a board meet¬ing for three years. During that time, Twyla, Super’s president, makes improper loans that cost the company $100,000. Rafi is most likely

a. liable for negligence or mismanagement.
b. liable for violation of the business judgment rule.
c. not liable because missing meetings is an honest mistake.
d. not liable because missing meetings is only poor judgment.

Answer 21

a. liable for negligence or mismanagement.

Question 22

Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not

a. authorize major corporate policy decisions.
b. decide to issue stock and bonds, and declare dividends.
c. select and remove corporate officers.
d. subordinate the corporation’s welfare to their personal interests.

Answer 22

d. subordinate the corporation’s welfare to their personal interests.

Question 23

Josh is a director of Sippy Soups, Inc. Josh opposes a tender offer that is in Sippy’s best interest because its acceptance would cost him his position as a director. Josh is liable for a breach of duty of

a. no duty or rule.
b. the business judgment rule.
c. the duty of care.
d. the duty of loyalty.

Answer 23

d. the duty of loyalty.

Question 24

Etta is a director of Trendy Stuff Corporation. Without informing Trendy, Etta goes into business with GR8 Things, Inc., in competition with Trendy. Etta is li¬able for breach of

a. no duty or rule
b. the business judgment rule.
c. the duty of care.
d. the duty of loyalty.

Answer 24

d. the duty of loyalty.

Question 25

Louise is a director for Icy Ices, Inc. Louise is also a director for Creamy Creams, Inc. When Icy Ices enters into a contract with Creamy Creams, Louise a. must resign from one of the boards. b. must resign from both boards. c. must make a full disclosure of any conflicts of interest and abstain from voting on the proposed transaction. d. need not do anything.

Answer 25

c. must make a full disclosure of any conflicts of interest and abstain from voting on the proposed transaction.

Question 26

Rosa and Sean are directors of Tech, Inc. Rosa’s written authorization to Sean to vote Rosa’s shares at a Tech shareholders’ meeting is a. a violation of the duty of care. b. a preemptive right. c. a proxy. d. a quorum.

Answer 26

c. a proxy.

Question 27

DeFazio’s Italian Restaurants, Inc., holds a shareholders’ meeting. Corporate business matters are presented at the meeting in the form of a. resolutions. b. proxies. c. articles of incorporation. d. bylaws.

Answer 27

a. resolutions.

Question 28

Thor Power Products Corporation permits its directors to be elected by cumulative voting. This a. allows minority shareholders to be represented on the board. b. assures directors that they will be selected by their peers. c. guarantees Thor’s executive officers of the final choice. d. ensures against persons who may “cloud” the corporate direction.

Answer 28

a. allows minority shareholders to be represented on the board.

Question 29

Eagle Financial Corporation merges with First Bank Corporation, with Eagle Financial absorbing First Bank. After the merger a. a different, new corporation is the surviving corporation. b. Eagle Financial and First Bank are both surviving corporations. c. Eagle Financial is the surviving corporation. d. First Bank is the surviving corporation.

Answer 29

c. Eagle Financial is the surviving corporation.

Question 30

Eye Appliance Company and Fresh Views, Inc., wish to combine all of their assets, stock, and personnel into a new firm to be called Goggles Corporation. This is a. a consolidation. b. a merger. c. an exchange of assets. d. a takeover.

Answer 30

a. a consolidation.

Question 31

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.

Answer 31

c. Luminous.

Question 32

Precise Device Corporation and Quality Instruments, Inc., decide to merge. This corporate combination does not require the approval of a. Precise and Quality’s directors. b. Precise and Quality’s officers and employees. c. Precise’s shareholders. d. Quality’s shareholders.

Answer 32

b. Precise and Quality’s officers and employees.

Question 33

Realty Credit Company and Second Mortgage Corporation plan to con-solidate. 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.

Answer 33

c. the state’s secretary of state.

Question 34

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 tender offer. c. a short-form merger. d. a termination.

Answer 34

c. a short-form merger.

Question 35

Giant Lift Corporation purchases all of the assets of Heavy Hydraulics Corporation. With respect to Heavy Hydraulics’s liabilities, Giant Lift is a. automatically responsible. b. not responsible under any circumstances. c. responsible if Heavy Hydraulics is a competitor of Giant Lift. d. responsible if the sale is in fact a merger or consolidation.

Answer 35

d. responsible if the sale is in fact a merger or consolidation.