Life & Death of A Corporation

Question 1

A Corporation by estoppel is based on fairness rather than strict legal rules.

Answer 1

True

Question 2

A de jure corporation is recognized as a corporation despite a defect in incorporation.

Answer 2

True

Question 3

A business corporation can be incorporated under either state law or federal law.

Answer 3

False

Question 4

Sara decided to incorporate her business under the name Gomo, Inc. Before Gomo was incorporated, Sara signed a contract in the name of Gomo, Inc. to lease a store front. Sara did not tell the other party that Gomo was not yet formed. Sara is personally liable on the lease.

Answer 4

True

Question 5

Shyff decided to incorporate his business under the name of “Zamm.” In addition to “Zamm,” the Model Act requires that Shyff include one of the following words: “corporation,” “incorporated,” “limited,” or “company,” or an abbreviation thereof.

Answer 5

True

Question 6

A corporation must always have a registered agent within the state of the incorporation even if the corporation does not maintain an office in that state.

Answer 6

True

Question 7

Under corporate law, a corporation that officially states its purpose is “to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Idaho” is too broad. A corporation’s purpose must be more narrowly defined.

Answer 7

False

Question 8

Incorporators of Maizey Co. signed and delivered the corporate charter to the proper office but due to the inefficiencies in the government office, the filing was delayed. During the period between the delivery of the charter and the filing, the promoter of Maizey Co. entered a contract for the delivery of goods using the corporate name. The supplier, if it finds out the filing had not been completed when the contract was entered, may hold the promoter personally liable on the contract.

Answer 8

False

Question 9

A corporation is not allowed to issue dividends to shareholders unless it is solvent.

Answer 9

True

Question 10

Incorporators are required to sign the charter, deliver it to the proper state officials, and purchase a certain percentage of the initial stock offering.

Answer 10

False

Question 11

It is illegal for shareholders to transfer their stock to a trust and give the trustee the power to vote the shares.

Answer 11

False

Question 12

TriColor, Inc. is doing business in Minnesota, West Virginia, and Oklahoma. TriColor, Inc. must register in all three of these states.

Answer 12

True

Question 13

Owners of preferred stock typically have a preference in liquidation.

Answer 13

True

Question 14

Lee owns 1,000 shares of common stock in TriColor, Inc. Common stock is last stock in line for any corporate payouts, including dividends and liquidation payments.

Answer 14

True

Question 15

Terminating a corporation is a three-step process: dissoultion, winding up, and termination.

Answer 15

False

Question 16

Laurie is incorporating her business. The business’ home state is Wisconsin. Business will be conducted in California, Michigan, Pennsylvanis, and Virginia. Laurie:

A. must incorporate the business in Wisconsin, the home state.
B. must incorporate the business in Wisconsin, Michigan, Pennsylvania, and Virginia.
C. must incorporate in Delaware.
D. can incorporate the business in any state.

Answer 16

D. can incorporate the business in any state.

Question 17

Carey decided to incorporate her business under the name yStar Inc. Before yStar was incorporated, Carey signed a contract in the name of yStar, Inc. to have some office space remodeled. Which statement is correct?

A. yStar is liable on the contract because the contract was signed in its name.
B. yStar becomes liable on the contract as soon as it is incorporated.
C. yStar is liable on the contract if the contractor knows that the corporation does not yet exist.
D. yStar will be liable on the contract only if the corporation adopts the contract.

Answer 17

D. yStar will be liable on the contract only if the corporation adopts the contract.

Question 18

A corporate charter is filed with:

A. a state’s Secretary of State office.
B. a state’s Treasury and/or Revenue Division.
C. The United States Department of Commerce.
D. All of the above.

Answer 18

A. a state’s Secretary of State office.

Question 19

MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors. The stock, MegaCorp repurchased is called:

A. authorized and unissued
B. authorized and issued.
C. treasury stock.
D. repurchased stock.

Answer 19

C. treasury stock.

Question 20

In Delaware, a person may reserve a corporate name:

A. online for a $10 fee.
B. for 30 days by writing a letter and paying a $100 fee.
C. for 120 days by paying a $75 fee.
D. only if the name is simultaneously reserved on a national basis.

Answer 20

C. for 120 days by paying a $75 fee.

Question 21

In incorporating E-[rise, the promoter gave an incorrect ZIP Code for the registered agent. All of the other requirements for incorporation were met. E-prise is a(n):

A. de jure corporation.
B. de facto corporation.
C. corporation by estoppel.
D. indemnified corporation.

Answer 21

A. de jure corporation.

Question 22

Preemptive rights are:

A. not legal in the majority of states.
B. designed to prevent dilution of a shareholder’s ownership in the company.
C. required to be offered to shareholders by the Model Act.
D. designed to indemnify managers who act in good faith.

Answer 22

B. designed to prevent dilution of a shareholder’s ownership in the company.

Question 23

Defining a corporation with such information as the corporate name, the number and type of authorized shares of stock, identification of the purpose and the agent, is done through the:

A. charter.
B. articles of incorporation.
C. certificate of organization.
D. All of the above. All of these terms identify the same document.

Answer 23

D. All of the above. All of these terms identify the same document.

Question 24

Corporate stock can be divided into categories called _______, which can be further divided into ________.

A. authorized shares, classes.
B. classes, series.
C. equity, assets.
D. debentures, classes.

Answer 24

B. classes, series.

Question 25

Once a provision is in the corporate charter, it can only be changed by:

A. a vote of the shareholders.
B. filing an amendment with the Secretary of State.
C. Both of the above are necessary to change a corporate charter.
D. Neither A nor B is necessary to change a corporate charter. The board of directors merely needs to file a change in charter form.

Answer 25

C. Both of the above are necessary to change a corporate charter.

Question 26

Incorporation protects:

A. shareholders against personal liability for the debts of the company.
B. anyone involved in management of the business against personal liability for wrongdoing.
C. the public from wrongdoing by either the shareholders or the management of the corporation.
D. All of the above are correct.

Answer 26

A. shareholders against personal liability for the debts of the company.

Question 27

The directors of MegaCorp learn that an outsider is planning on buying enough voting stock to get herself elected to the board of directors. MegaCorp, which has a cumulative voting, quickly puts together a vote of shareholders to eliminate the company’s cumulative voting procedure. The shareholders vote to do away with the cumulative voting. The outsider, Dawn, who wanted to get herself elected to MegaCorp’s board, claims that the company has committed an illegal act. Is she right?

A. Yes. The US Supreme Court has ruled that publicly held corporation that purposefully sets about to eliminate cumulative voting to prevent a person from getting herself elected to the board has acted illegally.
B. Yes, but only if the company is incorporated in a state that has adopted the Model Act.
C. No, provided the company did not change its cumulative voting provision solely for the purpose of preventing a particular person from taking advantage of that right.
D. No. Under the Model Act, regardless of MegaCorp’s motives, it has the right to act as it did.

Answer 27

D. No. Under the Model Act, regardless of MegaCorp’s motives, it had the right to act as it did.

Question 28

Mike is planning on incorporating his business in the state of Delaware. The corporate name of Mike’s business must be different from:

A. that of any corporation that already exists in Delaware.
B. that of any limited liability company in Delaware.
C. the name of any sole proprietorship in Delaware.
D. All of the above.

Answer 28

A. that of any corporation that already exists in Delaware.

Question 29

Fashions, Inc. has 12 shareholders. There is no shareholder agreement concerning the board of directors. The company is subject to the Model Act. How many directors is Fashions, Inc. required to have?

A. None.
B. One.
C. Two.
D. Five.

Answer 29

A. None.

Question 30

Fashions, Inc. has 12 shareholders. The company is subject to the Model Act. What officers is Fashions, Inc required to have?

A. A president, secretary, and treasurer.
B. A president and a secretary, they can be the same person.
C. A president, at least one VP, a secretary, and a chief financial officer.
D. Whatever officers are described by corporate bylaws.

Answer 30

D. Whatever officers are described by corporate bylaws.

Question 31

The officers of a corporation are:

A. chosen by the board of directors.
B. appointed by the president of the company.
C. elected by shareholders.
D. Appointed by the Secretary of State.

Answer 31

A. chosen by the board of directors.

Question 32

Under most state statutes, a corporation may:

A. include in its charter a provision indemnifying directors unless they have engaged in intentional misconduct of bad faith.
B. include in its charter a provision indemnifying directors who engage in negligent conduct of their duties.
D. not include in its charter any provisions regarding indemnification of directors.

Answer 32

A. include in its charter a provision indemnifying directors unless they have engaged in intentional misconduct or bad faith.

Question 33

Which of the following is correct?

A. Bonds are long-term debt secured by company assets.
B. Debentures are long-term unsecured debt.
C. Notes are short-term debt and may be secured or unsecured.
D. All the above are correct.

Answer 33

D. All the above are correct.

Question 34

MegaCorp is incorporated under Delaware law. It is registered to do business in New york. Legally, in New York MegaCorp is known as what kind of corporation?

A. Domestic
B. Foreign
C. Alien
D. Cumulative

Answer 34

B. Foreign

Question 35

MegaCorp occasionally sells products in Michigan. It does not have an office in that state and does not advertise in Michigan. The company’s marketing representatives are based in New York but do travel to Michigan once a year to attend a trade show. Which statement is correct?

A. MegaCorp must register in Michigan because its sales reps attend a trade show in Michigan.
B. MegaCorp is not required to register in Michigan because it does not have an ongoing presence in Michigan.
C. MegaCorp must register in Michigan because its actions qualify as doing business.
D. Whether MegaCorp has to register in Michigan depends on where its shareholders reside.

Answer 35

B. MegaCorp is not required to register in Michigan because it does not have an ongoing presence in Michigan.

Question 36

MegaCorp is incorporated in the state of Delaware and is registered only in Delaware. Jolene purchased a MegaCorp product from a company’s sales representative following a presentation in Michigan. Jolene was seriously injured by the product in Michigan. Under the Model Act, if Jolene sues in Michigan, can MegaCorp defend the suit there?

A. MegaCorp may only defend against a lawsuit in Michigan if it first registers by paying back fees, taxes, and penalties.
B. Yes, MegaCorp can bring or defend against lawsuit in any state regardless of whether that corporation is registers to do business in that state.
C. Yes, MegaCorp can defend against the lawsuit in Michigan regardless of whether MegaCorp is registered to do business in that state.
D. No. Jolene must sue and MegaCorp may defend a lawsuit only in Delaware.

Answer 36

C. Yes, MegaCorp can defend against the lawsuit in Michigan regardless of whether MegaCorp is registered to do business in that state.

Question 37

Hank owns 100 shares of cumulative preferred stock in Wayside Transport, Inc. Kelsey owns 50 non-cumulative preferred shares, and Oleg owns 120 shares of common stock. Wayside does not pay dividends in 2007. In 2009:

A. Hank and Kelsey must receive their 2009 dividends before Oleg is paid any 2009 dividends.
B. Oleg cannot receive any dividends until Hank is paid for the 2007 dividends.
C. Kelsey cannot receive the dividends Wayside couldn’t afford to pay in 2007. She will just lose them.
D. All of the above.

Answer 37

D. All of the above.

Question 38

What is meant by the term “piercing the corporate veil”?

A. Corporate directors and/or officers may be held personally liable to a person damaged by any act of the corporation/
B. Corporate shareholders may be held personally liable to a person damaged by an act of the corporation.
C. Both of the above.
D. None of the above.

Answer 38

B. Corporate shareholders may be held personally liable to a person damaged by an act of the corporation.

Question 39

The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance their plans. The executives:

A. cannot sell that many shares unless they were authorized initially in the corporate charter.
B. can sell as many shares as the market will bear.
C. are limited by the number of shares authorized by the corporate charter, but this number can be increased by amending the charter and paying a fee.
D. can sell the shares only if the shares have a par value which is close to the current market price.

Answer 39

C. are limited by the number of shares authorized in the corporate charter, but this number can be increased by amending the charter and paying a fee.

Question 40

Wizardry Corporation’s purpose clause in its charter states, “To operate a home-cleaning service business.” After a few years of successful operation, Wizardry is offered the challenge of landscaping a neighboring business. If Wizardry accepts the offer, it would be violating its charter under:

A. the de jure doctrine.
B. the de facto doctrine.
C. the ultra cires doctrine.
D. an estoppel theory.

Answer 40

C. the ultra vires doctrine.