R Corporation

Question 1

A promoter, like a shareholder, officer, or director, is not liable on contracts the promoter makes on behalf of the corporation. True or false?

Answer 1

False, generally promoters are personally liable on contracts that they enter into on behalf of the corporation to be formed

Question 2

What must be included in the articles of incorporation of a corporation?

Answer 2

• Name of the corporation
• Names and addresses of the corporation’s registered agent (on whom process may be served if the corporation is sued)
• Names and addresses of each of the incorporators
• Number of shares authorized to be issued
• A clause entitling one or more classes of stock to voting rights

Question 3

For what reasons do courts typically disregard the corporate entity (pierce the corporate veil)? who is held liable?

Answer 3

• Shareholders, officers or directors who commingle personal funds with the corporate funds or otherwise ignore most corporate formalities
• The corporate is inadequately capitalized at the time of formation (thinly)

If the corporate entity is disregarded (the corporate veil is pierces) courts can reach the responsible shareholders, officer and/or director

Question 4

What is the minimum number of directors for a corporation?

Answer 4

Under RMBCA, a corporation needs only one director but the articles of incorporation or bylaws may require as many directors as desired without limitation

Question 5

What is the minimum number of officer for a corporation?

Answer 5

The minimum number of officer for a corporation is one. The duty of the officer is to record the minutes of director’s and shareholder’s meetings and to authenticate corporate records. However, corporations are free to provide for more officers in the bylaws

Question 6

What is the procedure for a fundamental change?

Answer 6

Fundamental changes procedure:

1. Board resolution (majority)
2. Notice to shareholder
3. Shareholders approval (majority)
4. Filing of amendments to the articles

Question 7

What are the fundamental corporate changes that require shareholder approval?

Answer 7

D - Dissolution
A - Amendments to the articles of incorporation
M - Mergers, consolidations and compulsory share exchanges
S - Sale of substantially all the corporation’s assets outside the regular course of business

Question 8

When does a shareholder of common and/or preferred stock have a right to a dividend?

Answer 8

Generally, shareholders do not have a right to a dividend unless and until a dividend is declared by the board of directors

Question 9

Once a dividend is declared, shareholders have the status of secured creditors. True or false?

Answer 9

False, once a dividend is declared shareholders have the status of unsecured creditors

Question 10

What is the advantage of accumulative preferred stock?

Answer 10

The advantage of cumulative preferred stock is that even if a dividend is not declared in a particular year, the right to receive that dividend (if dividends are ever declared) accumulates and that accumulated but unpaid dividend, must be paid before common shareholders can receive any dividend (although there is no right to the dividend until it is declared)

Question 11

What is the main point regarding the inspection of rights of shareholders?

Answer 11

Shareholders (or their agents, attorneys, accountants etc) may inspect for any proper purpose (a purpose related to the shareholder’s interest in the corporation; to start a derivative suit or to solicit shareholders to vote for certain directors) but shareholders also may be denied inspection for improper purposes (a purpose personal to the shareholder to get names for retail mailing list)

Question 12

Which of the following businesses can be formed without filing a formation document with the state:

Answer 12

Partnership - NOT required
Limited Partnership - required
Limited Liability Company - required
Corporation - required

Question 13

How is a limited partnership similar to a corporation?

Answer 13

A limited partnership is similar to a corporation in that both can be formed only by compliance with statue and filing with the secretary of state, and both limited partnerships and corporations provide limited liability for investors (except general partners)

Question 14

Which of the following businesses offer flow-through taxation for their owners?

Answer 14

Partnership - YES
Limited Partnership - YES
Limited Liability Company - YES (can opt to be taxed like a C Corp)
S Corporations - YES
Corporation - NO