REG - Business Structure

Question 1

When can the corporate veil be pierced?

Answer 1

(1) Corporation used to perpetrate fraud (e.g., forming an under-capitalized corporation)
(2) Owners/officers do not treat corporation as separate entity
(3) Shareholders commingle assets, bank accounts, financial records with those of corporation
(4) Corporate formalities not adhered to

Question 2

LLC attributes

Answer 2

• Limited liability for all its owners
• Can permit all its owners to participate in management and control of the entity
• absent an agreement to the contrary, is dissolved on the death, withdrawal, or bankruptcy of an owner

Question 3

Preemptive Right

Answer 3

This is the right to subscribe to new issues of stock (at FMV) so that a stockholder’s ownership will not be diluted without the opportunity to maintain it

b. Usually only applies to common stock, not preferred
c. Not for treasury stock
d. There is no preemptive right to purchase stock unless Articles of Incorporation so provide

Question 4

Derivative suit

Answer 4

shareholders sue on behalf of the corporation

Question 5

Under the Revised Model Business Corporation Act, which of the following dividends is not defined as a distribution?

Cash dividends.
Property dividends.
Liquidating dividends.
Stock dividends.

Answer 5

Stock Dividends

A stock dividend is not defined as a distribution under the Revised Model Business Corporation Act.

Question 6

Cumulative voting

Answer 6

Gives the shareholder one vote for each share owned times the number of directors being elected.

This gives minority shareholders an opportunity to get some representation on the board by voting all shares for one or two directors.

Question 7

Novation

Answer 7

The process of substituting one party to a contract for another

Question 8

Grounds for judicial dissolution of a corporation:

Answer 8

• waste of corporate assets by the BOD
• Directors are deadlocked in the management of the corporate affairs.
  • Acts of the directors are illegal or oppressive.
  • Shareholders are deadlocked and have not been able to elect directors for two consecutive annual meetings.

Question 9

Main purpose of an operational agreement for any business entity

Answer 9

anticipate and diffuse problems before they occur

Question 10

Partnership by estoppel

Answer 10

a situation in which an individual who is not a partner makes a representation or allows a representation to be made that he or she is a partner

Question 11

Which of the following can be an advantage of a limited liability company over an S corporation?
Double taxation of profits is avoided.
Owners receive limited liability protection.
Appreciated property can be distributed tax-free to an owner.
Incentive stock options can be used to compensate owners.

Answer 11

Appreciated property can be distributed tax-free to an owner.

LLC follows partnership rules so it may distribute appreciated property tax-free. S-Corporation must recognize the gain on the appreciated property distributed to a shareholder.

Question 12

ultra vires doctrine

Answer 12

applies when a corporation enters a contract outside the scope of its express or implied authority granted by its Articles of Incorporation.

The state or shareholder has the right to object to an ultra vires act.

A shareholder can institute a derivative action against directors and officers to recover damages for such acts.

Question 13

Must a partnership formed by express agreement be in writing?

Answer 13

No.

It may be formed orally.

Question 14

Doctrine of respondent superior

Answer 14

provides that an employer is responsible for the torts committed by employees in the normal scope of duties.