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Business Law
Q:
Nonemployees such as financial planners, accountants, auditors, and attorneys are considered corporate outsiders.
Q:
The corporate opportunity doctrine states that managers may take an opportunity for themselves if they offer the opportunity first to the corporation and the corporation rejects the opportunity.
Q:
A previously unauthorized act by a manager can be later ratified by a vote of the board or the shareholders.
Q:
Once declared by a corporation's board of directors, a dividend becomes the debt of the corporation and enforceable by law.
Q:
Those who support governmental control demand that the government have a seat in every corporate boardroom in America.
Q:
Cumulative voting favors majority shareholders.
Q:
Proxy contests involving large, publicly held corporations are regulated by the Department of Commerce.
Q:
Jacy wants to submit a shareholder proposal and should submit the proposal to management at least 120 days before the shareholders' meeting.
Q:
Shareholder proposals are considered to be the strongest of all shareholder voting tactics.
Q:
In general, once a voting trust has been created, it cannot be ended until the specific time period has run its course.
Q:
Shareholders join together in a permanent arrangement and agree to vote the same way on a particular issue in a pooling agreement.
Q:
Aliens, minors, and nonshareholders are barred from being members of the board of directors.
Q:
Directors are not entitled to be notified about regular board meetings unless notice is required by the corporation's bylaws.
Q:
The special interest group theory of corporate governance should include members of employees' unions on the board of directors.
Q:
Henry, a promoter, signs a five-year lease agreement for office space for Ajax Corp., which has not yet been formed. After formation, Ajax moves into the office space, pays rent and occupies it for six months, but then finding a cheaper location and moves out. Which party is liable on the lease?
A. Henry
B. Ajax
C. No one since it was a tenancy at will
D. Both Henry and Ajax
Q:
Most state incorporation statutes provide that a corporation's business affairs should be managed under the direction of a board of directors.
Q:
Nodest Co., a Delaware corporation, wants to do business in California. Nodest:
A. does not need to take any particular action.
B. must incorporate in California.
C. must obtain a certificate of authority from California.
D. must obtain certificates of authority from both California and Delaware.
Q:
Which of the following is a business corporation where the outstanding shares of stock and managerial control are closely held by fewer than 50 shareholders or by one person?
A. S corporation
B. Close corporation
C. Alien corporation
D. Shell corporation
Q:
A limited liability company is best thought of as a cross between a partnership and a:
A. sole proprietorship.
B. governmental institution.
C. limited partnership.
D. corporation.
Q:
Jan signs the articles of incorporation for a corporation being formed and Tom wants to locate possible investors in the new corporation. Jan is a(n):
A. incorporator.
B. promoter.
C. registered agent.
D. shareholder.
Q:
In terms of the steps in the incorporation process, which of the following occurs after the charter is issued?
A. Statutory agent is appointed.
B. Organizational meeting is held.
C. Filing fees is paid.
D. Promoters do preliminary work.
Q:
When a corporation is set up as a mere instrumentality of a parent, it is sometimes referred to as a dummy corporation or a corporate shell.
Q:
Par value is the value placed on the shares of stock at incorporation.
Q:
The four fundamental legal principles that are designed to protect the corporate structure are ____, corporate status as an entity, corporate constitutional rights, and corporate citizenship.
A. anticipatory repudiation
B. unconscionable contract
C. mutual recession
D. limited liability
Q:
Kay, an 80% shareholder of Big Corp., dies leaving her stock to her nephew, Carl. Big Corp. will be:
A. unaffected.
B. reorganized.
C. dissolved and then reconstituted.
D. dissolved.
Q:
The Panon Corporation is incorporated in Tennessee. Its principal place of business is located in Massachusetts. As a result, the Panon Corporation is;
A. considered a citizen of only Massachusetts.
B. considered a citizen of only Tennessee.
C. not considered a citizen of either Massachusetts or Tennessee.
D. considered a citizen of both Massachusetts and Tennessee.
Q:
An operating agreement which is beneficial in establishing the bylaws of the LLC is mandatory by law in all states.
Q:
XYZ Co. was improperly incorporated but may nevertheless possibly qualify as a de facto corporation.
Q:
The doctrine of de facto corporation can be altered by the courts and by statutory law.
Q:
If a group of people act as if they are a corporation when in fact and in law they are not, they have the right to deny that the corporation exists.
Q:
A statutory agent has the authority to grant a corporation the right to do business in a particular state.
Q:
A corporation may be incorporated in any state that has a general incorporation statute.
Q:
Janet is the promoter of a corporation called Time Inc., which is in the process of being formed. Janet rents office space in Time's name. Time is bound by Janet's contract.
Q:
Kincaid, a promoter, enters into contracts that include XYZ Co., a corporation not yet formed. Kincaid is personally liable on these contracts.
Q:
Viola, a promoter, wants to be certain the name Xenographics Inc. is available for her corporation. She can reserve the name in advance of incorporation.
Q:
A corporation is considered a citizen of the state in which it is incorporated and not the state where it has its principal place of business.
Q:
An electric company would be an example of a quasi-public corporation.
Q:
A business concern incorporated in Canada and doing business in Ohio would be called an alien corporation.
Q:
Outstanding shares of stock of the Bittman Corporation were held by seven shareholders, all from the same Bittman family. The Bittman Corporation may be designated as a close corporation.
Q:
The shareholders of an S corporation have the profits or losses of the corporation taxed directly to them in order to avoid double taxation.
Q:
LLCs are subjected to double taxation.
Q:
Zeno Corp. has issued common stock and noncumulative preferred stock. The board of directors of Zeno has not paid a dividend in 10 years. Discuss the rights of shareholders to demand a dividend payment and the ability of the noncumulative preferred shareholders to collect back dividends for the years in which no dividend was paid.
Q:
Wong and Burton owned several hundred shares of preferred stock in Classic Inc. For three years, neither were paid dividends. In the fourth year, Classic paid dividends to both shareholders. Wong also received payment for dividends from the preceding three years. Burton did not receive any dividends from those years. Identify the type of stock owned by each shareholder.
Q:
The process of doing business as a corporation is called associative corporativism.
Q:
A corporation is a legal entity created under the authority of a state or federal statute that gives certain individuals the capacity to operate an enterprise.
Q:
The Twelfth Amendment grants due process rights to corporations.
Q:
Clothe You Inc. was incorporated as a nonprofit organization that gave away secondhand clothes to homeless persons. In order to pay overhead and administration costs, Clothe You Inc. also sold the secondhand clothes to any interested individuals who did not qualify as homeless. One year after its formation, Clothe You Inc. was incorporated in the same state. Clothe Me Inc. was a consignment shop that sold its secondhand clothes cheaply. Clothe Me Inc. ran an aggressive print advertising campaign, marketing its clothes "to everyone, for every reason, for practically no cost." After this campaign Clothe You Inc. discovered that people, especially homeless individuals, were confusing the two organizations. What legal action, if any, can be taken by Clothe You Inc.?
Q:
A&B, a general partnership, wants to become "A&B, LLC." "A&B Co." is already in use by another business and the state agency refuses to allow the new corporation to use the name "A&B." Discuss how A&B should proceed.
Q:
In creating ABZ Inc., Newman and Zimmer followed all the steps in the incorporation process as authorized in their state's incorporation statute except for the appointment of a statutory agent. They were never informed of the oversight and proceeded under the assumption that they were properly incorporated. Several years later, a customer was injured by one of their products. The customer's lawyer told Newman and Zimmer that they were individually liable because ABZ Inc. was not properly incorporated. Was the lawyer correct? Explain.
Q:
Tom and Jim from JT Co. plan to engage in the building construction business. They obtain contracts in the name of JT Co. but fail to keep separate bank accounts for JT Co. funds, placing JT Co. money in their personal bank accounts. In addition, much of the JT Co. equipment is titled in the name of Tom and Jim. JT Co. breaches a construction contract with Titan Co. Discuss if Tom and Jim might have personal liability for this breach of contract.
Q:
Big Co. creates a wholly owned subsidiary, Small Co. Small Co. sells poor quality merchandise on credit to consumers at unlawful rates of interest and violates the warranty agreements made with consumers. Discuss if Big Co. may be held liable for the actions of Small Co.
Q:
Patricia holds 150 shares of common stock in a large corporation. Patricia:
A. is guaranteed the rights to some of the profits of the corporation.
B. is most likely entitled to two votes for each share of stock she holds.
C. will not be included in the distribution of capital upon dissolution of the corporation.
D. risks whatever money she invested in the 150 shares of common stock.
Q:
ABC Co. owns land that is in the path of a new proposed interstate highway. ABC does not want to surrender this land. Discuss what rights ABC or the shareholders of ABC have to challenge this proposed taking?
Q:
Global Corp. is incorporated in Mexico and wants to do business in Ohio. Discuss the legal status of Global in relationship to Ohio and what Global must do to qualify to do business in Ohio.
Q:
Jon, a promoter, is concerned about being personally liable on preincorporation contracts he signs on behalf of corporations that have not yet been formed. Discuss what Jon may lawfully do to avoid this liability.
Q:
Janice requires information about the voting rights of members of Titan, LLC. Which document will contain this information?
A. Articles of incorporation
B. Articles of organization
C. Bylaws
D. Operating agreement
Q:
A _____ is one that has been formed properly by incorporators who followed all of the steps outlined by the state incorporation statute.
A. corporation by estoppel
B. de facto corporation
C. de jure corporation
D. partnership
Q:
The status of a de facto corporation can be directly challenged by:
A. private citizens.
B. the state government.
C. both private citizens and the state government.
D. neither private citizens nor the state government.
Q:
Alan sells merchandise on credit to ABC Co. ABC fails to pay for the merchandise. Alan later discovers that ABC is not a corporation but a partnership consisting of Alice, Betty, and Charles. Which legal doctrine might shield Alice, Betty, and Charles from personal liability?
A. De facto corporation
B. De jure corporation
C. Corporation by estoppel
D. Piercing the corporate veil
Q:
Vivian, owner of Titan Corp., uses Titan Corp. as a way to order merchandise for her personal benefit and fails to pay for the merchandise. Creditors who have shipped merchandise to Titan want to sue Vivian personally. Which of the following legal doctrines would allow a personal suit against Vivian?
A. Corporation by estoppel
B. Piercing the corporate veil
C. De facto corporation
D. De jure corporation
Q:
Grant wants to know the date of the annual shareholders meeting of Big Co. Which document will contain this information?
A. Articles of corporation
B. Articles of organization
C. Bylaws or regulations
D. Operating agreement
Q:
_____ refer(s) to the written application to the state for permission to form a limited liability company.
A. Novation.
B. Estoppel.
C. Operating agreement.
D. Articles of organization.
Q:
Striuli asks Sarducci to become a limited partner in Avionics Ltd., a limited partnership that will sell computer software. Both Striuli and Sarducci delay filing the certificate of limited partnership. If the limited partnership is sued before the certificate is filed, will Sarducci be named as a defendant? Explain.
Q:
Wellington and Haggerty were partners in a souvenir shop. It is a general traditional partnership. While on a regular delivery trip, Wellington caused an accident when he ran a red light. Haggerty claimed that only Wellington was liable for the injuries sustained by the other driver. Was Haggerty correct? Explain.
Q:
Promoters can escape potential liability by having the corporation and the third party agree to release them. The agreement releasing a promoter is known as a(n):
A. novation.
B. estoppel.
C. operating agreement.
D. articles of organization.
Q:
Liz, a promoter, hired an office support staff for a corporation that had not yet been incorporated. If there is a novation clause in a subsequent contract with the corporation and the staff, then:
A. the corporation will not be bound by any of Liz's contracts.
B. the office support staff will work without pay until the corporation becomes incorporated.
C. Liz will escape potential liability under the novation contract entered into.
D. Liz and the corporation will be held equally liable under all contracts entered into.
Q:
Which of the following is the official authorization of a corporation to do business in a state?
A. Articles of incorporation
B. Certificate of incorporation
C. Articles of organization
D. Certificate of authority
Q:
Tangent Enterprises is a partnership consisting of Delen, Javid, and Kaya. Kaya leaves the partnership to do volunteer work in Africa. Discuss the legal status of Tangent Enterprises.
Q:
Brylea is paid 10% of the net profits by Delta Partnership as compensation for her work for Delta. Delta ceases business, owing many creditors who attempt to collect from Brylea, asserting that Brylea is a partner. Discuss Brylea's partnership status and liability.
Q:
A large machine is purchased by Vida and is sometimes used for her personal work and sometimes used for work by the partnership of which she is a member. Discuss what factors a court will consider in deciding if the machine is partnership property.
In what name was the property obtained and whose funds were used to purchase it? Is the property on the partnership account books? Has the partnership paid funds to repair, improve, pay taxes on, or maintain the property? All of these factors operate collectively to determine that an item is partnership property.
Q:
Jackson, Thomas, and Susan are partners in an investment firm. There is a vote taken to purchase government bonds, with Thomas and Susan in favor and Jackson opposed. Jackson decides to sell government bonds and the partnership loses $50,000. Discuss Jackson's liability to the partnership.
Q:
Morgan, Slater, and Jergenston were partners in a legal consulting partnership. Jergenston pocketed $500,000 he had solicited in bank loans for expanding the partnership. When Morgan and Slater discovered Jergenston's impropriety, Jergenston told them, "Tough luck, but as partners, we are jointly liable on this debt and must pay off the $500,000 plus interest together." Was Jergenston correct? Explain.
Q:
Due to a typing mistake, Delta, a limited partner in Derby Limited Partnership, is identified in the certificate of limited partnership as a general partner. Discuss how this error should be corrected.
Q:
Tina is a limited partner in Aon Enterprises, a limited partnership, while Mark is a general partner. Tina assumes management duties when Mark is recovering from heart surgery. Who has liability for partnership actions in this period?
A. Aon Enterprises only
B. Mark only
C. Tina only
D. Mark and Tina only
Q:
In a limited partnership:
A. general partners have limited liability for the firm's debts.
B. a certificate of limited partnership must be filed with the secretary of state's office.
C. limited partners are participating investors.
D. general partners take a limited part in the management of the firm.
Q:
Anita wants to go into business for herself, but does not know how to start. Discuss the best way for Anita to begin.
Q:
Todd and Walker form a venture to operate snow cone stands in Smallville. The stands are only open for five warm weather months. The remainder of the year, Todd and Walker do no business together. Discuss the legal status of their business.
Q:
Which of the following is true of limited partners?
A. They take an active part in the management of the firm.
B. Their nonpartnership property can be used to satisfy any debts owed by the partnership.
C. They are nonparticipating investors.
D. They have unlimited liability for the firm's debts.
Q:
John knows that the Franklin Partnership, in which John is a partner, is interested in purchasing a particular tract of land for a business location. Can John lawfully have his aunt buy the land so that she may resell the land to Franklin Partnership?
A. No, it violates John's duty of care.
B. Yes, assuming the price to Franklin was a fair market price.
C. No, it violates John's duty of loyalty.
D. Yes, the aunt is not a Franklin partner and has no loyalty to it.
Q:
Under RUPA, a _____ takes place whenever a partner is no longer associated with the running of the firm.
A. dissolution
B. dissociation
C. rescission
D. devolution