Q&A Hero

Q: Tennessee-Alabama Fireworks Company (TAF) is incorporated in Tennessee. It maintains year-round retail stores in Tennessee and Alabama. It also sells fireworks to individual consumers at a gas station parking lot in Indiana for a period of 20 days before the Fourth of July. Must TAF qualify to do business in Indiana?

Q: Harold and Dorothy own all of the shares of Ace Corporation. Robert, Ace's landlord, sued Ace for unpaid rent. Robert received a $10,000 judgment against Ace. When Robert tried to collect on the judgment, he discovered that Ace Corporation had no assets. He then discovered that Harold and Dorothy no longer operate Ace Corporation. They now operate Optimus Corporation as the only shareholders. Harold and Dorothy had no assets in their names. However, upon further investigation, Robert discovered that Optimus had numerous assets. He reviewed the financial documentation, discovering that Optimus pays for Harold and Dorothy's mortgage, medical bills, and grocery bills. Can a court pierce the corporate veil? Discuss.

Q: Fantase Corporation has a union contract. To avoid the contract, the shareholders plan to form a new corporation. They also elect to transfer their business interest to the new corporation. Is the new corporation liable to the employees for union contract?

Q: In order to capitalize a newly formed corporation, the company will usually seek cash in exchange for equity securities, debt securities, or both.

Q: Mr. Blue has invested in SuperMart Inc. Mr. Blue purchased $5000 worth of shares or 3% equity in the company. Shortly after investing SuperMart Inc. is found guilty of various civil wrongs and a judgment is entered in against the company for 3.1 million dollars. How much liability will Mr. Blue have? A. $5000 will be the limit of his liability B. $93,000 or 3% of the value of the judgment C. $0 Since Mr. Blue was not a managing officer D. $100,000 which is statutory minimum for investor liability

Q: What is the term for when a shareholder causes a corporation to act to the benefit of an individual shareholder? A. Estoppel B. Domination C. Submission D. Incorporation

Q: Rement Corporation is incorporated under the laws of New Jersey. Rement maintains a sales agent in New York City, who makes contracts in New York City. Can New York impose an income tax on Rement's profits from its New York sales at the same rate it taxes income from domestic New York corporations?

Q: The National Collegiate Athletic Association Inc., (NCAA) is incorporated in Indiana. The NCAA accredits college athletic programs and sanctions and regulates athletic competitions among its member colleges. The NCAA selects New Orleans, Louisiana as the site of its men's college basketball 1999 Final Four, with Tulane University as the host school. To assist Tulane's hosting of the Final Four, NCAA officials make several trips to New Orleans in the course of one year. For nine days immediately and during the Final Four, NCAA officials are in New Orleans. Altogether, NCAA officials spend 23 days in New Orleans. Is the NCAA required to qualify to do business in Louisiana?

Q: Anderson incorporated his new company, Pearl Inc., in the business of manufacturing rubber. After some years, he opened his own subsidiary rubber manufacturing company. The new subsidiary company is a success. Meanwhile, the workers of Pearl Inc., claimed that payment of bonus is due and they are demanding the same from the subsidiary company. In this case, are both Pearl Inc., and its subsidiary liable? A. Yes, they are liable because it is provided under corporation law. B. Yes, they are liable because both are the same entity in the eyes of the law. C. No, they are not liable because it is not a subsidiary of Pearl Inc. D. No, they are not liable because a subsidiary is not liable for parent's debts as provided under the law.

Q: Wheelies is an auto parts retailer. It operates a retail megastore in a city where the city ordinance prohibits retailers from being open on consecutive Sundays. The management of Wheelies realizes that their maximum sales happen on Sundays. They create a wholly-owned subsidiary, CarBasics, and start leasing the megastore building and its inventory to CarBasics every alternate Sunday. Who is liable for violating the city ordinance? A. Neither Wheelies nor CarBasics B. Wheelies only C. CarBasics only D. Both Wheelies and CarBasics

Q: A pastor of a church (a nonprofit corporation) believes that his salary is too small to cover his meager expenses. When repeated requests to management and superiors do not lead to a salary increase, he starts supplementing his salary with church donations. What risk is he running? A. None, because the pastor and the church are separate and distinct legal entities. B. None, because the pastor's meager salary justifies this action. C. The veil between the pastor and the church will be pierced because the pastor's act is immoral. D. The veil between the pastor and the church will be pierced because the pastor's act is defrauding church members.

Q: To prove domination, it is _____ to show that there is only one shareholder. A. neither sufficient nor necessary B. sufficient C. both necessary and sufficient D. necessary

Q: Jim created a shoe-manufacturing corporation by contributing $1,000. He stayed as the sole shareholder and director of the corporation. To inject further capital into the corporation, he loaned the corporation $100,000 and secured the loan in exchange for all the corporation's assets. Five years into operations, the corporation has still failed to make profits and consequently files for bankruptcy. Who has been defrauded? A. Ordinary shareholders B. Preferred shareholders C. Nonshareholder-creditors D. Board of directors

Q: Big Corporation (BC) was dominated by its president, Mr. Vincent. He used his dominance for an improper purposedefrauding lenders to the corporation. As a result, a court can: A. impose criminal penalties on him. B. make him personally liable on the debts to those lenders. C. terminate the corporate charter of BC. D. compel him to resign.

Q: Forming a business with a high debt-to-equity ratio is an example of: A. circumventing a statute. B. thin capitalization. C. creditor domination. D. looting.

Q: Katie Kuric is the only shareholder, director, and officer of two corporations, Multimedia Corporation and Kuric Network Television Corporation (KNT). Multimedia produces television shows and movies. KNT broadcasts television programming over the air and on cable. KNT purchases much of its TV programs and movies from Multimedia. KNT often pays Multimedia for the TV shows and movies more than a year after payment is due, without being required to pay interest or a late payment penalty. What risk is Katie taking by allowing KNT to pay Multimedia late? A. None, because KNT and Multimedia are separate and distinct legal entities. B. None, because only Multimedia is harmed by this arrangement, and Katie owns both corporations. C. KNT's veil will be pierced because KNT is evading an obligation with Multimedia. D. KNT's veil will be pierced because Multimedia's creditors are being defrauded.

Q: Since the level of doing business that constitutes intrastate business for qualification purposes has been difficult to define, the Model Business Corporation Act lists several activities that do not require qualification. One such activity is: A. owning or using real estate for general corporate purposes. B. soliciting orders by mail that require acceptance outside the state. C. entering into contracts relating to local business or sales. D. maintaining a stock of goods within a state from which to fill orders.

Q: QT Inc., is incorporated in Alabama, has offices in Nebraska, has a manufacturing plant in Delaware, and conducts most of its sales from Virginia. Regulation of its internal affairs will be exercised only by: A. Alabama. B. Nebraska. C. Delaware. D. Virginia.

Q: Ala Foreign Corporation is incorporated in the state of Alabama. However, it is running 90 percent of its operations from the state of Indiana. Such a type of corporation is called a(n): A. government-owned corporation. B. foreign corporation. C. alien corporation. D. pseudo-foreign corporation.

Q: Nearly all corporations whose veils are pierced are: A. close corporations. B. government-owned corporations. C. publicly held corporations. D. nonprofit corporations.

Q: In which of the following situations will a business incorporated in Ohio be required to qualify to do business in Kentucky? A. The business maintains a stock of goods in Kentucky from which it sells to customers in Kentucky. B. The business owns a building in Kentucky, which it holds for investment. C. The business sends a sales agent to Kentucky to solicit orders from customers in Kentucky, while orders are brought back to and accepted in Ohio. D. The business sells its goods to customers in Kentucky through independent distributors located in Kentucky.

Q: Which of the following documents is required for a foreign corporation to do intrastate business in a state? A. Domicile certificate B. Certificate of authority C. Commerce certificate D. Tax returns certificate

Q: Which of the following activities is classified as doing business for the purpose of intrastate business qualification? A. Owning or using real estate for general corporate purposes. B. Soliciting orders by mail that require acceptance outside the state. C. Selling products or services through independent contractors. D. Conducting an isolated transaction that is completed within 30 days.

Q: According to the Supreme Court of the United States, a foreign corporation may be brought into a state's court in connection with its activities within the state, provided that the state does not violate the corporation's due process rights under the Fourteenth Amendment of the Constitution and its rights under the: A. Foreign Business Clause. B. Domestic Business Clause. C. Commerce Clause. D. Doing Business Clause.

Q: A state law regulating the activities of a foreign corporation does not unduly burden interstate commerce if: A. the law serves both the state's and the foreign corporation's legitimate interest. B. the foreign corporation has chosen the least burdensome means of promoting that interest. C. the legitimate state interest outweighs the statute's burden on interstate commerce. D. a foreign corporation enters interstate commerce to do intrastate business in a state.

Q: Most of the states have passed _____ to permit their courts to exercise jurisdiction under the decision of the International Shoe case. A. international statutes B. amendments to the state constitution C. amended commerce laws D. long-arm statutes

Q: What is the number of events considered sufficient under the minimum contacts test to confer jurisdiction on a state's courts? A. 10 B. 20 C. 1 D. 5

Q: Outland Corporation is incorporated in Wyoming, where it has its executive office. It has a manufacturing plant in Utah, and a warehouse in New Mexico, where most of its sales are made. Outland is subject to taxation in: A. Wyoming, Utah, and New Mexico. B. Wyoming and Utah only. C. Wyoming and New Mexico only. D. New Mexico only.

Q: A state may impose its laws on a foreign corporation if such imposition does not violate the Constitution of the United States, notably the Due Process Clause of the Fourteenth Amendment and the Commerce Clause. The leading case in this area is the _____ case. A. International Shoe B. Katris v. Carroll C. Ryan v. Cerullo D. World-Wide Volkswagen Corp. v. Woodson

Q: Under the _____ Clause, the power to regulate interstate trade is given to the federal government. A. Due Process B. Corporate C. Commerce D. Doing Business

Q: Nearly all for-profit corporations are incorporated under what laws? A. Government owned incorporation law B. General incorporation law C. State LLC law D. State Non Profit law

Q: Toywood Inc., headquartered in Vermont, specializes in manufacturing non-toxic wooden toys in its two mechanized units in Vermont and New Hampshire. Its flagship store is located in Philadelphia, PA. It will be considered a(n) _____ corporation in PA. A. domestic B. alien C. domicile D. foreign

Q: The Model Business Corporation Act (MBCA) was prepared and authorized by the: A. federal government. B. state governments, acting together. C. state governments, acting separately. D. American Bar Association's Committee on Corporate Laws.

Q: The law of piercing the corporate veil is an example of a _____ law protecting the creditors of corporations. A. commerce B. common C. constitutional D. statutory

Q: Most of the common law of corporations deals with: A. creditor and shareholder rights. B. incorporation of not-for-profit organizations. C. promoter and manager rights. D. incorporation of sole proprietorships.

Q: Not-for-profit corporations are regulated primarily by the: A. states. B. federal court. C. federal government. D. Supreme Court.

Q: In which of the following classes of corporation are the controlling shareholders the only managers of the business? A. For-profit corporation B. Close corporation C. Not-for-profit corporation D. Publicly held corporation

Q: The maximum number of shareholders that are allowed in a Subchapter S corporation is: A. 50. B. 75. C. 100. D. 500.

Q: Which of the following statements is true of not-for-profit corporations? A. They provide services to their members. B. They must distribute all of their surplus revenues to their shareholders. C. They must distribute all of their excess revenues to charities. D. They issue stocks only to their owners.

Q: Which of the following classes of corporation has members rather than shareholders? A. S corporation B. For-profit corporation C. Publicly held corporation D. Not-for-profit corporation

Q: A Subchapter S corporation is typically treated like a _____ for federal income tax purposes. A. for-profit corporation B. partnership C. publicly held corporation D. not-for-profit corporation

Q: Which of the following legal provisions treats a corporation as a person? A. Corporation law B. The law of contract C. The Constitution of the United States D. The law of torts

Q: Which of the following is true about an S corporation? A. It is taxed at both the corporate and shareholder levels. B. It may only have 500 or less shareholders. C. An S corporation election requires the consent of a majority of its shareholders. D. Shareholders of an S corporation may be only individuals or trusts.

Q: Which of the following corporation classes' profits are taxed only at the shareholder level? A. An S corporation B. For-profit corporation C. Not-for-profit corporation D. Publicly held corporation

Q: Which of the following classes of corporation may not distribute surplus revenue from its operations to its members? A. An S corporation B. For-profit corporation C. Not-for-profit corporation D. Publicly held corporation

Q: Under the general incorporation law, the minimum number of owners a business needs to be incorporated as a for-profit corporation is: A. 10. B. 5. C. 1. D. 20.

Q: Which of the following is correct about the history of corporations? A. In the late 18th century, general incorporation statutes emerged in the United States. B. From the 18th century onward, France started giving privileges of incorporation to mercantile ventures. C. Early American corporations received special privileges from state legislatures. D. In England, the corporate form was used extensively after the 16th century.

Q: What was the name of the documents that were given to early American corporations by state legislatures that permitted them to operate as a corporation? A. Certificate of Corporation B. Organization Agreement C. Special Charter D. Domestic Treaty

Q: Mary Lee James, a certified public accountant at Edgewater, Florida, wishes to incorporate. According to the corporate law requirements, she needs to incorporate under the: A. common corporation law. B. professional corporation acts. C. special professional charter. D. general incorporation law.

Q: Transfer of corporate assets to shareholders for less than fair market value is called "looting."

Q: In order to pierce the corporate veil, a creditor needs to show that each shareholder does not actively participate in the management of the corporation.

Q: A corporation with a reasonable debt-to-equity ratio will not have its veil pierced on the grounds of thin capitalization.

Q: The corporate form of business has facilitated the rapid growth of development by allowing businesses to attain economies of scale compared to other forms of businesses by: A. giving businesses a greater capacity to raise capital. B. imposing unlimited management responsibilities on the owners. C. maximizing the owners' liabilities. D. granting the persons who control a corporation limited flexibility in operating it.

Q: A foreign corporation must incorporate in each state in which it does intrastate business.

Q: The U.S. Constitution gives the federal government to regulate business activity that occurs across state lines.

Q: Doing intrastate business without filing with the appropriate state office will likely subject a business to a fine.

Q: A corporation with one person who is the only shareholder, officer, and director will have its corporate veil pierced, making that person personally liable for all the obligations of the dominated corporation.

Q: A foreign corporation is one that conducts its business in a state where it is not incorporated.

Q: There is a similar set of legal rules that apply to both foreign and alien corporations.

Q: The mere presence of a Nevada corporation's vacant property in California is sufficient to subject the corporation to taxes in California.

Q: Greater contacts are needed to subject a corporation to property taxation in a state than are needed to subject it to state income and sales taxation.

Q: A state's courts may exercise jurisdiction over a foreign corporation that has contacts in the state.

Q: Not-for-profit corporations have members instead of shareholders and none of their surplus revenue may be distributed to their members.

Q: Incorporating a business involves following state law.

Q: It is possible to create a corporation without a government's permission.

Q: The directors and officers of a corporation need to be its shareholders.

Q: During the early period of American history the state governments issued special charters that created corporations.

Q: Government-owned corporations are created primarily to allow their owners to have limited liability.

Q: The purpose behind the Model Business Corporation Act is to exploit the maximum potential of workers in a corporation.

Q: Samantha is the general partner and Jack and Jared are the limited partners of Profiler Limited Partnership. Samantha has contributed capital of $30,000 to the partnership, Jack has contributed $150,000, and Jared has contributed $120,000. They have not agreed on how to share profits or losses. Profiler incurs a loss of $90,000 in its first year. What is Jack's share of the loss? If Jack has a total income of $225,000 from other sources and an income of $15,000 from other passive investments, how much of the loss may he deduct on his federal income tax return?

Q: Brady is the sole general partner in ABC Limited, a limited partnership. There are five limited partners. One day, Brady went to the grocery store to purchase groceries for himself. He forgot his personal checkbook. However, he had the partnership's checkbook. Unable to otherwise pay for the groceries, he wrote a check from the partnership account, thinking that he "owned" part of the money in the account anyway. Discuss.

Q: Bob is a partner in XYZ Limited Partnership. For tax reasons, Bob wishes to be both a general and a limited partner. May he do this?

Q: Sandra starts a new LLLP for her gelato business. She becomes the general partner of the LLLP and her friend Katy becomes a limited partner. There are no other general or limited partners in the LLLP. Apart from being a general partner, Sandra wishes to become a limited partner in the LLLP to increase her share of profit. Can she do it? If not, suggest a method by which she might be able to do it.

Q: A corporation is a legal entity independent of its owners.

Q: What form of statute would authorize an individual to form an LLLP? A. Federal statute B. State statute C. International statute D. City statute

Q: The ULPA and the RULLCA permit limited partnerships and LLCs to merge with other businesses. For the merger procedure, the first requirement is that the companies have to: A. file a suit in the proper court. B. obtain consent from the state secretary. C. adopt a conversion plan. D. enter into an agreement.

Q: How long does it take before a certificate of dissociation is effective to prevent liability as a partnership is winding down? A. 90 days B. 180 days C. 365 days D. 30 days

Q: Kallie and Lisa wish to start XYZ Limited Liability Company. What steps do they need to take in order to establish it?

Q: Shawn was a manager and a limited partner in a Wall Street securities investment firm limited partnership. He was expelled from the limited partnership after his conviction in a securities fraud. Which of the following is true? A. Shawn will retain his right to receive profits. B. Shawn will retain his right to vote as a limited partner. C. Shawn will lose his limited liability status. D. Shawn will retain his managerial powers.

Q: To give notice of a dissociation that is effective against everyone, the ULPA permits the filing of a Notice of Dissociation which is effective: A. 120 days after filing. B. 90 days after dissociation. C. 90 days after filing. D. 120 days after dissociation.