Q&A Hero

Q: When close corporation shareholders want to ensure that there is a market for their shares upon their deaths, they should use a: A. buy-and-sell agreement. B. right of first refusal. C. consent restraint. D. provision disqualifying purchasers.

Q: _____ are long-term, unsecured debt securities. A. Options B. Warrants C. Bonds D. Debentures

Q: Generally, _____ have a shorter duration than debentures or bonds. A. options B. warrants C. promissory notes D. rights

Q: Short-term certificated options that are usually transferable are referred to as: A. options. B. warrants. C. bonds. D. rights.

Q: Several states' constitutions place stricter limits than the MBCA on permissible considerations for issuance of common shares by corporations. Which of the following considerations is permissible under the MBCA but not permissible by such state constitutions? A. A promoter's preincorporation services worth $25,000, which services were performed prior to incorporation. B. A gratuitous promise to contribute $35,000 in cash to the corporation. C. Bonds of another corporation, which bonds are worth $15,000. D. The president's actual performance of services for the corporation, which services are worth $50,000.

Q: Under the MBCA, which of the following is correct concerning shares repurchased by the corporation? A. They are no longer issued or outstanding, which means that they may be resold only for par value or more. B. They may either be restored to unissued status or held as treasury shares, which means they may be sold at any price. C. They may be canceled, in which case they are no longer authorized and cannot be reissued. D. They are issued but not outstanding, which means they may be resold at any price.

Q: Shares permitted to be issued by a corporation are called: A. preference shares. B. issued shares. C. authorized shares. D. outstanding shares.

Q: _____ shares are shares that have been sold to shareholders. A. Preference B. Issued C. Authorized D. Outstanding

Q: If repurchased shares are neither canceled nor restored to unissued status, they are called _____ shares. A. preference B. treasury C. Golden D. outstanding

Q: According to the MBCA, who amongst the following is liable for a defective corporation's contracts and torts? A. A shareholder manager who knows that the corporation does not exist. B. A passive shareholder who knows that the corporation does not exist. C. A nonshareholder manager who believes that the corporation exists. D. A member of the board of directors who believes that the corporation exists.

Q: According to the Model Nonprofit Corporation Act (MNCA), what is the minimum number of members that a nonprofit corporation is required to have? A. 50 B. 1 C. 10 D. 0

Q: What is the only function of an incorporator of a business? A. To bring a corporation into existence B. To serve as the corporation's first CEO C. To issue public offerings of stock D. To act as attorney in fact on a permanent basis for the business

Q: A bank may lend money to a corporation in exchange for the corporation's short-term promissory notes, which are called: A. shares. B. commercial paper. C. debentures. D. bonds.

Q: Equity securities consist of: A. debentures and promissory notes. B. short-term notes payable. C. common and preferred shares. D. bonds and debentures.

Q: N-Gate Corporation (NGC) was defectively organized. As a result, not even a corporation by estoppel was formed. An NGC truck driver negligently ran over a pedestrian while delivering goods manufactured by NGC. The pedestrian now wants to sue. Who is liable in this situation? A. The managers of NGC only. B. The truck driver only. C. The truck driver and the managers of NGC. D. The truck driver, the managers of NGC, and all the purported shareholders of NGC.

Q: When the promoters of a business substantially comply with each of the mandatory conditions precedent to the incorporation of the business, a(n) _____ corporation is formed. A. "S" B. de jure C. de facto D. estoppel

Q: Promoters of a youth-oriented magazine publishing business substantially complied with each of the mandatory conditions precedent to the incorporation of the business, but they forgot to include the incorporators' addresses in the articles of incorporation. As a result, a(n) _____ corporation was formed. A. de jure B. de facto C. "S" D. estoppel

Q: N-Ext Corp. (NEC) was defectively organized. As a result, even a corporation by estoppel could not be formed. As representatives of NEC, Pete (a shareholder manager) and Dave (a nonshareholder manager) made a contract with a vendor for supplying raw materials to NEC. The vendor did not get paid as per the contract. Who is liable in this situation? A. NEC B. Dave and NEC C. Pete, Dave, and the management of NEC D. Pete and NEC

Q: Because the articles of incorporation embody the basic contract between a corporation and its shareholders, shareholders must approve most changes in the articles. Which of the following is an example of "such changes" in the article? A. Place of shareholder meeting B. Increase in the number of authorized shares C. Amount of annual dividend D. Date of shareholder meeting

Q: The Statutory Close Corporation Supplement to the MBCA permits a corporation with _____ shareholders to elect to become a close corporation. A. fewer than 100 B. 50 to 75 C. 75 to 100 D. fewer than 50

Q: Any corporation that has complied with all mandatory provisions is called a: A. de facto corporation. B. partnership. C. de jure corporation. D. defective incorporation.

Q: According to the MBCA, which of the following may, rather than must, be included in the articles of incorporation? A. The number of shares that the corporation has authority to issue. B. The name and address of each incorporator. C. The address of the initial registered office of the corporation. D. The names and addresses of the individuals who are to serve as the initial directors.

Q: Under the Model Business Corporation Act, a corporation's existence begins: A. only after the promoters substantially comply with each of the mandatory conditions precedent to incorporation and hold an organization meeting. B. only after the articles of incorporation are filed with the secretary of state. C. when the secretary of state returns to the corporation a copy of the articles stamped "Filed." D. when the shareholders approve of all the changes in the articles.

Q: Which of the following occurs at a corporation's organization meeting? A. Adoption of preincorporation contracts. B. Authentication of the articles of incorporation. C. Adoption of bylaws to supplement the articles of incorporation. D. Creation of preincorporation contracts.

Q: Which of the following is included in the bylaws? A. The purpose of the corporation. B. The machinery for the transfer of shares. C. The par value of shares of the corporation. D. The duration of the corporation.

Q: To retain its status as a corporation in good standing, a corporation must: A. pay an annual franchise fee or tax. B. hold an annual shareholders' meeting. C. pay an annual dividend to shareholders. D. hold an annual board of directors' meeting.

Q: A clause in a contract that states that a promoter of a contract will cease to be liable under the contract once a corporation has adopted it, is called: A. An automatic novation clause B. An automatic agency clause C. An incorporation clause D. A bylaws clause

Q: The basic governing document of the corporation is the: A. articles of incorporation. B. bylaws. C. shareholder agreement. D. organizational operating agreement.

Q: Which of the following is included in the articles of incorporation? A. The number of shares a corporation is authorized to issue. B. The standards for declaring dividends. C. The procedures for calling special meetings of shareholders. D. The procedures for maintenance of share records.

Q: A promoter owes a fiduciary duty to the corporation and to its prospective investors. This implies that: A. a promoter is an agent of the prospective corporation. B. prospective investors in the business can control actions of a promoter. C. a promoter may engage in intrinsically fair transactions with the corporation. D. a promoter is an agent of the prospective investors in the business.

Q: The fiduciary duty to the corporation is owed by its: A. shareholders. B. promoters. C. investors. D. creditors.

Q: Sharon entered into a preincorporation share subscription agreement on January 1, 2006. The corporation was formed on February 1, 2006. What is the status of this agreement on March 1, 2006, under the Model Business Corporation Act? A. It is binding only if Sharon has already paid for the shares. B. It is binding even if Sharon has not already paid for the shares. C. It is not binding because the corporation did not exist on January 1, 2006. D. It is not binding unless Sharon ratifies the agreement after the corporation has been formed.

Q: On preincorporation share subscriptions: A. promoters have no liability. B. promoters have no liability after incorporation. C. promoters have personal liability till novation. D. promoters have maximum liability.

Q: Joe is the promoter of New Corporation (NC). He entered into various preincorporation contracts. NC was properly formed on January 1, 2006. As a result: A. Joe is no longer personally liable on those preincorporation contracts. B. NC is automatically liable on those preincorporation contracts. C. Joe is jointly and severally liable on preincorporation contracts. D. Joe is not liable because NC released him from personal liability.

Q: John is the promoter of Wheelies Corp., an automotive wheel manufacturing business. To escape personal liability on preincorporation contracts, John planned to make only nonbinding preincorporation contracts. He made one such contract in March 2011 with his friend David for supplying Wheelies with auto parts. After getting payment for the contract, David refused to make the supply. Wheelies has not been incorporated yet. Is David liable? A. No, David is not liable because John is not liable on the contract. B. No, David is not liable because Wheelies has not been formed yet. C. Yes, David is liable to Wheelies but not to John. D. Yes, David is liable to both John and Wheelies.

Q: A preincorporation share subscription is: A. a contract binding the corporation at the time of incorporation. B. irrevocable by the subscriber for six months after the subscription has been issued. C. a contract binding the corporation at the time of its issuance. D. preferred by modern corporate promoters over a post incorporation subscription.

Q: Generally, corporate acceptance of preincorporation subscriptions occurs by action of the: A. board of directors after incorporation. B. promoters during their issuance. C. board of directors during their issuance. D. promoters before incorporation.

Q: Under the Model Business Corporation Act (MBCA), a prospective shareholder may not revoke a preincorporation subscription for a _____ period, in the absence of a contrary provision in the subscription. A. nine-month B. one-year C. two-year D. six-month

Q: There is no limit on the number of members in a Nonprofit Corporation.

Q: A promoter: A. may have liability on the contracts he negotiates on behalf of the prospective corporation. B. does not hold any liability to third parties on preincorporation contracts. C. automatically becomes one of the initial directors of the corporation. D. is not liable on a preincorporation contract after the corporation's adoption of the contract.

Q: When a promoter is liable on a preincorporation contract, the promoter is released from liability on the contract: A. only after the contract has been fully performed. B. when the corporation ratifies the contract. C. when the corporation and the other party to the contract agree to release the promoter from liability. D. when the corporation's articles have been filed by the secretary of state.

Q: A party who makes a preincorporation contract with a corporate promoter is liable on the preincorporation contract: A. only after the corporation's board of directors adopts the contract after the corporation has come into existence. B. only after the corporation's articles have been filed with the secretary of state. C. when the party agrees to look only to the prospective corporation for performance of the contract. D. only when the promoter is liable on the contract.

Q: Rice is a promoter of a corporation to be known as Dex Corp. On January 1, 1985, Rice signed a nine-month contract with Roe, a CPA, which provided that Roe would perform certain accounting services for Dex. Rice did not disclose to Roe that Dex had not been formed. Prior to the incorporation of Dex on February 1, 1985, Roe rendered accounting services pursuant to the contract. After rendering accounting services for an additional period of six months pursuant to the contract, Roe was discharged without cause by the board of directors of Dex. In the absence of any agreements to the contrary, who will be liable to Roe for breach of contract? A. Both Rice and Dex B. Rice only C. Dex only D. Neither Rice nor Dex

Q: Watered shares are shares issued for consideration that has been overvalued impermissibly by the board of directors.

Q: General shareholders will be paid dividends before Preferred shareholders receive them from a corporation.

Q: A right of first refusal on a share certificate allows the corporation to match the offer that a selling shareholder receives for his shares.

Q: Memberships in a nonpublic corporation are freely transferable.

Q: Mandatory dividend provisions enacted in corporate laws have generally been held legal.

Q: Under the Model Business Corporation Act, a corporation may not issue its shares in return for any benefit to the corporation.

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