Q&A Hero

Q: Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Would the proposed business qualify as an S corporation if it were incorporated in Delaware? A. No, because there must be at least 100 shareholders involved. B. No, because a business must operate as a partnership for at least two years before converting to an S corporation and also because it must be incorporated under the state law of the location of the principal place of business. C. No, because a business must operate as a regular corporation for at least two years before converting to an S corporation. D. Yes, so long as more than one class of shares is issued. E. Yes, so long as only one class of shares is issued.

Q: Shaky Bicycles. Rhonda, an incorporator who filed the articles of incorporation for ABC Corporation, a corporation set up to sell bicycles, listed the correct town and street but incorrectly put the wrong street number in the document. Helen, a manufacturer of bicycle parts, had sold a number of parts to ABC Corporation. Unfortunately, the corporation was not making any profit, and Helen was not paid in a timely manner. Rhonda told her that the corporation was not liable because it was not validly formed due to the address mistake. Bernice, another creditor of ABC Corporation, also claimed that a shareholder of Shaky Bicycles, Slick, was personally liable to her. Bernice alleged that Slick committed fraud against her when he told her that ABC Corporation was making large amounts of money, that if she would only loan $50,000 to the corporation he would marry her, and that the corporation would make so much money that she would be wealthy in six months. She loaned the funds, but the corporation has been unable to repay her. Slick told her that he is sorry, but that her only avenue of recovery is through the corporation. Which of the following would a court likely rule regarding the status of ABC Corporation as a corporation? A. That the business was a de jure corporation. B. That the business was a de facto corporation. C. That the business was a corporation by estoppel. D. That the business was a veiled corporation. E. That the business was not a corporation at all.

Q: Which of the following is available to Garrett, a major shareholder in ABC Corporation who believes that the corporation has wrongfully failed to declare a dividend to shareholders? A. A shareholder's derivative suit B. A shareholder's direct suit C. A consolidation suit D. A mandated suit E. None of these because as a shareholder, Garrett can only complain to state authorities

Q: Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Are Jack and Bobby correct that tax liability will likely be greater with a corporate form of business (not an S corporate form) and why? A. No, they are incorrect because with only three shareholders, tax liability with a corporation would likely be less than tax liability with a partnership. B. No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the net income of the corporation was not over $250,000. C. No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the gross income of the corporation was not over $150,000. D. No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the gross income of the corporation was not over $100,000. E. Yes, they are correct because the corporate form of business would result in double taxation with the corporation being taxed on income and shareholders being taxed again on dividends they receive.

Q: Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Would an S corporation provide the favorable tax treatment that the parties desire in a corporate form of business? A. No, because an S corporation is taxed in the same way as a regular corporation. B. Yes, but the S corporation is not needed because either a partnership or a regular corporation in their situation would provide the same benefits as an S corporation. C. Yes, with the only tax benefit being the avoidance of double taxation. D. Yes, because the S corporation would avoid the double taxation problem involved with a regular corporation and provide other tax benefits as well. E. No, because while the parties could form an S corporation, the tax benefits of an S corporation are only available to corporations with at least 100 shareholders.

Q: When the government or private parties get a court order to dissolve a corporation it is a(n) _________________________. A. consolidation B. voluntary dissolution C. involuntary dissolution D. hostile takeover E. leveraged buyout

Q: Which of the following was the result on appeal in J-Mart Jewelry Outlets Inc., v. Standard Design, the case in the text in which a creditor of a defunct corporation sued the major shareholder seeking to pierce the corporate veil and hold the shareholder personally responsible for corporate debts after the shareholder paid off his personal credit cards using corporate funds and paid the corporation $1 for a new Cadillac? A. That insufficient evidence existed that the shareholder controlled the corporation and that the corporate veil could not be pierced. B. That the corporate veil could not be pierced because the shareholder was not also an inside director. C. That the corporate veil could not be pierced because the shareholder was not either an insider or outside director. D. That the corporate veil could be pierced and that evidence supported abuse of the corporate form. E. That the corporate veil could be pierced regardless of whether evidence of abuse of the corporate form existed because of the unfairness involved.

Q: Which of the following was the result on appeal in Campbell, Kessser, and Williams v. Pothas Corporation, the case in the text in which the defendant alleged that golden parachute agreements were not enforceable because they violated public policy? A. That based on significant case law ruling such agreements in violation of public policy, the agreements would be declared void under principles of stare decisis. B. That based on a Congressional committee report, the contracts would be declared void. C. That the defendant did not receive its benefit in regard to the contracts and that the golden parachute agreements were, therefore, voidable by the defendant. D. That the agreements were valid and did not violate public policy. E. That the agreements were valid but only because a merger was involved.

Q: ABC Corporation suffered damages when a supplier failed to deliver as agreed. The president of ABC did not institute suit as Garrett, a major shareholder, believed was proper. Garrett complained to the board of directors, but they refused to do anything. Which of the following is an option to Garrett in regard to a lawsuit against the supplier? A. A shareholder's derivative suit B. A shareholder's direct suit C. A consolidation suit D. A mandated suit E. None of these because as a shareholder, Garrett has no right to insist on litigation

Q: In a hostile takeover situation, what does the term "going private" reference? A. A leveraged buyout B. A management buyout C. An approved buyout D. A corporate buyout E. A closely managed buyout

Q: Death of a corporation occurs in which of the following phases? A. Dissolution and trial B. Dissolution and proceedings C. Dissolution and liquidation D. Reforming and liquidation E. Notification and liquidation

Q: When the directors or shareholders of a corporation initiate dissolution procedures it is a(n) ___________________________. A. consolidation B. voluntary dissolution C. involuntary dissolution D. hostile takeover E. leveraged buyout

Q: In which of the following does an aggressor pay cash to target shareholders? A. Hostile tender offer B. Cash tender offer C. Immediate tender offer D. Substantial tender offer E. Asset tender offer

Q: ______________________ occurs when a target corporation offers to buy its shareholders' stock. A. A self-tender offer B. A leveraged buyout C. A cross-tender offer D. A challenge-tender offer E. An illegal tender offer

Q: ____________________ occurs when a group within a corporation, usually management, buys all outstanding corporate stock held by the public. A. An asset purchase B. A leveraged buyout C. A management buyout D. A corporate buyout E. An illegal buyout

Q: Which of the following is generally used to determine the value of stock when a dissenting shareholder exercises an appraisal right when a proposed merger is involved? A. The value of shares on the day after the shareholder vote. B. The value of shares on the day before the shareholder vote. C. The value of shares on the day of the shareholder vote. D. The value of shares 10 days before the shareholder vote. E. The value of shares on the day the proposed merger was announced.

Q: In which of the following are two or more corporations combined with neither of the original corporations continuing to exist legally? A. A merger B. A consolidation C. A combination D. An alteration E. A reorganization

Q: In a consolidation, shareholders of the new corporation create new articles of incorporation called _____. A. revised articles of incorporation B. merged articles of incorporation C. articles of consolidation D. revised articles of consolidation E. none of these because new articles of incorporation are not created in a consolidation

Q: Which of the following is generally false when a consolidation occurs? A. The new corporation has independent legal status. B. The shareholders of the new corporation create new articles of incorporation. C. The consolidated entity assumes the debts of the original corporations. D. The consolidated entity obtains the original corporations' assets. E. The consolidated entity does not obtain the original corporations' rights, powers, and privileges.

Q: In a merger situation, which of the following is a term for the corporation that does not continue to exist? A. The declined corporation B. The removed corporation C. The absorbed corporation D. The concealed corporation E. The deceased corporation

Q: In a merger situation, which of the following is a term for the remaining corporation? A. The resulting corporation B. The winning corporation C. The approved corporation D. The surviving corporation E. The remaining corporation

Q: Which of the following is generally false regarding the surviving entity in a merger situation? A. The surviving entity remains a single corporation. B. The shareholders of the surviving entity must amend its articles of incorporation according to the specific conditions of the merger. C. The surviving entity does not become liable for debts of the absorbed corporation. D. The surviving entity obtains the absorbed corporation's assets. E. The surviving entity obtains the absorbed corporation's rights, powers, and privileges.

Q: If corporate directors fail to sue when the corporation has been harmed by an individual, another corporation, or a director, individual shareholders can file a(n) _____ on behalf of the corporation. A. investigative action B. shareholder action suit C. shareholder's direct suit D. shareholder's derivative suit E. active allocation suit

Q: In which of the following does a shareholder sue alleging that he or she has suffered damages caused by the corporation? A. Investigative action B. Shareholder's action suit C. Shareholder's direct suit D. Shareholder's derivative suit E. Active allocation suit

Q: Which of the following occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist? A. A merger B. A consolidation C. A combination D. An alteration E. A reorganization

Q: Which of the following is true regarding stock certificates? A. Each certificate includes the corporation's name. B. Each certificate includes the number of shares represented by the certificate. C. A shareholder's ownership in the corporation does not depend on her possession of the physical stock certificate. D. Each certificate includes the corporation's name, each certificate includes the number of shares represented by the certificate, and a shareholder's ownership in the corporation does not depend on her possession of the physical stock certificate. E. Each certificate includes the corporation's name and each certificate includes the number of shares represented by the certificate, but a shareholder's ownership in the corporation does depend on her possession of the physical stock certificate.

Q: ________________ give preference to shareholders to purchase shares of a new issue of stock. A. Acknowledged rights B. Superior rights C. Preemptive rights D. Selective rights E. Benefit rights

Q: ________________ may be redeemed for a certain number of shares at a specified price within a given time period. A. Preemptive shares B. Share allowances C. Allocated shares D. Stock warrants E. None of these because such a practice is illegal under federal securities laws

Q: Which of the following references a right of a corporation or its shareholder to purchase any shares of stock offered for resale by a shareholder within a specified period of time? A. Right of adequate refusal B. Right of first refusal C. Right of first purchase D. Right of first acknowledgement E. Superior right of purchase

Q: Stocks that are issued to individuals below their fair market value are called _______________. A. no-par stocks B. reduced stocks C. watered stocks D. less-value stocks E. unapproved stocks

Q: Which of the following are rights of corporate directors? A. The right of compensation and participation B. The right of participation and inspection C. The right of inspection and compensation D. The right of indemnification and participation E. The right of compensation, participation, inspection, and indemnification

Q: Which of the following may be issued to shareholders as proof of ownership in the corporation? A. Stock subscriptions B. Stock acknowledgements C. Paper documentation D. Stock certificates E. Acknowledgement documents

Q: Which of the following is false regarding the liability of directors and officers for criminal behavior? A. Directors and officers can be held personally responsible for their own crimes. B. Directors and officers can be held personally responsible for the crimes of other employees within the organization when they have failed to adequately supervise the employee's behavior. C. An officer can be held criminally liable for conduct of an employee if the court determines that a responsible person would have known about and could have prevented the illegal activity. D. Directors and officers who use insider information to trade the corporation's stock for a profit can be held liable for breaching their fiduciary duty. E. According to the responsible person doctrine, a court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.

Q: _______________ has/have a fixed face value noted on the stock certificate. A. No-par value shares B. Par-value shares C. Watered stock D. Valued stock E. No-valued stock

Q: How much must a shareholder who signs a stock subscription pay for no-par shares? A. The depreciated value B. At least the value on the last sale C. The value as set by the board of directors D. The value as voted upon by shareholders E. The fair market value

Q: The Securities and Exchange Commission has established that any shareholder who owns more than _____ worth of stock in the corporation can submit proposals to be included in proxy materials. A. $4,000 B. $3,000 C. $2,000 D. $1,000 E. None of the these because shareholders may not present proposals in proxy materials

Q: Generally, a quorum of shareholders exists when shareholders holding more than _____ percent of the outstanding shares are present. A. 80 B. 70 C. 60 D. 50 E. 25

Q: Which of the following is a form of self-dealing? A. Business self-dealing B. Personal self-dealing C. Corporate self-dealing D. Business self-dealing, personal self-dealing, and corporate self-dealing E. Business self-dealing and personal self-dealing, but not corporate self-dealing

Q: Decisions of courts in _____ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there. A. New York B. California C. Florida D. Delaware E. New Jersey

Q: ________________ are outside directors who do not have business contacts with the corporation. A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: Which of the following is false regarding officers of a corporation? A. Officers are executive managers. B. Officers run the day-to-day business of the corporation. C. In most cases an individual may serve as both a director and an officer. D. The rules of agency do not apply to the work of officers. E. Qualifications required of officers are set forth in the corporate articles and bylaws.

Q: _____ own(s) the corporation. A. Directors B. Officers C. Shareholders D. Affiliates E. The state

Q: Which of the following are directors who are also officers or employees of the corporation? A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: ___________________ are directors who are not officers or employees of the corporation. A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: ______________ are outside directors who have business contacts with the corporation. A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: A director may be removed _____. A. at the will of the president B. in the discretion of the shareholders upon majority vote C. in the discretion of the shareholders upon a two-third vote D. in the discretion of other directors upon a majority vote E. for cause

Q: Which of the following is a term for a requirement that a minimum number of directors be present at a meeting for decisions made at the meeting to be valid? A. Quorum B. Substantial group C. Adequate group D. Adequate assembly E. None of these because there are no such requirement so long as all directors had notice and an opportunity to attend the meeting at issue

Q: While ordinary decisions made by directors require a ______ vote, more important decisions sometimes require a(n) _____ vote. A. majority; two-third B. majority; three-fourth C. two-third; three fourth D. one-third; majority E. majority; unanimous

Q: Although most state statutes allow for longer terms, for how long do directors typically serve? A. Three years B. Two years C. One year D. Four years E. Five years

Q: How are directors chosen during incorporation? A. Either the incorporators appoint them or the corporate articles name them. B. Either the incorporators appoint them or by a majority vote of the shareholders. C. Only by the incorporators appointing them. D. Only by the corporate articles naming them. E. Only by the president appointing them.

Q: How is the number of corporate directors determined? A. In the discretion of the president of the corporation B. By vote of the stockholders in compliance with state law C. According to the corporate articles or bylaws in compliance with state law D. According to the number of shares issued E. According to the amount of profit projected by incorporators for the first year

Q: If a corporation has fewer than _____ shareholders, the Revised Model Business Corporation Act allows companies to eliminate the board of directors entirely. A. 100 B. 50 C. 30 D. 25 E. None of these because the Revised Model Business Corporation does not allow companies to eliminate the board of directors entirely

Q: Owners of _______________ enjoy preferences with respect to assets and dividends. A. acknowledged B. complex C. simple D. preferred E. common

Q: Owners of ___________________________ own a portion of a corporation but do not enjoy any preferences. A. acknowledged B. complex C. simple D. preferred E. common

Q: How are directors chosen after incorporation? A. By majority vote of the shareholders. B. By majority vote of all officers. C. By a two-thirds vote of shareholders. D. The president appoints them in his or her discretion. E. By a unanimous vote of the shareholders.

Q: In order to prevent a defective corporation from escaping corporate responsibility a court may hold that the entity is a(n) ______. A. corporation in fact B. unrealized corporation C. corporation by estoppel D. corporation by reservation E. partnership liability

Q: Which of the following types of securities represent loans to a corporation? A. Debt B. Equity C. Finance D. Formal E. Certified

Q: Which of the following types of securities represent ownership in a corporation? A. Debt B. Equity C. Finance D. Formal E. Certified

Q: Which of the following is another name for debt securities? A. Stocks B. Bonds C. Certificates of deposit D. Stocks, bonds, and certificates of deposit E. Stocks and bonds, but not certificates of deposit

Q: Corporate ______ are rules and regulations that govern the corporation's internal management. A. bylaws B. requirements C. statutes D. authorizations E. prohibitions

Q: If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization is a(n) ______ corporation. A. illegal B. defunct C. uncertified D. defective E. expelled

Q: Which of the following is a corporation that has not substantially met the requirements of the state incorporation statute, but courts recognize it as a corporation for most purposes to avoid unfairness to third parties who believed it was properly incorporated? A. A de jure corporation B. A de facto corporation C. A corporation by estoppel D. A corporation by reservation E. None of these because an alleged corporation that has not substantially complied with state requirements for incorporation is not considered a corporation at all although it may be considered a partnership in order to protect innocent parties

Q: According to the Revised Model Business Corporation Act, which of the following should articles of incorporation include? A. The name of the corporation B. The name of the registered agent C. The names and addresses of the incorporators D. The name of the corporation, the name of the registered agent, and the names and addresses of the incorporators E. The name of the corporation and the registered agent, but not the names and addresses of the incorporators

Q: When a corporation is incorporated, the secretary of state usually issues a(n) ______, a document certifying that the corporation is incorporated in the state and is authorized to conduct business. A. approval of incorporation B. certificate of incorporation C. authorization of incorporation D. certification of incorporation E. chronicle of incorporation

Q: _____________________ provides basic information about the corporation in the corporate formation process. A. The articles of subscription B. The agreement to promote C. The agreement to subscribe D. The agreement to incorporate E. The articles of incorporation

Q: Which of the following is needed in order for a business to qualify as an S corporation? A. No more than 100 shareholders B. Only individuals, trusts, and in some circumstances corporations as shareholders C. At least $10,000 in capital D. No more than 100 shareholders; only individuals, trusts, and in some circumstances corporations as shareholders, and at least $10,000 in capital E. No more than 100 shareholders and only individuals, trusts, and in some circumstances corporations as shareholders; but there is no requirement of at least $10,000 in capital

Q: A(n) _____ begins the corporation creation and organization process by arranging capital, financing, and licenses. A. subscriber B. incorporator C. promoter D. officer E. shareholder

Q: Which of the following is acceptable in the name of a corporation to signify that the business is a corporation? A. Company B. Corporation C. Inc. D. Company, Corporation, and Inc. E. Company and limited, but not Inc.

Q: _____ is an individual who applies to the state for incorporation on behalf of a corporation. A. A promoter B. An incorporator C. A facilitator D. An obtainer E. A certification analyst

Q: A corporation is a(n) _____ corporation in states in which it conducts business but is not incorporated. A. visiting B. foreign C. interstate D. intrastate E. approved

Q: A(n) _____ corporation is a business incorporated in another country. A. visiting B. foreign C. interstate D. alien E. approved

Q: ________________ generally do not offer stock to the public. A. Alien corporations B. Foreign corporations C. Closely held corporations D. Carefully held corporations E. Minority shareholder controlled corporations

Q: A ______ corporation is a corporation created by the government to help administer law. A. public B. private C. closely held D. domestic E. publicly held

Q: Private persons create ______ corporations for private purposes. A. public B. private C. true D. domestic E. publicly held

Q: Which of the following is false regarding a nonprofit corporation? A. A nonprofit corporation may not earn profits. B. Nonprofit corporations do not have shareholders. C. An objective of a nonprofit corporation is not to earn profit. D. Nonprofit corporations do not issue stock. E. Churches and charitable organizations are examples of nonprofit corporations.

Q: A corporation is a(n) _____ corporation in the state in which it is incorporated. A. domestic B. home C. recognized D. approved E. certified

Q: State incorporation statutes typically grant _______________________ to corporations. A. the power of perpetual existence B. the power to sue and be sued in the corporation's name C. the power to make charitable donations D. the power of perpetual existence, the power to sue and be sued in the corporation's name, and the power to make charitable donations E. the power of perpetual existence and the power to sue and be sued in the corporation's name, but not the power to make charitable donations

Q: If corporations act beyond their express and implied powers, the act is called a(n) _____ act. A. respondeat superior B. ultra vires C. res ipsa loquitur D. stare decisis E. res propertie

Q: A corporation commits an ultra vires when _____. A. it creates contracts outside the scope of its powers B. it hires incompetent managers C. it hires employees with criminal backgrounds D. it refuses to declare dividends E. it refuses to declare a stock split

Q: ______________________ references the liability of corporations for torts and crimes committed by their agents during the scope of their employment. A. Stare decisis B. Res ipsa loquitur C. Respondeat superior D. Absoluta respond E. None of these