Combining and Dissolving Corporations

Circle Corporation buys all of the assets of Square Corporation. Circle continues to run Square as a division of Circle, with Square's former leadership in charge of the division and using the same employees and all of the assets purchased. Circle even continues to label its products from that division with the Square logo (which was one of the purchased assets). In its purchase agreement, it states that Circle is not responsible for any of Square's liabilities. Under principles of successor liability: a. Circle is responsible because they continued the seller's business essentially intact. b. Circle is not responsible because they specifically contracted out of liability. c. Circle is not responsible because the transaction was an asset purchase. d. Circle is responsible because liabilities are tied to assets.

a. Circle is responsible because they continued the seller's business essentially intact.

When a corporation is dissolved, assets of the corporation are turned to cash and distributed to creditors and shareholders in a process called: a. Liquidation. b. Tender. c. Sale of Assets. d. Merger.

a. Liquidation.

If company A is purchased by company B and company A ceases to exist but all the shareholders of company A become shareholders of company B, this is most likely: a. a merger. b. a purchase of assets. c. a consolidation. d. a stock purchase.

a. a merger.

When one company purchases all (or nearly all) the assets of another company, the purchasing company: a. generally will not be responsible for any liability of the selling corporation related to those assets. b. generally will not be responsible for the liabilities of the selling company if the purchasing company bought the assets to help the selling company escape liability. c. generally will not be responsible for the liabilities of the selling company if the purchasing company if the sale is essentially a merger or consolidation. d. generally will not be responsible for the liabilities of the selling company if the purchasing company continues to run the seller's business with the same people.

a. generally will not be responsible for any liability of the selling corporation related to those assets.

With regard to the purchase and sale of substantially all of the assets of a corporation: a. the shareholders of the corporation selling assets must approve the transaction but the shareholders of the corporation buying assets do not need to approve. b. the shareholders of the corporation buying assets must approve the transaction but the shareholders of the corporation selling assets do not need to approve. c. neither the shareholders of the buying corporation nor the shareholders of the selling corporation must approve the transaction. d. the shareholders of both corporations must approve the transaction.

a. the shareholders of the corporation selling assets must approve the transaction but the shareholders of the corporation buying assets do not need to approve.

The leadership of Drink Corporation and Snack Corporation decide that if the two companies combine, they would have a terrific opportunity to increase profits. It makes more sense for them to combine and come up with a new name and structure than for either of them to just take over the business of the other. So with the approval of the shareholders and the boards, they combine in to a company they call Drack Corporation. The leadership of Drack comes from both of the prior companies. This transaction most likely is: a. a share exchange. b. a consolidation. c. an asset purchase. d. a merger.

b. a consolidation.

Eastco purchases Westco in a merger, with Eastco being the surviving corporation. At the time of the merger, Westco had a right of action for patent infringement against Northco. After the merger, this right: a. is extinguished. b. belongs to Eastco. c. can be exercised only by the former officers of Westco in their capacity as Westco employees. d. belongs to Eastco but cannot be exercised, because Eastco suffered no harm.

b. belongs to Eastco.

If the Out Company and the About Company join to become the Out and About Company, the legal process that has taken place is known as a(n): a. appraisal. b. consolidation. c. merger. d. acquisition.

b. consolidation.

Nell owns 3,000 shares of Dynamix Corporation. Dynamix decides to merge with Clomator, Inc., which makes plastic packaging for food. Nell is very unhappy about this decision but is not willing to sell her stock because of it. To express her dissatisfaction, Nell can: a. use her preemptive rights. b. exercise her appraisal rights. c. order a dissolution. d. follow the correct procedure and demand a short-form merger.

b. exercise her appraisal rights.

Deskin Corporation has been operating for ten years, making a nice profit, and paying stockholders a fair dividend. However, Deskin has failed to file or pay its annual corporate taxes for the last three years. The state can dissolve the corporation for: a. failure to commence business operations. b. failure to comply with administrative requirements. c. abuse of corporate powers. d. abandonment of operations before startup.

b. failure to comply with administrative requirements.

A tender offer most often occurs when: a. the officers of two corporations want the two corporations to become one corporation. b. one corporation offers to buy the stock of another corporation by offering a premium to the shareholders of the target corporation. c. the directors of two corporations want the two corporations to become one corporation. d. the state entity responsible for incorporation declares that two corporations are similar enough in purpose and requires them to combine.

b. one corporation offers to buy the stock of another corporation by offering a premium to the shareholders of the target corporation.

Appraisal rights will be available: a. only when federal law provides for them. b. only when a state statute provides for them. c. always--there is a common law right to appraisal rights. d. any time a shareholder has a question about an asset's value.

b. only when a state statute provides for them.

Diana and Jean started DiJean Corporation. In the official documents, they created a system where all employees and current owners have the option to buy shares of stock at ½ the original issue price if a tender offer ever was made to them by another company attempting to takeover DiJean. This proactive strategy is known as a. a crown jewel. b. a white knight. c. a poison pill. d. a Pac-Man.

c. a poison pill.

The officers and directors of Pinto Corporation started the company without realizing how much work it would take. As a result, they were fairly disorganized. They failed to pay corporate taxes on time and failed to file the required annual reports. As a result, the state initiated involuntary dissolution for Pinto. The person responsible for liquidating the assets of the corporation is: a. the registered agent. b. the president. c. a receiver appointed by the court. d. the chair of the board of directors.

c. a receiver appointed by the court.

Trainor Corporation previously bought 91% of Van Slyke Company. Trainor now wants to purchase the remaining 9%, and absorb Van Slyke in to Trainor with Van Slyke disappearing as a corporation. If Trainor is allowed to do this without shareholder approval, it is called: a. a consolidation. b. appraisal rights. c. a short-form merger. d. a merger.

c. a short-form merger.

Bossy Corporation wants to own Wimpy Corp. The Wimpy Corp. leadership is not interested in selling. So Bossy Corporation makes an offer to Wimpy's shareholders to buy their shares of stock at 110% of the market value. This is called: a. the Pac-Man approach to ownership. b. the white knight approach to ownership. c. a tender offer. d. a crown jewel.

c. a tender offer.

In order for a corporate combination (merger, consolidation, share exchange) to occur: a. only the boards of directors of both corporations must approve it. b. only the board of directors of the surviving corporation must approve it. c. the boards of directors and the shareholders of both corporations must approve it. d. only the shareholders of both corporations must approve it.

c. the boards of directors and the shareholders of both corporations must approve it.

Which of the following is not one of the reasons a state may dissolve a corporation? a. Abuse of corporate powers b. Procurement of a corporate charter through fraud c. Failure to pay annual corporate taxes d. Failure to complete a merger in a timely manner

d. Failure to complete a merger in a timely manner

Palmer Corporation has 10,000 shares of stock that it can issue. Cernohous Corporation has 500 shares of stock. Palmer gives the owners of Cernohous 1 share of Palmer stock in trade for 1 share of Cernohous Corporation. At the end of the transactions, Palmer owns 100% of Cernohous stock and Cernohous's former owners all own one Palmer share for each Cernohous share they had owned. Both Palmer and Cernohous continue to exist as companies. This transaction is: a. a merger. b. a consolidation. c. an asset purchase. d. a stock exchange.

d. a stock exchange.

When a target company defends against a takeover attempt by finding what they consider to be a better match and instead merges with a third company, it is called: a. the Pac-Man. b. the poison pill defense. c. the crown jewel defense. d. the white knight defense.

d. the white knight defense.