LAW 3800 Ch. 22

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Who can challenge a de facto corporation's existence?

the state

______ is a document issued by the secretary of state certifying that a corporation is authorized to conduct business in the state.

A certificate of incorporation

______ is a document issued by the secretary of state certifying that a corporation is incorporated in the state.

A certificate of incorporation

The Revised Model Business Corporation Act recognizes that shareholders have the legal right to initiate dissolution if the corporation engages in all but which of the following behaviors?

A majority of shareholders own stock in other corporations, violating their duty of loyalty to the corporation.

______ takeovers are takeovers to which the management of the target corporation objects.

Hostile

______ raise capital for an infant corporation by making subscription agreements with subscribers in which the subscribers agree to purchase stock in the new corporation.

Promoters

An acquiring corporation, or ______, can buy any or all of another corporation's voting shares. Through such a stock purchase, the purchasing corporation gains control of the selling corporation in a corporate takeover.

aggressor

If a U.S. corporation wants to do business in Canada or Mexico, it is a(n) ______ corporation in those countries

alien

Acting with due care requires one to exercise the care that ______ would exercise in the management of his or her own assets.

an ordinary prudent person

In the context of the legal process of incorporation, generally, an incorporator's only duty is to sign the ______.

articles of incorporation

Which of the following are the two types of self-dealing that violate the duty of loyalty directors and officers owe to their corporation?

business and personal

S corporations are a particular type of ______ corporation.

closely held

Which of the following is not a way corporations can be classified?

constructive or symbolic

The main liability that shareholders of the corporation face is liability for the ______ of the company.

debts

Although ______ are in charge of major policy decisions, ______ run the day-to-day business of a corporation.

directors; officers

In the first step of corporate dissolution, the directors of the corporation must file the articles of ______ with the secretary of state.

dissolution

A corporation is a(n) ______ corporation in the state in which it is incorporated

domestic

Corporate officers are technically ______ of the corporation.

employees

Because corporations are separate legal ______, government ______

entities; taxes their income directly

Most corporations are ______ corporations

for-profit

When a ______ succeeds, the target corporation's management frequently compares the transition to a full-scale invasion characterized by layoffs and dramatic changes in company policy.

hostile takeover

Corporations may take whatever actions are necessary to execute their express powers. Thus, corporations have ______ powers

implied

States give powers to corporations through state incorporation statutes and through each corporation's articles of ______

incorporation

The articles of ______ is a document that contains basic information about a corporation and is filed with the state.

incorporation

A shareholder's liability for corporate actions is ______

limited to his or her corporate investment

The board of directors of a corporation selects ______ to manage the day-to-day business of the corporation

officers

Directors of a corporation who are not officers or employees of that corporation are called ______ directors.

outside

For par-value shares of a corporation, a shareholder must pay the corporation at least the ______ value of the stock.

par

No-par shares of a corporation are shares that do not have a(n) ______ value.

par

A ______ is a corporation created by government to help administer law

public corporation

The Federal Deposit Insurance Corporation (FDIC) is an example of a ______

public corporation

Even if a corporate officer knew nothing about a criminal activity in his or her firm, the officer can still be held criminally liable if the court determines that a(n) ______ person would have known about and could have prevented the illegal activity.

responsible

Corporations' investment of ______ earnings can lead to higher stock prices, thus benefiting shareholders when they sell their stock

retained

When corporate directors or officers violate their duty of loyalty, they are ______.

self-dealing

In the context of a corporate takeover, a(n) ______ offer is a takeover-resistance strategy in which the target corporation offers to buy its shareholders' stock.

self-tender

Dividends are paid to the ______ of a corporation on the orders of its ______

shareholders; directors

Each individual corporation's charter creates a contract between that corporation and the ______

state

The articles of incorporation is a document that contains basic information about a corporation and is filed with the ______.

state

Which of the following is not a factor business owners consider when selecting a state for incorporation?

state laws governing copyrights

To initiate a stock purchase, the aggressor must appeal directly to the shareholders of the corporation it hopes to buy, known as the ______ corporation.

target

In an exchange tender offer, the aggressor offers to exchange target shareholders' current stock for stock in ______.

the aggressor's corporation

Which of the following is one of the two primary fiduciary duties directors and officers owe to the corporation?

the duty of care

Which of the following is one of the two primary fiduciary duties directors and officers owe to the corporation?

the duty of loyalty

According to the Revised Model Business Corporation Act, a corporation's articles of incorporation must include all but which of the following?

the mission statement of the corporation

In the context of corporate dissolution, the articles of dissolution must include all but which of the following types of information?

the parties who will bear the cost of dissolution

Which of the following is not an express power state incorporation statutes typically grant to a corporation?

the power to be immune from corporate taxation

According to the Revised Model Business Corporation Act, a corporation's articles of incorporation must include all but which of the following?

the vision statement of the corporation

Courts are likely to pierce the corporate veil in all but which of the following situations?

A corporation is closely held.

Courts are likely to pierce the corporate veil in all but which of the following situations?

A corporation is publicly traded.

Which of the following is an accurate statement about the right of first refusal?

A corporation or its shareholders have the right of first refusal.

______ of a corporation can initiate the voluntary dissolution procedures.

Either directors or shareholders

______ can initiate involuntary dissolution of a corporation.

Either government or private parties

If a corporation commits an ultra vires act, the Revised Model Business Corporation Act (RMBCA) provides all but which of the following remedies?

Shareholders may sue the state government for allowing the corporation to commit the ultra vires act

Which of the following is an accurate statement about the duties of corporate shareholders?

Shareholders typically owe few fiduciary duties to the corporation.

Which of the following is an inaccurate statement about publicly held corporations?

Shareholders wishing to sell their shares of stock in publicly held corporations usually face many transfer restrictions.

Which of the following is a requirement for allowing a corporate decision to be made that will personally benefit a director or officer?

There must be a full disclosure of the interest.

Which of the following is an accurate statement about corporate criminal liability?

Today, criminal prosecutions of corporations are much more common than they were in the past

In a shareholder's ______ suit, the shareholder alleges that he or she has suffered damages caused by the corporation.

direct

Inside ______ are also officers or employees of a corporation.

directors

Which of the following is involved in the creation of a corporation?

general organizational activities necessary for incorporation

Although ordinary decisions by a board of directors require a ______ vote, more important decisions sometimes require a ______ vote.

majority; two-thirds majority

A corporate ______ is the purchase of one corporation's stock by another corporation as a means of gaining control of the selling corporation.

takeover

In a leveraged buyout, a group within a corporation gains control over corporate operations by becoming a ______ corporation.

privately held

A(n) ______ offer is a type of corporate takeover in which the aggressor corporation offers the target shareholders a price above their stock's current market value.

tender

Equity securities are ______.

stocks

Preemptive rights give preferences to shareholders to purchase shares of ______.

a new issue of stock

A shareholder's derivative suit is a lawsuit filed by ______ on behalf of ______.

a shareholder; the corporation

A shareholder's direct suit is a lawsuit filed by ______ against ______.

a shareholder; the corporation

In the context of corporate takeovers, in a tender offer, the aggressor offers target shareholders a price ______ the ______ value of the stock.

above; current market

Which of the following are the two subcategories of outside directors?

affiliated and unaffiliated

Officers act as ______ of a corporation.

agents

In a potential corporate takeover, the ______ may make a cash tender offer to the target shareholders in which it pays them cash for their stock.

aggressor

Owners of ______ stock own a portion of a corporation but do not enjoy any preferences.

common

In U.S. law, ______ are legal entities

corporations

A(n) ______ is an individual who applies to the state for incorporation on behalf of a corporation.

incorporator

Because corporate directors are in positions of great legal vulnerability, they have the right to ______.

indemnification

The right to ______ is a corporate director's right to reimbursement for any legal fees incurred in lawsuits against him or her.

indemnification

Generally, the statement of corporate ______ in each corporation's articles of ______ gives each corporation its implied powers

purpose; incorporation

The directors and officers have a fiduciary duty of loyalty to a corporation. In other words, they have a duty to ______.

put the corporation's interests above their own

Corporations are liable for the torts and crimes committed by their agents during the scope of their employment. Courts refer to this liability as the doctrine of ______

respondeat superior

Which of the following is an accurate statement about the fiduciary duty of loyalty of the directors and officers of a corporation?

Both directors and officers have a fiduciary duty of loyalty to the corporation.

Which of the following is an incorrect statement about common stock?

Common stock owners have the highest priority when a corporation distributes dividends.

Which of the following is a true statement about whether corporations can sue and/or be sued by others?

Corporations can sue or be sued by others

Which of the following is an accurate statement about corporations and due process rights?

Corporations have due process rights under both the Fifth and the Fourteenth Amendments to the U.S. Constitution

Which of the following is an incorrect statement about preferred stock?

Corporations may not have more than one class of preferred stock.

Which of the following is an incorrect statement about the rights and duties of directors as managers of a corporation?

Directors select shareholders as they see fit.

A(n) ______ is a type of corporate takeover in which the aggressor corporation offers to pay the target shareholders cash for their stock.

cash tender offer

A stock ______ is a document that serves as a stockholder's proof of ownership in a corporation.

certificate

In ______ corporations, the transfer of stock is usually restricted so that shareholders can choose the corporation's other shareholders.

closely held

Which of the following is a major type of stock?

common

All corporate directors have a right to ______ for their work.

compensation

The four major rights of corporate directors include the rights to ______, participation, inspection, and indemnification.

compensation

Rules and regulations that govern a corporation's internal management are known as ______.

corporate bylaws

A subscriber is an investor who agrees to purchase stock in a new ______.

corporation

In the context of corporate financing, ______ securities represent loans to a corporation.

debt

If the incorporator or promoters of a corporation make an error or omission during the incorporation process, courts may rule that the organization is not a corporation. In such a case, the organization is a ______.

defective corporation

Shareholders of a corporation elect a board of ______ to manage the corporation

directors

The most influential power of corporate shareholders is the power to elect and remove ______.

directors

Which of the following is one of the two phases of the death of a corporation?

dissolution

In many cases, corporate directors have good reason to withhold ______ for a limited amount of time to finance major undertakings such as research or expansion.

dividends

If shareholders die, corporations ______

do not dissolve

McDonald's Corporation is incorporated in Delaware but does business in all 50 states. Thus, McDonald's is a(n) ______ corporation in Delaware and a(n) ______ corporation in all of the other 49 states

domestic; foreign

Directors and officers of a corporation have a fiduciary duty of care, meaning that they must exercise ______ care when making decisions for the corporation.

due

In the context of corporate financing, ______ securities represent ownership in a corporation.

equity

If corporations act beyond their ______ and ______ powers, the act is called an ultra vires act

express; implied

For no-par shares of a corporation, a shareholder must pay the corporation the ______ value of the shares.

fair market

Watered stock is stock issued to individuals below its ______ value.

fair market

If a corporation establishes the right of ______ in its bylaws, the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time.

first refusal

Before the maturity date, corporations usually pay bondholders ______ interest payments on a scheduled basis.

fixed-dollar

Bonds are sometimes called ______ securities.

fixed-income

A corporation is a(n) ______ corporation in states in which it conducts business but is not incorporated

foreign

Some directors of a corporation are also officers or employees of that corporation. These directors are known as ______ directors.

inside

Generally, because shareholders are the owners of the corporation, they are liable to the extent of their ______ when the company loses money.

investment

In the context of the creation and organization of a corporation, a subscriber is a(n) ______.

investor

What is the legal reason for holding corporate directors and officers personally responsible for the torts and crimes of employees within their organization?

lack of adequate supervision

Which of the following is a recognized part of creating a corporation?

legal activities necessary for incorporation

A ______ occurs when a group within a corporation buys all the outstanding corporate stock held by the public.

leveraged buyout

Which of the following is one of the two phases of the death of a corporation?

liquidation

Business self-dealing is a violation of a corporate director's or officer's duty of ______.

loyalty

Personal self-dealing is a violation of a corporate director's or officer's duty of ______.

loyalty

Typically, shareholders use a ______ vote to elect directors.

majority

Major groups of individuals within a corporation include all but which of the following?

members

Which of the following is not a characteristic of a corporation?

non-transferability of corporate shares

A(n) ______ operates for educational, charitable, social, religious, civic, or humanitarian purposes rather than to earn a profit

nonprofit corporation

A corporate director's rights of ______ ensure the opportunity for the director to get involved in and understand every aspect of the business.

participation and inspection

Because corporate directors are required to make informed business decisions, they have the rights of ______ and ______.

participation; inspection

Major groups of individuals within a corporation include all but which of the following?

partners

Which of the following is a major type of stock?

preferred

Shareholders can inspect corporate records and books only if they ask in advance and have a(n) ______ purpose.

proper

A(n) ______ corporation is a corporation whose stock is available to the public

publicly held

Which of the following terms is not used to refer to closely held corporations?

publicly held corporations

A minimum number of directors, or a ______, must be present at each meeting of the board of directors for decisions made at the meeting to be valid.

quorum

According to the ______ person doctrine, a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in a criminal activity.

responsible

Because corporations are legal entities distinct from their ______, corporations are ______ for corporate actions

shareholders; liable

A ______ number of states set maximum length for corporations in existence

small

According to the ______ rule, the directors and officers of a corporation are not liable for decisions that harm the firm if they were acting in good faith at the time of the decision.

business judgment

Which of the following is not a factor business owners consider when selecting a state for incorporation?

state laws governing trademarks and patents

Two groups of important players responsible for the organization of the corporation are promoters and ________.

subscribers

Generally, shareholders can freely transfer ______

their corporate shares

When ______ stock is issued to a shareholder, the shareholder is individually liable for paying the difference between the price he or she paid for the shares and the stated corporate value of the shares.

watered

Typically, shareholders meet once every ______.

year

______ self-dealing occurs when a corporate director or officer makes business decisions that benefit him or her personally.

Personal

______ Amendment to the U.S. Constitution protects corporations from unreasonable searches and seizures

The Fourth

Which of the following is an accurate statement about the fiduciary duties of individuals within a corporation?

The fiduciary duties of the individuals depend on whether they are directors, officers, or shareholders.

Which of the following is a way a shareholder can recognize a profit from a stock investment?

The shareholder can receive dividends from the corporation

If a corporation commits an ultra vires act, the Revised Model Business Corporation Act (RMBCA) provides all but which of the following remedies?

The state attorney general can declare eminent domain on the corporation

Which of the following is an accurate statement about the taxation of corporations?

Corporations are required to pay federal and state taxes on their income

______ voting ensures that minority shareholders have a voice in electing the board of directors of a corporation.

Cumulative

______ powers typically granted to corporations by state incorporation statutes include the power to make contracts, the power to borrow and lend money, the power to make charitable donations, and the power to establish rules for managing the corporation

Express

Because all individuals within a corporation depend on one another, the law requires directors, officers, and shareholders to perform certain duties within the business. These duties to the corporation are called ______ duties.

fiduciary

In most cases, stock is considered ______ property.

transferable

Corporations commit ______ acts most frequently when they create contracts outside the scope of their powers

ultra vires

Which of the following is not a characteristic of a corporation?

unlimited liability of shareholders

A stock ______ is a type of security issued by a corporation that gives the holder the right to purchase a certain amount of common stock at a stated price.

warrant

If preemptive rights exist within a corporation, all shareholders receive stock ______, which they can redeem for a certain number of shares at a specified price within a given time period.

warrants

A(n) ______ is a distribution of corporate profits or income to the shareholders

dividend

If corporate directors fail to declare and distribute ______, shareholders have the right to take legal action to force the directors to declare them.

dividends

If a corporation has fewer than ______ shareholders, the Revised Model Business Corporation Act allows companies to eliminate the board of directors altogether.

50

Which of the following is a way a shareholder can recognize a profit from a stock investment?

Assuming the market price of the stock increases, the shareholder can sell his or her stock at a higher price than the purchase price of the stock

The Revised Model Business Corporation Act recognizes that shareholders have the legal right to initiate dissolution if the corporation engages in all but which of the following behaviors?

Directors are not devoting their full professional commitment and careers to the corporation.

True or false: A de facto corporation is a corporation that has substantially met the requirements of the state incorporation statutes.

False

Although the directors and officers of a corporation are expected to make decisions that are in the best interests of the firm, they are not expected to make perfect decisions all the time. Many directors and officers make decisions that inadvertently harm the corporation. Although shareholders may want to hold their directors and officers liable for these decisions, the ______ rule does not allow them to do so.

business judgment

A subscription agreement is an agreement between ______ and ______ in which the latter parties agree to purchase stock in a new corporation.

promoters; subscribers

Because corporations are creatures of the ______, they have only those powers ______ grant(s) them

state; states

A(n) ________ makes offers to purchase stock in a corporation in the incorporation process.

subscriber

What is the effect of a court ruling of corporation by estoppel?

It prevents a business from denying corporate status.

Which of the following is not an appropriate term to include in the name of a corporation?

LP

A(n) ______ agreement is an agreement between promoters and subscribers in which the subscribers agree to purchase stock in the new corporation.

subscription

Which of the following is a requirement for allowing a corporate decision to be made that will personally benefit a director or officer?

The disinterested board members and/or disinterested shareholders must approve the decision.

Shareholders seeking to make a profit in for-profit corporations purchase the ______ issued by the corporations

stock

Which of the following is an inaccurate statement about the criminal and tort liabilities of corporate officers and directors?

Corporate directors cannot be held personally responsible for the torts and crimes of other employees within the organization.

To initiate a stock purchase in an attempted corporate takeover, the ______ must appeal directly to the shareholders of the corporation it hopes to buy, known as the target corporation.

aggressor

A ______ corporation has met the substantial elements of the incorporation process.

de jure

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 shareholder's ______ suit on behalf of the corporation.

derivative

In some cases, the articles of ______, a document a corporation files with the state explaining its organization, may include a restriction on the duration of the corporation

incorporation

In the context of the dissolution of a corporation, ______ dissolution results when government or private parties successfully obtain a court order dissolving the corporation.

involuntary

Private persons create ______ corporations for private purposes

private

Which of the following is an incorrect statement about the rights and duties of directors as managers of a corporation?

Directors exclusively determine the value of their company's stock in the secondary market.

A corporation that does business in states other than the state in which it is incorporated must obtain a certificate of ______ in each state in which it does business

authority

Courts may disregard an error in a corporation's articles of incorporation by recognizing the corporation as a ______ corporation.

de jure

If a majority shareholder owns such a significant portion of a corporation's stock that he or she essentially controls the firm, the majority shareholder has a ______ duty to act with care and loyalty in selling his or her shares because the sale of his or her shares will shift control of the company to another individual.

fiduciary

An alien corporation is a business incorporated in another ______

country

The ______ process divides the shareholders of a corporation into majority and minority shareholders, and each group has a certain number of votes to cast in the election.

cumulative-voting

A corporation that has not substantially met the requirements of the state incorporation statutes is known as a ______ corporation.

de facto

Courts may disregard an error in a corporation's articles of incorporation by recognizing the corporation as a ______ corporation.

de facto

In the context of corporate financing, debt securities are ______.

bonds

Because there are many times when individual directors and officers may personally benefit from decisions made by the board of directors, the directors and officers have a fiduciary duty to disclose ______ that arise in corporate transactions.

conflicts of interest

______ earnings are profits that a corporation keeps

Retained

An S Corporation can not have more than _____ shareholders

100

Generally, a quorum of shareholders exists when shareholders holding more than ______ percent of the outstanding shares are present.

50

______ of a corporation own it.

Shareholders

Which of the following is not a way corporations can be classified?

T corporations

Which of the following is a requirement a de facto corporation must meet?

The organization has already conducted business as a corporation.

Owners of ______ stock enjoy preferences with respect to assets and dividends.

preferred

______ directors have business contacts with the corporation, while ______ directors do not.

Affiliated; unaffiliated

______ self-dealing occurs when a corporate director or officer makes decisions that benefit other companies with which he or she has a relationship.

Business

Which of the following is an accurate statement about the personal malpractice liability of dentists, doctors, or other professionals who practice in a professional corporation?

Courts sometimes impose personal malpractice liability on those who practice in a professional corporation.

A(n) ______ corporation enjoys the tax status of a partnership

S

______ adopt a set of corporate bylaws at the first organizational meeting of a corporation.

Shareholders

______ attempt to hide behind the corporate veil of limited liability to protect themselves from personal liability.

Shareholders

Which of the following is an incorrect statement about the shareholders of a corporation?

Shareholders are directly responsible for the daily management of the corporation.

______ generally governs corporations

State law

______ dissolution of a corporation occurs when its directors or shareholders trigger the dissolution process.

Voluntary

Which of the following is an accurate statement about professional corporations in the United States?

All 50 states permit professional corporations to incorporate.

______ states have adopted at least part of the Revised Model Business Corporation Act (RMBCA)

More than 25

Which of the following is an incorrect statement about nonprofit corporations?

Nonprofit corporations issue common stock, but not preferred stock

______ begin the creation and organization of a corporation by arranging for necessary capital, financing, and licenses.

Promoters

Which of the following is an accurate statement about the power of corporate shareholders?

Shareholders have the power to elect and remove members of the board of directors.

Which of the following is an accurate statement regarding shareholder liability for the actions of a defective corporation?

Shareholders may be personally liable for a defective corporation's actions.

Which of the following is an accurate statement about the life of a corporation?

The life of a corporation does not end when the lives of its owners end

Which of the following is not a requirement for becoming an S corporation?

All of the shares of an S corporation must have identical voting rights.

Which of the following is an accurate statement about the inspection rights of shareholders?

All shareholders have the right to inspection under both statutory and common law.

Which of the following is an incorrect statement about a de jure corporation?

De jure means unlawful.

______ shares of a corporation are stock shares that have a fixed face value noted on the stock certificate.

Par-value

Which of the following is an incorrect statement about shareholder transferability of corporate shares?

Shareholders' shares are only transferable upon their death

______ incorporation statutes establish the requirements for corporate formation

State

What does it mean for a court to "pierce the corporate veil"?

The court imposes personal liability on corporate shareholders.

Which of the following is true of the requirements a de facto corporation must meet?

The incorporator made a good-faith attempt to comply with the incorporation statute.

Corporate officers are in a contractual relationship with a corporation, and if they are removed from their positions in violation of the terms of the contract, the corporation may be liable for ______.

breach of contract

In the context of a corporate takeover, in a self-tender offer, the target corporation offers to ______.

buy its shareholders' stock

Which of the following is an incorrect statement about stock certificates?

A shareholder's ownership in a corporation depends on his or her possession of a physical stock certificate.

Which of the following is an inaccurate statement about closely held corporations?

Closely held corporations account for the majority of total corporate assets and revenues in the United States

Which of the following is an accurate statement about the existence of a corporation?

In most states, unless the articles of incorporation provide otherwise, corporations continue to exist indefinitely

Outside ______ are not officers or employees of a corporation.

directors

A corporation by ______ is a defective corporation that has conducted business with a third party and therefore cannot deny its status as a corporation to escape liability.

estoppel

In the context of a corporate takeover, in a(n) ______ offer, the aggressor offers to exchange target shareholders' current stock for stock in the aggressor's corporation.

exchange tender

The duty of corporate directors and officers to disclose conflicts of interest is an example of a(n) ______ duty directors and officers owe to their corporation.

fiduciary

Which of the following is not an appropriate term to include in the name of a corporation?

LLP

______ rights give preference to shareholders to purchase shares of a new issue of stock.

Preemptive

Which of the following is an accurate statement about private corporations and government duties?

Private corporations do not have government duties


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