Chapter 28 Quiz

A corporation that merges into another is dissolved. T/F?

True

A court may pierce the corporate veil if the corporation is undercapitalized. T/F?

True

A promoter's liability on preincorporation contracts terminates when a novation is signed. T/F?

True

Close corporation shares are seldom intended to be sold to the public at large. T/F?

True

Courts have begun to recognize a fiduciary duty in corporate officers and majority shareholders to treat minority shareholders fairly. T/F?

True

Failure to appoint a registered agent in the state of incorporation is grounds for an involuntary dissolution. T/F?

True

The articles of incorporation serve the same function as a charter. T/F?

True

The current trend in law is to permit the corporation to issue shares in return for the promoters' preincorporation services. T/F?

True

According to the Model Business Corporation Act (MBCA), the number of shares of capital stock the corporation is authorized to issue need not be included in the articles of incorporation. T/F?

False

As a general rule, corporations are required to compensate promoters for the services they render during the pre-incorporation process. T/F?

False

Under general incorporation laws, _____. a. incorporation is a legislative privilege, not a right b. the secretary of state has to issue a certificate of incorporation c. the corporation's shareholders have to make a decision regarding incorporation d. incorporation is a legislative privilege as well as a right

b.

Which of the following is a useful way of preventing unwanted persons from entering a corporation? a. Novation b. Consent restraint c. Piercing the corporate veil d. Estoppel

b.

Which of the following would be a justification for involuntary dissolution of a corporation by a creditor? a. When there is misapplication or waste of corporate assets b. When directors are in conflict, deadlock cannot be broken by shareholders, and the corporation faces ruin c. When corporation is insolvent and not paying its debts d. When directors are acting illegally or unfairly

b.

A corporation domiciled in another country but doing business in the United States is called an alien corporation. T/F?

True

If articles of incorporation provide for a limited life, the corporation _____. a. automatically terminates at the end of the designated time b. usually appeals to the secretary of state for dissolution c. dissolves only by amendment to the contract d. terminates at the end of the designated time only with the written consent of all shareholders

a.

Under the revised Model Business Corporation Act: a. the filing of the articles of incorporation, evidenced by the return of the copy stamped by secretary of state, is conclusive proof of incorporation. b. liability will never be imposed on promoters who participated in management and policy decisions. c. the issuance of the certificate of incorporation is conclusive proof of incorporation to the corporate status, except a quo warranto action brought by the secretary of state d. managers will be released from any liability in excess of their investment.

a.

Which of the following steps governing the incorporation process is included in the Model Business Corporation Act (MBCA)? a. preparing, signing, and authenticating the articles of incorporation b. filing the articles with the attorney general c. filing the articles by paying part of the required fees to the partnership creditor d. contributing a minimum of $5,000 to receive a certificate of incorporation

a.

A de facto corporation: a. could not be challenged by a third party b. existed when the promoters substantially complied with all mandatory provisions. c. did not exist when there was an honest attempt to comply with the mandatory provisions of the corporate statute. d. was permitted to deny its corporate existence

a. could not be challenged by a third party

A _____ existed when there was an honest attempt to comply with the mandatory provisions of the corporate statute, yet the attempt still failed in some material respect. a. de jure corporation b. de facto corporation c. corporation by estoppel d. close corporation

b.

A de facto corporation: a. could be challenged by a third party. b. was not permitted to deny its corporate existence. c. never involves a quo warranto action. d. existed when the promoters substantially complied with all mandatory provisions.

b.

Before a corporation comes into existence, it _____. a. can be liable as principal b. cannot ratify a contract made by the promoter c. is illegal to pay promoters for their services d. is liable if the board acts to adopt the contract

b.

Massachusetts courts require that the parties expressly create a(n) _____ before a corporation can be held liable for preincorporation contracts. a. adoption agreement b. novation c. incorporation regulation d. operating agreement

b.

According to the traditional judicial rule, courts can pierce the corporate veil when: a. there is undercapitalization coupled with strict adherence to corporate formalities. b. there is strict adherence to corporate formalities such as holding shareholders' but not directors' meetings. c. there is undercapitalization. d. shareholders deal with their corporate transactions as if all were professional.

c.

Joey and his partners have started a corporation in North Dakota. They may decide to get it incorporated in Illinois if: a. incorporation fees are low even if incorporation taxes are very high. b. shareholders can actively participate in the management. c. incorporation fees and taxes are lower, and there is minimal shareholder interference. d. promoters and shareholders are barred from interfering.

c.

Which of the following statements is true about the ultra vires doctrine? a. It is the only stringent limitation on the enforceability of contracts entered into by corporations. b. It permits corporate directors to freely prevent enforcement of unattractive contracts. c. It permits the state attorney general to prevent enforcement of corporate contracts that extend beyond the corporation's authorized powers. d. It does not permit the corporation to bring a suit for damages to the corporation against the officers of the corporation who have entered into an ultra vires contract.

c.

_____ is a basic restriction governing the transferability of shares in a close corporation. a. Piercing the veil b. Quo warranto c. Right of first refusal d. Ultra vires

c.

Which of the following types of corporations sells shares to people who often have little interest in it except as investors? a. nonprofit corporations b. closely held corporations c. publicly held corporations d. municipal corporations

c. publicly held corporations

According to the Model Business Corporation Act (MBCA), which of the following is an optional content that could be included in the articles of incorporation? a. The name of the corporation b. The name and address of each incorporator c. The number of shares of capital stock that the corporation shall have authority to issue d. The purpose of the corporation

d.

Esther and Salim are promoters for Kale Inc. Prior to its incorporation, Esther negotiated several preincorporation contracts with Ian, an investor. She signed each contract in the name of Kale Inc. Kale subsequently was incorporated, but the Kale Board of Directors refused to adopt the contracts. Ian later sues Kale, Esther, and Salim on the contracts. Which of the following statements is true of this case? a. Only Kale and Esther are liable as Esther, a promoter of Kale, negotiated several preincorporation contracts with Ian. b. Esther is solely liable as she signed each contract in the name of Kale Inc. c. Kale, Esther, and Salim are liable as they are sued by Ian. d. Esther and Salim are liable as they are promoters of Kale Inc.

d.

Which of the following is a common trait of close corporations? a. The shareholders are large in number. b. Shareholders usually live in different geographic areas. c. Only few of the shareholders are active in the business. d. There is no established market for the stock.

d.

Which of the following statements is true for the dissolution of a corporation by agreement? a. As a corporation is not an entity created by the state, it need not have the state's consent to dissolve. b. A corporation can be dissolved by oral consent of all shareholders. c. If two corporations consolidate into a new corporation, only the old corporation with major shareholders is dissolved. d. Corporations with more than one class of shareholders sometimes provide for voting on dissolution and other matters by class.

d.