Accounting 302 Chapter 34

Which of the following may be used to redress the ultra vires acts committed by a corporation? a. Proceeding by shareholders for an injunction. b. Suit by the corporation or shareholders derivatively against present or former directors or officers for commission of the acts. c. A proceeding by the attorney general of the state of incorporation to enjoin it from the transaction of unauthorized business. d. All of the above may be used.

D. All of the above may be used.

Opal, a promoter of Victory Corporation, has a fiduciary duty to: a. any other promoters of Victory Corporation. b. only Victory Corporation. c. the initial shareholders of Victory Corporation. d. Both (a) and (c).

D. Both (a) and (c)

A corporation is considered a citizen: a. of the state in which it has its principal office, for the purpose of determining diversity of citizenship. b. of the state of its incorporation, for the purpose of determining diversity of citizenship. c. under the Fourteenth Amendment privileges and immunities clause. d. All of the above. e. Only (a) and (b).

E. Only (a) and (b)

The Model Business Corporation Act is a state statute that, like the UCC, has been adopted by all of the states in the United States to make state incorporation statutes uniform throughout the United States.

False

The Revised Act provides that at least two persons need to act as incorporations, though more may do so.

False

The doctrine of ultra vires is of more significance today than is has been in the past.

False

The modern approach follows the common law rule in holding that a corporation cannot commit a criminal act.

False

Title to a corporate property belongs to the shareholders.

False

Under the RMBCA, a newly formed corporation need not hold an organizing meeting.

False

Under the RMBCA, a pre-incorporation subscription may be revoked at any time without the consent of the subscriber.

False

Under the RMBCA, the bylaws may be amended and must be publicly filed with the articles of incorporation.

False

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation must have bylaws on file with the Office of the Secretary of State or some other public office.

False

"Piercing the corporate veil" will result in personal liability of shareholders.

True

A corporation has perpetual existence unless otherwise stated in its articles of incorporation.

True

A corporation is a creature of the state and my be formed only by substantial compliance with a state incorporation statute.

True

A corporation is a domestic corporation in the sate in which it is incorporated,

True

A corporation owned by one person is treated under the law as separate from that person.

True

A preincorporation subscription is an offer to purchase capital stock in a corporation yet to be formed.

True

A promoter is a person who takes preliminary steps to organize a corporation.

True

A promoter who enters a preincorporation contract in the name of the corporation usually remains liable on the contract even if the corporation adopts it.

True

Bylaws are rules governing a corporation's internal management.

True

If an act is ultra vires, it is beyond the legal authority of the corporation.

True

In many states, the services of the incorporators are perfunctory and short-lived.

True

Modern incorporations statutes have adopted an intermediate position regarding the revocability of preincorporation subscriptions.

True

Most States have special incorporation statutes governing nonprofit corporations.

True

Promoters have a fiduciary relationship with the corporation.

True

The "corporate veil" is most likely to be pierced in the case of closely help corporations and in parent-subsidiary relationships.

True

The Internal Revenue Service allows taxation of certain corporations to be similar to that of partnerships.

True

The RMBCA has been adopted, in whole or in part, by most states.

True

Under Subchapter S of the Internal Revenue Code, a corporation's income is taxed at the shareholders level.

True

Under the Revised Act, a corporation can act as an incorporator of another corporation.

True

Under the Revised Act, the filing of the articles of incorporation by the Secretary of State is conclusive proof that the incorporators have satisfied all conditions precedent to incorporation so that a shareholder or creditor would be unable to challenge the existence of the corporation.

True

Zeron Corporation is incorporated in he State of West Virginia. It now wants to open a retail outlet in Kentucky. Zeron must obtain a certificate qualifying it to do business in the State of Kentucky.

True

Courts have responded by piercing the veil when the shareholders have: a. not followed the formalities of corporate procedures. b. not provided an adequate financial basis for the business. c. used the corporation to defraud. d. All of the above. e. (a) and (c) only.

E. (a) and (c) only.

The president of Hi-Glow Cosmetics sends his top chemist to Hi-Glow's competitor's labs to steal its formula for shiny lipstick. The chemist gets caught and is sent to jail. Can Hi-Glow be found to be criminally liable? a. Yes, under the doctrine of ultra vires. b. Yes, since the president authorized the crime. c. No, because a corporation cannot go to jail. d. Both (a) and (b).

B. Yes, since the president authorized the crime.

Use of "Evans & Hall, Ltd." as a corporate name would be: a. permissible as long as it is distinguishable from the name of any domestic corporation or any foreign corporation authorized to do business within the state. b. impermissible because it does not clearly designate that the organization is a corporation. c. impermissible because it includes surnames. d. permissible because the selection of a corporate name is purely up to the organizers of the corporation.

A. Permissible as long as it is distinguishable from the name of any domestic corporation or any foreign corporation authorized to do business within the state.

Which of the following would not usually be found in the articles of incorporation of a corporation? a. The number of directors necessary for a quorum. b. The name and address of the corporation. c. Preemptive rights of shareholders, if any. d. The number of authorized shares and the classes of shares.

A. The number of directors necessary for a quorum.

Corporations have achieved dominance in which of the following ways? a. This form of organization accounts for 85 percent of the gross revenues of all business entities. b. Over 50 percent of all U.S. businesses are organized in the corporate form. c. Over 75 percent of American adults own stock directly or indirectly. d. All of the above.

A. This form of government organization accounts for 85% of the gross revenue of all business entities.

Which of the following is the basic governing document of a corporation? a. A subscription. b. A charter, after filing. c. The set of bylaws. d. A certificate of authority.

B. A charter, after filing.

A corporation formed in substantial compliance with the incorporation statute and the required organizational procedures is a: a. de facto corporation. b. de jure corporation. c. corporation by estoppel. d. private corporation.

B. De jure corporation.

Which of the following is not a requirement of a Subchapter S corporation? a. It must be a domestic corporation. b. It must have no more than 50 shareholders. c. A corporation or partnership cannot be a shareholder. d. It may have only one class of stock.

B. It must have no more than 50 shareholders.

The person who signs the articles of incorporation is the: a. promoter. b. incorporator. c. subscriber. d. majority stockholder.

B. The incorporator

Which of the following is correct regarding a foreign corporation? a. A foreign corporation is incorporated in a foreign country. b. Failure to obtain a certificate of authority to transact business in the state impairs the validity of a contract entered into by the corporation. c. A foreign corporation transacting business within a particular state without having first qualified cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority. d. All of the above are correct.

C. A foreign corporation transacting business within a particular state without having first qualified cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority.

The City of Chicago would best be described as which of the following? a. A corporation formed pursuant to the Model Business Corporation Act. b. A close corporation. c. A public corporation. d. A domestic corporation.

C. A public corpporation

Which of the following is NOT a characteristic of the corporation form of doing business? a. Limited liability. b. Perpetual existence. c. Informal organization. d. Transferability of corporate shares.

C. Informal Organization.

Claire opened Claire's Beauty Parlor in her home. She solicited funds to begin the business from Jack, who believed that the business was incorporated. Claire had, in fact, never filed the papers. One day, Claire fell asleep while giving a customer a permanent and the solution caused her customer severe burns. The customer sued the Beauty Parlor for $500,000, an amount enormously in excess of the business assets. Under the Revised Model Act, what would be the result? a. Claire and Jack would not be personally liable. b. Claire would not be personally liable, but Jack would. c. Jack would not be personally liable, but Claire would. d. Both would be personally liable since there was no corporation formed.

C. Jack would not be personally liable, but Claire would.

Under the RMBCA, the charter of the corporation is required to provide all of the following Except: a. the number of shares authorized. b. the street address of the registered office. c. names of the initial directors. d. the name and address of each incorporator.

C. Names of the initial directors

The case of Harris v. Looney dealt with the issue of: a. a de facto corporation. b. defective incorporation. c. personal liability for a debt by a person purporting to act as or on behalf of a corporation, knowing no corporation existed. d. the effect of an ultra vires act.

C. Personal liability for a debt by a person purporting to act or on behalf of a corporation, knowing no corporation existed.

General Supply owns all the stock of Playne Pencils. A Playne employee commits a tort for which the employer is liable. The suit results in a judgment of $1 million against Playne. Playne's assets total $650,000, but General Supply's assets are in the millions. In which of the following situations would the judgement have to paid by General? a. General Supply's board of directors is exactly the same as Playne's. b. The president of General Supply is also the vice president of Playne. c. Playne's income and General Supply's income is held in one account. d. None of the above.

C. Playe's income and General Supply's income is held in one account.

Which of the following is untrue regarding closely help corporations? a. Most corporations in the U.S. are closely held. b. Shareholders frequently restrict the transfer of shares to prevent "outsiders" from obtaining the stock. c. Shareholders usually have little voice in the management and control of the business. d. Some states have enacted special legislation to accommodate the needs of closely held corporations.

C. Shareholders usually have little voice in the management and control of the business.

The incorporators would typically do which of the following? a. Purchase the outstanding shares. b. Assemble the assets. c. Sign the charter. d. Prepare the incorporation papers.

C. Sign the charter

Whether a corporation is a de facto corporation may be challenged by: a. an individual. b. another corporation. c. the state in which the business attempted to incorporate. d. All of the above.

C. The state in which the business attempted to incorporate.

Which of the following may influence a promoter to choose to incorporate in a particular state? a. Corporate laws. b. Its tax on corporate earnings. c. The state court system. d. All of the above.

D. All of the above

The possible consequences of a defective incorporation include which of the following? a. The state may bring an action against the association for involuntary dissolution. b. A third party may assert that it is not liable to the association. c. The associates are held personally liable to a third party. d. All of the above. e. None of the above.

D. All of the above

All of the following are characteristics of a corporation Except: a. it has perpetual existence. b. it is a legal entity of its own. c. it is able to be sued and to sue. d. it is usually managed by its shareholders.

D. It is usually managed by its share holders.

Bill Bonney, the sole stockholder of Kidd Corporation, wrongfully used the corporation to avoid a personal liability. A court order that disregards the corporate entity and holds Bonney personally liable is called: a. limited liability. b. ultra vires. c. diversity of interest. d. piercing the corporate veil.

D. Piercing the corporate veil.

The Revised Act authorizes shareholders in closely held corporations to adopt shareholders agreements that depart from statutory norms by altering the governance of the corporations. These agreements: a. are effective if adopted by a majority of the shareholders. b. are valid for the life of the corporation unless a new agreement is reached. c. are binding on shareholders, the state, creditors, and other third parties. d. terminate automatically if the corporation's shares are traded publicly.

D. Terminate automatically if the corporation's shares are traded publicly.

Under which of the following provisions of the U.S. Constitution is a corporation not a "person"? a. The Fifth Amendment Due Process Clause. b. The Fourteenth Amendment Due Process Clause. c. The Fourteenth Amendment Equal Protection Clause. d. The Fifth Amendment right against self-incrimination. e. The Fourth Amendment protection against unreasonable searches and seizures.

D. The Fifth Amendment right against self-incrimination.

All of the following are true of promoters of a corporation Except: a. They solicit investors to begin the corporation. b. They prepare the formal documents of incorporation. c. They may make contracts in the name of the corporation. d. They continue to solicit capital whenever needed after incorporation.

D. They continue to solicit capital whenever needed after incorporation.

Which of the following is correct regarding the characteristics of a corporation? a. A corporation is considered a person within the meaning of the Fourteenth Amendment's equal protection clause. b. The Fifth Amendment provisions against self-incrimination protect a corporation. c. A corporation is protected by the Fourth Amendment's provision against unreasonable searches and seizures. d. Two of the above, (a) and (c).

D. Two of the above, (a) and (c).

A corporation has no constitutional protection against unreasonable searches and seizures.

False

A corporation is considered a citizen under the Fourteenth Amendment provisions that, "No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States"

False

A corporation is considered to be a person within the meaning of the Fifth Amendment protection against self-incrimination.

False

Big Burger Co. sues Bakum Corporation for breach of contract for $1,000 of hamburger buns that were not delivered. Bakum may assert as a defense to payment that Big Burger is not a de jure corporation.

False

Carroll, Daniels, and Elmore organized their veterinary practices as a professional corporation. This organization of professionals will be treated as a partnerships for liability puposes.

False

Estoppel may create a corporation.

False

Once a shareholder sells the stock of the corporation, since the ownership of the corporation changes, a new corporation is formed.

False

Shareholders do not have limited liability for corporate debts.

False

Subchapter S is a section of the Model Business Corporation Act that provides special benefits for small corporations.

False