Ch. 33 Questions

A promoter of a corporation has a fiduciary duty to: a. any other promoters of that corporation. b. only the corporation. c. no one. d. None of these are correct.

A

Carlos is a promoter of Debonair Enterprises, Inc. To whom, if any, does Carlos owe a fiduciary duty? a. Carlos owes a fiduciary duty to any other promoters of Debonair Enterprises. b. Carlos owes a fiduciary duty to Debonair Enterprises only. c. Carlos does not owe a fiduciary duty to any party. d. None of these are correct.

A

In the case of Coopers & Lybrand v. Fox, the court held: a. a promoter is personally liable for the contracts he makes. b. a promoter is only liable to a creditor if there is an express written agreement to be held liable for the obligations of incorporation. c. a promoter is not liable for a corporation's debts, and a creditor should look solely to the corporation for payment. d. a promoter may only be released from liability by an express agreement.

A

In the case of Harold Lang Jewelers, Inc. v. Johnson, the court found that: a. Lang's business was regular, continuous and substantial such that it was transacting business in North Carolina. b. Lang was entitled to a continuance until a certificate of authority could be obtained. c. Lang's employee had finalized sales over the phone in North Carolina. d. Lang did not have sufficient contacts with the state to constitute regular business in North Carolina.

A

Michael is truck driver employed by Simmons Construction Corporation. While operating the truck during business hours, Michael negligently crashes into Peter. Is Simmons Construction Corporation liable? a. Yes, Simmons Construction Corporation is liable under the doctrine of respondeat superior. b. Yes, Simmons Construction Corporation is liable under the corporation de facto doctrine. c. No, only Michael is liable. d. All of these are correct.

A

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

A

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, since the president authorized the crime. b. No, because a corporation cannot go to jail. c. Yes, under the doctrine of ultra vires and since the president authorized the crime. d. Yes, under the doctrine of ultra vires.

A

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

A

Barbara, a self-made millionaire, wants to start a corporation exclusively for charitable and educational purposes. What type of corporation should Barbara form? a. Profit corporation. b. Non-profit corporation. c. Benefit corporation. d. None of these are correct.

B

The possible consequences of a defective incorporation include all of the following except: a. the state may bring an action against the association for involuntary dissolution. b. the association always being liable for an obligation. c. the associates are held personally liable to a third party. d. a third party asserts it is not liable to the association.

B

Which of the following is the basic governing document of a corporation? a. A subscription. b. Articles of incorporation. c. A promoter's contract. d. A certificate of authority.

B

Wyatt, the sole stockholder of International Travel Corporation, wrongfully used the corporation to avoid a personal liability. A court's disregarding the corporate entity and holding Wyatt personally liable is called: a. limited liability. b. piercing the corporate veil. c. diversity of interest. d. ultra vires.

B

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 Act, what would be the result? a. Claire would not be personally liable, but Jack would. b. Both would be personally liable since there was no corporation formed. c. Jack would not be personally liable, but Claire would. d. Claire and Jack would not be personally liable.

C

Robert approaches you and seeks to form a corporation. He asks you which document should he create to govern the corporation. What do you tell him? a. Create a certificate of authority. b. Create a promoter's contract. c. Create articles of incorporation. d. Create a subscription.

C

The incorporators would typically do which of the following? a. Purchase outstanding shares. b. Assemble the assets. c. Sign the charter. d. All of these are correct.

C

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

C

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 these are correct.

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. of the state in both where it has a principal office and its incorporation.

D

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 owners.

D

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 these are correct.

D

Deer Haven, Inc. is a corporation incorporated in Arkansas and has its principal office in San Antonio, Texas. Which of the following is true of Deer Haven, Inc.'s citizenship status? a. Deer Haven, Inc. is a citizen only of Arkansas, for the purpose of determining diversity of citizenship. b. Deer Haven, Inc. is a citizen under the privileges and immunities clause of the Fourteenth Amendment. c. Deer Haven, Inc. is a citizen only of Texas, for the purpose of determining diversity of citizenship. d. Deer Haven, Inc. is a citizen of Arkansas and Texas, for the purpose of determining diversity of citizenship.

D

James, a promoter of Unobtainium Corporation, has a fiduciary duty to: a. only Unobtainium Corporation. b. the initial shareholders of Unobtainium Corporation. c. any other promoters of Unobtainium Corporation. d. both the other promoters and the initial shareholders of Unobtainium Corporation.

D

Shareholders of Tridential, Inc. are worried that the court will "pierce" its corporate veil and hold the shareholders liable. Which of the following factors will a court consider in deciding whether to pierce Tridential, Inc.'s corporate veil? a. Tridential, Inc. did not follow the formalities of corporate procedures. b. Tridential, Inc. did not provide an adequate financial basis for the business. c. Tridential, Inc. did used the corporation to defraud others. d. All of these are correct.

D

Use of "Evans & Hall, Ltd." as a corporate name would be: a. impermissible because it does not clearly designate that the organization is a corporation. b. impermissible because it includes surnames. c. permissible because the selection of a corporate name is purely up to the organizers of the corporation. d. 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.

D