Chapter 41

Mr. Blue has invested in SuperMart Inc. Mr. Blue purchased $5000 worth of shares or 3% equity in the company. Shortly after investing SuperMart Inc. is found guilty of various civil wrongs and a judgment is entered in against the company for 3.1 million dollars. How much liability will Mr. Blue have?

$5000 will be the limit of his liability

What is the number of events considered sufficient under the minimum contacts test to confer jurisdiction on a state's courts?

1

Under the general incorporation law, the minimum number of owners a business needs to be incorporated as a for-profit corporation is:

1.

The maximum number of shareholders that are allowed in a Subchapter S corporation is:

100.

QT Inc., is incorporated in Alabama, has offices in Nebraska, has a manufacturing plant in Delaware, and conducts most of its sales from Virginia. Regulation of its internal affairs will be exercised only by:

Alabama

The Model Business Corporation Act (MBCA) was prepared and authorized by the:

American Bar Association's Committee on Corporate Laws

Which of the following corporation classes' profits are taxed only at the shareholder level?

An S corporation

Wheelies is an auto parts retailer. It operates a retail megastore in a city where the city ordinance prohibits retailers from being open on consecutive Sundays. The management of Wheelies realizes that their maximum sales happen on Sundays. They create a wholly-owned subsidiary, CarBasics, and start leasing the megastore building and its inventory to CarBasics every alternate Sunday. Who is liable for violating the city ordinance?

Both Wheelies and CarBasics

Which of the following documents is required for a foreign corporation to do intrastate business in a state?

Certificate of authority

In which of the following classes of corporation are the controlling shareholders the only managers of the business?

Close corporation

Under the _____ Clause, the power to regulate interstate trade is given to the federal government

Commerce

According to the Supreme Court of the United States, a foreign corporation may be brought into a state's court in connection with its activities within the state, provided that the state does not violate the corporation's due process rights under the Fourteenth Amendment of the Constitution and its rights under the:

Commerce Clause.

What is the term for when a shareholder causes a corporation to act to the benefit of an individual shareholder?

Domination

Nearly all for-profit corporations are incorporated under what laws?

General incorporation law

giving businesses a greater capacity to raise capital

In the late 18th century, general incorporation statutes emerged in the United States

A state may impose its laws on a foreign corporation if such imposition does not violate the Constitution of the United States, notably the Due Process Clause of the Fourteenth Amendment and the Commerce Clause. The leading case in this area is the _____ case.

International Shoe

Katie Kuric is the only shareholder, director, and officer of two corporations, Multimedia Corporation and Kuric Network Television Corporation (KNT). Multimedia produces television shows and movies. KNT broadcasts television programming over the air and on cable. KNT purchases much of its TV programs and movies from Multimedia. KNT often pays Multimedia for the TV shows and movies more than a year after payment is due, without being required to pay interest or a late payment penalty. What risk is Katie taking by allowing KNT to pay Multimedia late?

KNT's veil will be pierced because Multimedia's creditors are being defrauded

Anderson incorporated his new company, Pearl Inc., in the business of manufacturing rubber. After some years, he opened his own subsidiary rubber manufacturing company. The new subsidiary company is a success. Meanwhile, the workers of Pearl Inc., claimed that payment of bonus is due and they are demanding the same from the subsidiary company. In this case, are both Pearl Inc., and its subsidiary liable?

No, they are not liable because a subsidiary is not liable for parent's debts as provided under the law

Jim created a shoe-manufacturing corporation by contributing $1,000. He stayed as the sole shareholder and director of the corporation. To inject further capital into the corporation, he loaned the corporation $100,000 and secured the loan in exchange for all the corporation's assets. Five years into operations, the corporation has still failed to make profits and consequently files for bankruptcy. Who has been defrauded?

Nonshareholder-creditors

Which of the following classes of corporation has members rather than shareholders?

Not-for-profit corporation

Which of the following classes of corporation may not distribute surplus revenue from its operations to its members?

Not-for-profit corporation

Which of the following activities is classified as doing business for the purpose of intrastate business qualification?

Owning or using real estate for general corporate purposes.

Which of the following is true about an S corporation?

Shareholders of an S corporation may be only individuals or trusts

What was the name of the documents that were given to early American corporations by state legislatures that permitted them to operate as a corporation?

Special Charter

Which of the following legal provisions treats a corporation as a person?

The Constitution of the United States

In which of the following situations will a business incorporated in Ohio be required to qualify to do business in Kentucky?

The business maintains a stock of goods in Kentucky from which it sells to customers in Kentucky

A pastor of a church (a nonprofit corporation) believes that his salary is too small to cover his meager expenses. When repeated requests to management and superiors do not lead to a salary increase, he starts supplementing his salary with church donations. What risk is he running?

The veil between the pastor and the church will be pierced because the pastor's act is defrauding church members.

Which of the following statements is true of not-for-profit corporations?

They provide services to their members.

Outland Corporation is incorporated in Wyoming, where it has its executive office. It has a manufacturing plant in Utah, and a warehouse in New Mexico, where most of its sales are made. Outland is subject to taxation in:

Wyoming, Utah, and New Mexico

Nearly all corporations whose veils are pierced are:

close corporations

The law of piercing the corporate veil is an example of a _____ law protecting the creditors of corporations.

common

Most of the common law of corporations deals with:

creditor and shareholder rights.

Toywood Inc., headquartered in Vermont, specializes in manufacturing non-toxic wooden toys in its two mechanized units in Vermont and New Hampshire. Its flagship store is located in Philadelphia, PA. It will be considered a(n) _____ corporation in PA

foreign

The corporate form of business has facilitated the rapid growth of development by allowing businesses to attain economies of scale compared to other forms of businesses by:

giving businesses a greater capacity to raise capital

Most of the states have passed _____ to permit their courts to exercise jurisdiction under the decision of the International Shoe case

long-arm statutes

Big Corporation (BC) was dominated by its president, Mr. Vincent. He used his dominance for an improper purpose—defrauding lenders to the corporation. As a result, a court can:

make him personally liable on the debts to those lenders.

To prove domination, it is _____ to show that there is only one shareholder

neither sufficient nor necessary

A Subchapter S corporation is typically treated like a _____ for federal income tax purposes.

partnership

Mary Lee James, a certified public accountant at Edgewater, Florida, wishes to incorporate. According to the corporate law requirements, she needs to incorporate under the:

professional corporation acts

Ala Foreign Corporation is incorporated in the state of Alabama. However, it is running 90 percent of its operations from the state of Indiana. Such a type of corporation is called a(n):

pseudo-foreign corporation

Since the level of doing business that constitutes intrastate business for qualification purposes has been difficult to define, the Model Business Corporation Act lists several activities that do not require qualification. One such activity is:

soliciting orders by mail that require acceptance outside the state.

Not-for-profit corporations are regulated primarily by the:

states

A state law regulating the activities of a foreign corporation does not unduly burden interstate commerce if:

the foreign corporation has chosen the least burdensome means of promoting that interest.

Forming a business with a high debt-to-equity ratio is an example of:

thin capitalization