Unit 14

The document that the state issues evidencing that a corporation has been duly formed is the corporation's ____ . a. By laws b. Articles of incorporation c. Charter d. Certificate of authority to do business

c. Charter

The record date on which a dividend is payable is the ___________date. a. Proxy b. Activation c. Ex dividend d. Issuance

c. Ex dividend

Dominant shareholders in closely held corporations who exploit their control of the corporation to benefit themselves at the expense of minority shareholders are guilty of a. Ultra vires acts b. Quo warranto acts c. Oppressive conduct d. Unfair trade practices

c. Oppressive conduct

The person who is designated to receive notices and service of process for a corporation is its a. General agent b. Special agent c. Registered agent d. Factor

c. Registered agent

The document that is written evidence of an ownership interest in a corporation is an ____ a. Stock warrant b. Charter c. Stock certificate d. Proxy statement

c. Stock certificate

Which of the following is FALSE about the name of a corporation? a. The name must include words like "company" or "corporation" to indicate that the entity has limited liability. b. The name cannot be deceptively similar to any other corporation incorporated in that state. c. The name can never be changed once it is registered with the state. d. States allow corporations to reserve a name for a limited time while the corporation is being formed.

c. The name can never be changed once it is registered with the state.

Which of the following is not required for a foreign corporation to get a certificate of authority to do business? a. File a copy of its Articles of Incorporation with the secretary of state. b. File a copy of its bylaws with the secretary of state. c. Have a registered agent and registered office for service of process d. All of the above are required.

d. All of the above are required

The prerogative of existing shareholders to buy new issues of stock in the same proportion as their current holdings is their ____ right. a. Buy and sell b. Redemption c. Subscription d. Preemptive

d. Preemptive

Which of the following would not be grounds for dissolving a corporation? a. A quo warranto proceeding b. The shareholders are deadlocked in electing a board of directors. c. Oppressive conduct by a controlling shareholder. d. The corporation has not made a profit or declared dividends in two years.

d. The corporation has not made a profit or declared dividends in two years.

A corporation ceases to exist as a legal entity when a. The directors vote unanimously to dissolve the corporation b. The shareholders vote unanimously to dissolve the corporation c. The directors of the corporation notify corporation creditors of the dissolution. d. The state issues a certificate of dissolution

d. The state issues a certificate of dissolution

The theory under which courts pierce the corporate veil of corporations whose shareholders do not treat the corporation like a separate legal identity is the ________ theory. a. Alter Ego b. Ultra Vires c. Quo Warranto d. Promotion of Justice

a. Alter Ego

The theory under which courts pierce the corporate veil of corporations whose shareholders do not treat the corporation like a separate legal identity is the ____ theory. a. Alter ego b. Ultra vires c. Quo warranto d. Promotion of justice

a. Alter ego

A shareholder who dissents from a merger is entitled to a. Be paid the fair value of her stock b. Revoke her dissent within 10 days of the stock appraisal c. Sue the board of the surviving corporation in a derivative suit. d. All of the above are shareholder rights.

a. Be paid the fair value of her stock

The rules that govern the corporation, including the number of directors it will have, the method of electing directors, the time and place of shareholder meetings, etc., are found in the corporation's ____ . a. By laws b. Articles of incorporation c. Charter d. State incorporation code

a. By laws

The dividend that a corporation pays on its common stock must be __________ the dividend that it pays on its preferred stock. a. Greater than b. Less than c. Equal to d. The dividend on common stock may be any of the above.

a. Greater than - ?

Shares that are issued with a face value are a. Par value shares b. No par shares c. Treasury shares d. Non-certified

a. Par value shares

When a corporation dissolves, holders of ____ stock have priority in the distribution of corporation assets. a. Preferred b. Common c. Treasury d. Participating

a. Preferred

The method of voting for directors in which each shareholder casts as many votes as he or she has shares is the _______________method. a. Straight b. Cumulative c. Derivative d. Absolute

a. Straight

In a successful derivative suit, any money awarded in the judgment will go to a. The corporation b. The plaintiff shareholder c. The plaintiff shareholder and the corporation will share the money equally. d. There can be no award of money because only equitable remedies are available in derivative suits.

a. The corporation

Which of the following are not grounds for a state cancelling a corporation's charter? a. The corporation has not made a profit in 3 years. b. The corporation did not pay its franchise tax c. The corporation failed to maintain a registered agent in the state. d. The corporation has not performed any corporate functions for a long time.

a. The corporation has not made a profit in 3 years. - ?

A corporation is a person for purposes of the due process clauses of the 5th and 14th Amendments. a. True b. False

a. True

A promoter has a fiduciary responsibility toward the prospective corporation. a. True b. False

a. True

A shareholder who holds watered stock is potentially liable to the creditors of the corporation should the corporation become insolvent and unable to meet its obligations. a. True b. False

a. True

Boards of directors normally have the power to purchase insurance to indemnify directors who are sued personally for corporation-related actions. a. True b. False

a. True

Directors are fiduciaries of the corporation and may have liability in both contract and tort. a. True b. False

a. True

If a directo discovers illegal acticity he or she must report the activity or problem, and if the officers of the corporation refuse to take action, the director must resign and notify the appropriate authorities. a. True b. False

a. True

In a closely held corporation, shareholders owe each other substantially the same fiduciary duties that partners owe one another. a. True b .False

a. True

In most states corporations can have perpetual existence. a. True b. False

a. True

Once a corporation has been dissolved and the remaining assets of the corporation have been distributed to the shareholders, a creditor of the corporation may be able to sue the former shareholders on the corporate debt. a. True b. False

a. True

Shareholders are entitled to notice when a special meeting is called. a. True b. False

a. True

Shareholders have a right to vote on major changes to the corporation, such as mergers and dissolutions. a. True b. False

a. True

Some states use the alter ego theory to require corporations to assume liability for contracts negotiated on their behalf by the promoters. a. True b. False

a. True

State laws regulating the sale of securities within the state are called blue sky laws. a. True b. False

a. True

States have statutes of limitations limiting the time after the dissolution of a corporation when creditors of the corporation may sue former shareholders on corporate debts. a. True b. False

a. True

The agreement to purchase stock in a future corporation is a pre-incorporation subscription. a. True b. False

a. True

The business judgment rule protects directors who are loyal and careful from liability for business decisions that result in loss to the corporation. a. True b. False

a. True

The director's duty of loyalty continues after the director's resignation. a. True b. False

a. True

The "weighted average method" refers to a. A way of voting for directors that protects the rights of minority shareholders. b. A way of distributing dividends in closely held corporations c. A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger. d. A way of resolving antitrust issues when competitor corporations merge.

c. A way of determining the fair value of a shareholder's stock when the shareholder dissents from a merger

Which of the following sections of the Uniform Commercial Code governs the sale of securities a. Article 2 b. Article 2A c. Article 8 d. Article 9

c. Article 8

Preferred stock that is entitled to receive only the stated preferred dividend and no other is ____ preferred stock. a. Participating b. Non-participating c. Cumulative d. Non-cumulative

Non-participating

Smith's Inc. is a closely held corporation in which Joe Smith is the President and owns 80% of the corporation's stock. The corporation was undercapitalized when it was formed, and for the past seven years Joe has regularly taken funds from the corporate account to pay his own personal expenses and debts. Should Smith's Inc. not have sufficient funds to pay a creditor, the creditor may hold Joe personally liable for the corporation's debt under the _____________ theory. a. Ultra vires b. Alter ego c. Oppressive conduct d. Investment trust

a. Ultra Vires - ?

The combination of two corporations that results in the dissolution of both corporations and the emergence of a new corporation is an ____ . a. Merger b. Consolidation c. Purchase of assets d. Bulk Transfer

b. Consolidation

A bond holder is a _________of the corporation; and a shareholder is a ______of the corporation. a. Owner-----------------Creditor b. Creditor-------------Owner c. Owner----------------Beneficiary d. Beneficiary----------Owner

b. Creditor-------------Owner

Minority shareholders have the best chance of electing directors in a corporation that uses the ____ method of voting. a. Proxy b. Cumulative c. Non-cumulative d. Straight

b. Cumulative

DEF Corporation, which is incorporated in Maryland, is a ____ corporation in Maryland. a. Foreign b. Domestic c. Alien d. Native

b. Domestic

A director's duty of care under the business judgment rule is a lower standard that that of profesioal negligence. a. True b. False

b. False

Any money recovered in a successful derivative suit belongs to the shareholder who initiated the suit. a. True b. False

b. False

Article 2A of the Uniform Commercial Code governs the sale of securities. a. True b. False

b. False

Courts will allow creditors to pierce the corporate veil of any corporation that has only one shareholder. a. True b. False

b. False

Directors and shareholders may vote by proxy. a. True b. False

b. False

Directors may vote on matters in which they have a personal interest. a. True b. False

b. False

Directors must be compensated for their services. a. True b. False

b. False

Partnerships are required to give notice to creditors when they dissolve, but corporations are not required to give notice of their dissolution. a. True b. False

b. False

Shareholders are taxed on the value of the stock they receive in stock dividends a. True b. False

b. False

Shareholders have virtually unrestricted access to corporate books and records a. True b. False

b. False

State laws regulating the sale of securities within the state are called red herring laws. a. True b. False

b. False

The articles of incorporation are drawn up at the first organizational meeting of the corporation. a. True b. False

b. False

Both shareholders and directors may vote by proxy. a. True b. False

b. False (only shareholders)

The merger that creates the greatest number of antitrust issues is a ____ merger. a. Conglomerate b. Horizontal c. Market extension d. Vertical

b. Horizontal merger

Stock which has no stated value when it is sold is ____ stock. a. Watered b. No par value c. Par value d. Restricted

b. No par value

The board of ABC Corporation approved a new issue of Class B voting stock. The stock has no stated value. This stock is an example of __________________stock. a. Watered b. No par value c. Par value d. Preferred

b. No par value

Preferred stock that is entitled to receive only the stated preferred dividend and no other is _______________ preferred stock. a. Participating b. Non-participating c. Cumulative d. Non-cumulative

b. Non-participating

A shareholder who cannot attend a shareholder meeting may give another person the right to vote her shares in that election. This temporary grant of authority is an ____ . a. Warrant b. Proxy c. Assignment d. Delegation

b. Proxy

States have the power to cancel or revoke the charters of corporations that engage in illegal activities. These forfeiture hearings are called ____ proceedings. a. Divestiture b. Quo warranto c. Ultra vires d. Appraisal

b. Quo warranto

Instead of giving shareholders a cash dividend, ABC Corporation gave each shareholder 2 shares of a new stock issue for each share of stock the shareholder already owned. This is an example of a ____ . a. Super Delegate Dividend b. Stock Dividend c. Stock Split d. Stock Subscription

b. Stock Dividend

Acts of a corporation that goes beyond the powers granted to it by the state or in its charter are ____ acts. a. Criminal b. Ultra Vires c. Preemptive d. Peremptory

b. Ultra Vires