BUSA Chapter 18

The corporation's internal rules of management are called the bylawsSelectarticlesbylawsoperating agreementboard resolutionItem 1

bylaws

The type of corporation most at risk for piercing the corporate veil is the: a. public corporation. b. publicly traded corporation. c. close corporation.

c. close corporation.

A corporation normally has a fifty-year existence. a. True b. False

false

If one uses a business name that is the same as, or deceptively similar to, another's name, he may be liable for trade name infringement. a. True b. False

true

To pierce the corporate veil is to expose the shareholders to personal liability. a. True b. False

true

corporation automatically will be taxed under subchapter C unless it elects to become an S corporation. a. True b. False

true

Trey owns 250 shares of common stock in a toy store company. This means that he owns a percentage of the company based on the proportion of shares he owns out of the total shares issued by the company. With this ownership he also acquires rights to: a. vote and receive dividends before any other creditors. b. vote. c. vote and receive a fixed sum on a fixed date. d. determine the amount of dividends that will be paid.

vote

retained earnings

The portion of a corporation's profits that has not been paid out as dividends to shareholders.

Alien Corporation

a corporation chartered by a foreign government and conducting business in the United States

domestic corporation

a corporation in the state in which it is incorporated

Dividens

a distribution of profits or income to sharholders

Directors are hired by the shareholders through an interview process. a. True b. False

false

If a corporation cannot point to a document that articulates its express power, the corporation does not have the power. a. True b. False

false

foreign corperation

in a given state, a corperation that does business in state without being incorperated in that state.

Corporate officers are hired by the directors. a. True b. False

true

The express powers of a corporation come from which four sources? a. the articles of incorporation b. the Uniform Express Powers Act c. U.S. and state constitutions d. state laws e. the bylaws f. the Uniform Commercial Code g. the Revised Model Business Corporations Act

a. the articles of incorporation c. U.S. and state constitutions d. state laws e. the bylaws

As a director and officer of Max Transport, Inc., Max would most likely be considered to have breached his duty of loyalty if he: a. buys stock in Arnold's Transport, Inc., a competing trucking firm. b. personally takes advantage of a business opportunity that the officers and directors of Max Transport previously voted against. c. suggests to the other members of the board that the company should purchase a new line of trucks. d. becomes a director of CineMax, a chain of multiplex theaters.

a. buys stock in Arnold's Transport, Inc., a competing trucking firm.

Suzy signs a written agreement with Phillip, giving Phillip the right to cast Suzy's votes for a certain group of people nominated for the Syllibar Corporation board of directors. This agreement between Suzy and Phillip is known as a: a. subpoena. b. proxy. c. derivative agreement. d. cumulative voting agreement.

b. proxy.

Elliot is suing Acme, Inc., for a breach of contract, but because Acme has very little in assets, he asks the court to pierce the corporate veil and hold the officers personally liable. In which of the following situations would the court likely approve Elliot's request? a. The corporation was undercapitalized from the beginning and never had sufficient assets to operate as a viable business. b. The officers loaned money to the corporation in an attempt to delay any adverse actions. c. The officers make their decisions based on information presented to them, but they have been unaware that the information is incorrect. d. The corporation has struggled to make a profit from the beginning.

a. The corporation was undercapitalized from the beginning and never had sufficient assets to operate as a viable business.

The business judgment rule states that directors and officers: a. are immune from liability for business judgments that turn out poorly, so long as they exercised reasonable care. b. must always make good business decisions for the corporation. c. are never liable for bad business decisions if they attend all their meetings and vote for the actions.

a. are immune from liability for business judgments that turn out poorly, so long as they exercised reasonable care.

A corporation is a legal entity: a. created pursuant to a state statute b. created pursuant to a local ordinance c. created pursuant to an agency regulation d. that naturally occurs when two or more people do business

a. created pursuant to a state statute

Officers and directors have a special relationship with the corporation and its shareholders and are called: a. fiduciaries. b. responsible parties. c. registered agents. d. managers.

a. fiduciaries.

Sarah owns half of Smith Realty, Inc., and her brother, Bill, owns the other half. Sarah routinely uses the company car, which is supposed to be used only for taking clients to view property, to run her personal errands. She also routinely uses company funds for personal uses, but always pays the money back in to the corporation. When Smith Realty failed to pay its lawyer for work completed on its behalf, the lawyer sued both Smith Realty as well as Sarah and Bill personally. In this situation the court likely will: a. pierce the corporate veil due to Sarah's commingling of interests. b. not pierce the corporate veil. because there was no commingling of interests. c. dismiss the case, because Smith Realty is a close corporation. d. not allow Sarah and John to be sued individually, because Smith Realty is a close corporation.

a. pierce the corporate veil due to Sarah's commingling of interests.

Wilson, Bart, and Susan Fields decide to set up a corporation together called Fields, Inc. They follow the correct procedures for establishing their corporation, but once it is established they do not hold regular corporation meetings. Since they are all related, they just conduct their communications and business related to Fields, Inc. at their family gatherings and over casual phone conversations. When Fields, Inc., is sued for failing to pay some outstanding debts, the court likely will: a. pierce the corporate veil due to the failure to hold required corporation meetings. b. dismiss the case because Fields, Inc., is a close corporation. c. not pierce the corporate veil. d. dismiss the case because Fields, Inc., is an open corporation.

a. pierce the corporate veil due to the failure to hold required corporation meetings.

Keenan wants to incorporate his business. Keenan follows the rules for incorporation in his state, including a statement that he is the sole shareholder, and he is granted a certificate of incorporation for "Keenan's Kwips Co." He buys business cards and labels with the name "Keenan's Kwips Co." on them and begins selling gag gifts. Keenan's business is probably a: a. corporation by estoppel. b. de jure corporation. c. public corporation. d. de facto corporation.

b. de jure corporation.

elect the three names that close corporations are often called. a. benefit corporations b. family corporations c. S corporations d. closely held corporations e. unprofitable corporations f. privately held corporations

b. family corporations d. closely held corporations f. privately held corporations

The directors and officers of Sports Color, Inc., vote to refuse to declare a dividend. The shareholders can: a. return treasury shares in exchange for a dividend. b. file an action to require the directors to declare a dividend. c. overrule the directors and vote to declare a dividend themselves. d. demand that a court declare a dividend.

b. file an action to require the directors to declare a dividend.

Tammi purchases stock in Vivaldi Corporation. Vivaldi Corporation later encounters legal issues and faces significant legal claims. As a shareholder, Tammi's liability is: a. unlimited. b. limited to her investment in the stock. c. just like that of partners.

b. limited to her investment in the stock.

George owns 300 shares of preferred stock in a company. By owning preferred stock, George has: a. priority over holders of common stock as to dividends and the right to force the company to buy back the shares. b. priority over holders of common stock as to dividends. c. a fixed maturity date for his shares. d. the right to force the company to buy back the shares.

b. priority over holders of common stock as to dividends.

Ariana is an officer of New Stage, a theater production company. Without telling any other officers or the board of directors, she decides that New Stage should try to sell gardening tools over the Internet. She makes contracts with suppliers and a web-based remote-order-fulfillment company. The only action of the below that may not be taken is: a. the corporation can file a lawsuit against her. b. the shareholders can file a lawsuit on behalf of the corporation. c. she can file a lawsuit against the corporation for damages. d. the state attorney general may seek an injunction against the transactions or seek a dissolution order from a court.

c. she can file a lawsuit against the corporation for damages.

Rena incorporates her business, Rena's Rhinestones, in her home state of Maryland. She wants to expand and sell some of her baubles in Virginia. In Virginia, her company will be considered: a. an alien corporation, because her business has been chartered in another state. b. a public corporation, so she will probably not have to obtain a license to do business there. c. an open corporation, so she can do business in any state that allows open corporations to operate. d. a foreign corporation, and she will probably have to obtain a certificate of authority to do business there.

d. a foreign corporation, and she will probably have to obtain a certificate of authority to do business there.

Micah and Jonah want to start a corporation but want to be taxed as a partnership. They should form: a. a benefit corporation. b. a C corporation. c. a public corporation d. an S corporation.

d. an S corporation.

There is no difference between a public corporation and a publicly held corporation. a. True b. False

false

. The most common remedy for an ultra vires act is an injunction. a. True b. False

true

Directors and officers may be liable for the actions of corporate employees under their supervision, as well as for their own torts and crimes. a. True b. False

true