Business Law 33

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. Carlos owes a fiduciary duty to any other promoters of Debonair Enterprises. Correct. A promoter of a corporation has a fiduciary duty to any other promoter of that corporation.

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. the state in which the business attempted to incorporate. Correct. Whether a corporation is a de facto corporation may be challenged by the state in which the business attempted to incorporate. See "Common Law Approach 33-5a."

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. 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. c. impermissible because it includes surnames. d. permissible because the selection of a corporate name is purely up to the organizers of the corporation.

b. 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. Correct. A corporation's name is 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 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 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. Correct. 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. See "Domestic or Foreign 33-2c."

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. Informal organization. Correct. A corporation is a formal organization, not an information organization. See "Corporate Attributes 33-1."

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 articles of incorporation. b. Create a promoter's contract. c. Create a certificate of authority. d. Create a subscription.

a. Create articles of incorporation. Correct. A governing document of a corporation is a charter, after filing.

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. Yes, Simmons Construction Corporation is liable under the doctrine of respondeat superior. Correct. A corporation is liable for the torts its agents commit in the course of their employment.

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. any other promoters of that corporation. Correct. A promoter of a corporation has a fiduciary duty to any other promoter of that corporation. See "Promoters 33-3a."

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. Articles of incorporation. Correct. A governing document of a corporation is a charter, after filing. See "Articles of Incorporation 33-4c."

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. Non-profit corporation. Correct. Nonprofit corporations may not distribute profit to its members, directors, or officers, and the profits must be used exclusively for the charitable, educational, or scientific purpose for which the corporation was organized.

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. the association always being liable for an obligation. Correct. An association may assert that it is not liable on an obligation. See "Defective Incorporation 33-5."

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 Texas, 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 of Arkansas and Texas, for the purpose of determining diversity of citizenship. d. Deer Haven, Inc. is a citizen only of Arkansas, for the purpose of determining diversity of citizenship.

c. Deer Haven, Inc. is a citizen of Arkansas and Texas, for the purpose of determining diversity of citizenship. Correct. A corporation is considered a citizen of the state in which it has its principal office, for the purpose of determining diversity of citizenship and of the state of its incorporation, for the purpose of determining diversity of citizenship.

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 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. Correct. Under the Revised Act, liability is only imposed on persons who act on behalf of a corporation knowing that no corporation exists.

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. Sign the charter. Correct. An incorporator would typically sign the charter. See "Incorporators 33-4b."

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

c. Yes, since the president authorized the crime. Correct. A corporation is liable for the torts its agents commit the course of their employment.

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

c. both the other promoters and the initial shareholders of Unobtainium Corporation. Correct. A promoter has a fiduciary duty to other promoters and the initial shareholders of a corporation.

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. All of these are correct. Correct. Courts have responded by piercing the veil when the shareholders have not followed the formalities of corporate procedures, not provided an adequate financial basis for the business, and/or used the corporation to defraud.

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. All of these are correct. Correct. Courts have responded by piercing the veil when the shareholders have not followed the formalities of corporate procedures, not provided an adequate financial basis for the business, and/or used the corporation to defraud. See "Piercing the Corporate Veil 33-6."

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. it is usually managed by its owners. Correct. A corporation is NOT usually managed by its owners. See "Corporate Attributes 33-1."

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. of the state in both where it has a principal office and its incorporation. Correct. A corporation is considered a citizen of the state in which it has its principal office, for the purpose of determining diversity of citizenship and of the state of its incorporation, for the purpose of determining diversity of citizenship. See "As a Citizen 33-1g."

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. diversity of interest. b. limited liability. c. ultra vires. d. piercing the corporate veil.

d. piercing the corporate veil. Correct. Bonney can be held personally liable if the court pierces the corporate veil.