Business Law Chapter 32

Which factor is NOT considered when a court is deciding to pierce the corporate veil?

A party is tricked or misled into dealing with the corporation rather than the individual.The corporation is set up to never make a profit.The corporation is formed to evade existing legal obligations.

Albert owns Best Corporation. He completely dominates Best's operations, such that the company is not really operated as a separate legal entity. Which statement is correct?

Albert may be liable for Best's debts under the alter-ego theory.

Frezer Corporation is considering issuing bonds. Which statement below is correct?

Bondholders receive fixed dollar interest payments.

Internal rules of management adopted by a corporation or other organization are

Bylaws

Putting funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities is called

Comingling

If a corporation has substantially complied with all requirements for incorporation, the corporation is said to have

De jure existence

In corporate law, when a corporation acts beyond the scope of its authority, it is said to

Engage in ultra vires transactions

"Piercing the corporate veil" means revealing to shareholders the internal rules of corporate management.

False

A business incorporated in one state has an automatic right to do business in any other state.

False

A court will not pierce the corporate veil of a corporation that is formed merely to evade an existing legal obligation.

False

A public corporation is also known as a publicly held corporation.

False

Bonds represent the purchase of ownership in a business firm.

False

Corporate bylaws must be approved by the appropriate state official before the corporation's first organizational meeting.

False

Buckley Corporation is considering issue preferred stock. Which statement below is correct?

Preferred stockholders have priority over common stockholders as to dividends and payments on dissolution of the corporation.

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan commits a tort. Liability for this tort most likely rests with

Raw Resources and Stefan

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan disposes of the mine's waste illegally. Liability for this crime most likely rests with

Raw Resources and Stefan

Jack is the sole shareholder of Fritz Corporation. He ignores the recommendations of both the company's lawyer and accountant and fails to hold any corporate meetings. Which statement is correct?

The failure to hold corporate meetings is a factor considered in deciding whether to pierce the veil of Fritz Corporation.

A close corporation may restrict the right of a shareholder to transfer stock.

True

Articles of incorporation can state generally that the corporation is organized to conduct "any legal business."

True

Common stock provides a proportionate interest in the corporation with regard to net assets.

True

If shareholders of a close corporation continuously use corporate property for personal use, the shareholders risk being personally liable for debts of the corporation.

True

If shareholders of a close corporation do not follow the laws of the state regarding corporate formalities, the shareholders risk being personally liable for debts of the corporation.

True

The choice of a corporate name is subject to state approval.

True

Venture capital is capital provided to new business ventures by professional, outside investors.

True

Leising wants to start a new business but needs capital to do so. Leising decides to seek out venture capitalists to fund his business. Which statement below is INCORRECT?

Venture capital investments are high risk.To obtain venture capital funding, Leising probably will have to give up a share of ownership in his company.In addition to funding, venture capitalists might also provide Leising with managerial and technical expertise.

Tom and Sally operate a sky-diving business and decide to incorporate to avoid personal liability for any harm to clients. However, Tom and Sally give no assets to the corporation, keeping all of the equipment in their personal names and paying all business income to themselves as salaries. If a client is injured and sues, may the judge order Tom and Sally to pay the client with their personal assets?

Yes, because the judge would have grounds to pierce the corporate veil

The Trapp family has operated its own catering business for years, but has never formed a formal business entity. They realize now they should do this. Their concerns are that they maintain ownership within the family, that they not have too many formalities to deal with in maintaining the entity, and that they can all participate in management of the business, as they have been doing. Of the following choices, what would be the best form of entity for them?

a close corporation

Quik Company claims to be a corporation but it is not. Pam signs a contract with Quik that is not performed. In Pam's suit against Quik, a court will likely recognize the firm as

a corporation by estoppel

Rapid Pest Control holds itself out to others as being a corporation but makes no attempt to incorporate. Ponce signs a contract with Rapid Pest Control that is not performed. Ponce files a suit against the firm. The court will likely hold that Rapid Pest Control is

a corporation by estoppel

Gelato Ice, Inc., is incorporated in the state of New Jersey and is doing business in the state of New York. In New York, Gelato is properly referred to as

a foreign corporation

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is

adopting Java's bylaws

Stock may be described as

an ownership interest in the corporation

The responsibility for the overall management of a corporation belongs to the

board of directors

Piercing the corporate veil means that a court will ignore the corporate structure and

expose the shareholders to personal liability

Convenience Mart, Inc., is a close corporation. Convenience Mart is

generally allowed to restrict the transfer of its stock

Common stock

has the lowest priority with respect to distribution of assets on the corporation's dissolution.

S Corporations are required to

have no shareholder who is a nonresident alien and have shareholders who are individuals, estates, or certain trusts.

A holding company (parent company)

is a company whose business activity consist of holding shares in another company.typically is established in a low-tax or no-tax jurisdiction.is used to reduce or defer U.S. income taxes.

Crowdfunding

is allowed under SEC rules provided certain disclosures are made and no more than $1 million per year is raised.

Preferred stock is often considered a more conservative (less aggressive) investment than common stock because

it is less volatile and more like a bond.

Digitech is a foreign corporation, which means that Digitech

may be required to obtain a certificate of authority to do business

Preferred stock

means holders have priority over holders of common stock as to dividends.

Boutique Corporation would like to change its corporate status to avoid income taxes at the corporate level. To qualify, the shareholders must not be

partnerships.

Superior Home Products, Inc., is a corporation. Superior's implied powers enable it to

perform all acts reasonably appropriate and necessary to accomplish its corporate purposes

An action in which a court disregards the corporate entity and holds the shareholders personally liable for corporate debts and obligations is

piercing the corporate veil.

A financing method by which a company sells equity in an existing business to a private or institutional investor is called

private equity capital

Stan is a registered agent for Transport, Inc., which incorporated in Utah. As a registered agent, Stan

receives legal documents on behalf of Transport.

Stocks

represent the purchase of an ownership in the business

If a court decides to pierce the corporate veil, the result is

shareholders may be personally liable for corporate debts

Courts will

sometimes ignore the corporate structure and expose shareholders to personal liability.

Mitch owns a corporation with his family. They have a lot of money and so agree that if the company has any losses, they will cover it, so they do not buy insurance. If a court pierces the corporate veil when the company loses a lawsuit, it is most likely because

the corporation was too thinly capitalized.

One of the key advantages of the corporate form of business is

the limited liability of shareholders

The constitutional rights enjoyed by corporations are

the same as many of those held by natural persons

For de facto status to be obtained

there must be a state statute under which the corporation can be validly incorporated.

Corporation are obligated to return a principal amount per share to each holder of common stock

False

To pierce the corporate veil means to ignore the corporate structure, exposing the shareholders to personal liability.

True

Preferred shares normally have a fixed maturity date on which the firm must pay them off.

False

Stable Foundation Construction Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Stable is most likely

a de jure corporation

Beth and Cody want to form a corporation to market MP3 players and products. The first step in the incorporation procedure is to

select a state in which to incorporate.

John Provenza is President and CEO of Abalthus, Inc., but there is a limit to what he can do. For example, he does not have the authority to

sell substantial corporate assets