Chapter 15: MindTap

Highlight three of the situations in which courts will ignore the corporate structure and pierce the corporate veil.

1. owners use the corporate entity to perpetuate fraud 2. owners use the corporate entity to circumvent the law 3. owners use the corporate entity to accomplish and illegitimate objective

Acts of a corporation that are beyond its expressed or implied powers are

Ultra vires

Do corporations enjoy many of the same rights and privileges under state and federal law that U.S. citizens enjoy?

Yes, because they are recognized as "persons"

Don, Keith, Jack and Diane are shareholders in a close corporation. Don and Keith, as majority shareholders owe which of the following duty to Jack and Diane as minority shareholders: a. a fiduciary duty to minority shareholders. b. a good faith and fair dealing duty to minority shareholders. c. a goodwill duty to minority shareholders. d. no duty to minority shareholders.

a. a fiduciary duty to minority shareholders.

Lysco gives to all 15,000 of its shareholders the right to purchase newly issued shares of Lysco stock in proportion to the percentage of shares they currently own and before anyone else is offered the shares. This right is known as a. a preemptive right. b. a proxy right. c. a warrant agreement. d. an attachment right

a. a preemptive right.

Elliot is suing Acme, Inc. for a breach of contract, but because it has very little in assets, he asking 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 under-capitalized from the beginning, and never had sufficient assets to operate as a viable business. b. The officers make their decisions based on information presented to them, but unknown to them is the fact the information is incorrect. c. The officers loaned money to the corporation in an attempt to delay any adverse actions. d. The corporation has struggled to make a profit from the beginning.

a. The corporation was under-capitalized from the beginning, and never had sufficient assets to operate as a viable business.

Corporate officers and other executive employees are hired by the board of directors. a. True b. False

a. True

In the absence of expressed, constitutional, statutory, or other prohibitions, the corporation has the implied power to perform all acts reasonably necessary to accomplish its corporate purpose. a. True b. False

a. True

Most corporate enterprises in the U.S. fall into the category of close corporation. a. True b. False

a. True

Private equity firms use their private equity capital to invest in existing corporations. a. True b. False

a. True

Betty has engaged in a number of acts that constitute a conflict of interest between her and Global Mfg., Inc. The corporation wants to remove her, and can do so a. for cause. b. in good faith. c. when her term expires. d. when the shareholders vote at the next annual meeting.

a. for cause.

Preferred stock is often considered a more conservative (less aggressive) investment than common stock because: a. it is less volatile and more like a bond. b. its holders have voting right, unlike stockholders. c. it never pays dividends

a. it is less volatile and more like a bond.

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

b. False

Any corporate director who sits on more than one board is engaging in illegal activity. a. True b. False

b. False

Buck is a director of Bromley Corp. Buck owns a printing company, and Bromley needs to have a book printed. If Buck contracts with Bromley to print the book, he must a. Do nothing special; the contract is valid. b. Fully disclose his interest to the other board members and abstain from voting on the matter. c. Never enter into a contract like this. d. Resign from the board if anyone questions the conflict of interest.

b. Fully disclose his interest to the other board members and abstain from voting on the matter.

Individual corporate directors have the ability, as agents of a corporation, to bind the corporation: a. In all situations. b. Not at all, as individual directors do not have agency power. c. As long as the articles of incorporation allow it.

b. Not at all, as individual directors do not have agency power.

Acme Company has just completed the incorporation process and received its articles of incorporation from the state. At the first organizational meeting of the new company, the officers' most important task is to a. amend the articles of incorporation b. adopt bylaws c. determine the details of the stock sale d. create a hiring policy

b. adopt bylaws

Acme Co. has just completed the incorporation process and received its articles of incorporation from the state. At the first organizational meeting of the new company, the officers' most important task is to a. amend the articles of incorporation. b. adopt bylaws. c. determine the details of the stock sale. d. create a hiring policy.

b. adopt bylaws.

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

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

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

b. proxy.

Jazmine 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 that may NOT be taken is a. the corporation can file a lawsuit against her. b. she can file a lawsuit against the corporation if it refuses to reimburse the expenses she incurred to make the contracts. c. the shareholders can file a lawsuit on behalf of the corporation. d. the state attorney general may seek an injunction against the transactions or seek a dissolution order from a court.

b. she can file a lawsuit against the corporation if it refuses to reimburse the expenses she incurred to make the contracts.

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

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

One of the first steps in corporation process is a. drafting a prospectus b. drafting bylaws c. deciding in which state to incorporate d. completing the articles of incorporation

c. deciding in which state to incorporate

The business judgment rule states that: a. directors and officers are never immune from liability for exercising poor business judgment, regardless of the circumstances. b. directors may never be held liable for corporate harms or losses so long as they have attended board meetings and agreed to corporate actions. c. directors and officers are immune from liability for exercising poor business judgment in certain circumstances.

c. directors and officers are immune from liability for exercising poor business judgment in certain circumstances.

Wendy is a member of the board of directors and the chief financial officer of The Shoe Fits, Inc. Under the duty of due care that she owes the corporation, Wendy does NOT need to a. attend board meetings and oversee the corporation's employees and other officers. b. attend presentations and make a careful study of business choices before making decisions. c. oversee every aspect of the business, including such things as ordering merchandise and arranging for janitorial services. d. subordinate her personal interests to the welfare of the corporation.

c. oversee every aspect of the business, including such things as ordering merchandise and arranging for janitorial services.

To make, sell, and distribute candy that Ethan has developed, he incorporates his business and designates his sister and brother as corporate officers. He sells them shares of stock. No shares are offered to the public. The three agree that if any one of them decides to leave the business, the others will buy that person's stock. Ethan has chosen a business form known as

closer corporation

A corporation is a legal entity:

created and recognized by state law in most situations

Sally incorporates her business, Sally's Rhinestones, in her home state of Maryland. She wants to expand and sell some of her jewelry 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.

A group of lawyers in Plainsville decide to start a law firm together. They use the name of the three lawyers who first decided to create the firm. The law firm of Adams, Bell, and Clyde has the letters P.C. at the end of its name. The letters stand for a. public corporation. All of its members are professionals, and they pay taxes at a lower rate than most corporations. b. public company. None of its members are professionals, and they pay taxes at a higher rate than most corporations. c. professional corporation. All of its members are professionals and are subject to less liability than most corporate officers. d. professional corporation. All of its members are professionals and are subject to greater liability than most corporate officers.

d. professional corporation. All of its members are professionals and are subject to greater liability than most corporate officers.

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

limited liability of its owners