Chapter 18.1

When a single shareholder owns sufficient shares to exercise _________ control over the corporation, that shareholder is called a ________ shareholder and owes _______duties to the minority shareholders.

De facto, majority, fiduciary

One of the first steps in the incorporation process is _______

Deciding where to incorporate

When a company is harmed, the board of directors can sue on behalf of the corporation. If they do not, the shareholders may bring a(n) ________ action. Before filing suit, the shareholders must make a(n) written demand of the board to do so. If the board does not take action within ___ days, the shareholders can file suit. A court may dismiss the case if the ______ of directors or a(n) independent panel determines it is not in the best interest of the corporation.

Derivative, 90, majority

Corporations ________ enjoy many of the same rights and privileges under state and federal law that people enjoy.

Do

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

A, B, E

Select the three main rights that directors have in order to properly function. a. right to participation b. right to compensation c. right of inspection d. right to indemnification e. right to bind the corporation f. right to termination

A, C, D

When selecting a form of business organization, businesspersons should consider a number of things, including which four that are of primary importance? a. creation issues b. physical location of the business c. liability of owners d. tax issues e. capital funding issues f. compensation and benefit issues g. intellectual property issues

A, C, D, E

When a company distributes a portion of its income or profits in cash, property or stock to its shareholders in proportion to their shares, it is called: a. a dividend. b. a dissolution. c. a proxy. d. an assumption.

A

Dividends

A distribution of profits or income to shareholders

Crowdfunding

funds that come from a cooperative network, usually through the internet

A corporate director who sits on more than one board is engaging in illegal activity. T/F?

False

A corporation normally has a fifty-year existence. T/F?

False

Because corporations may have perpetual existence, the only way to terminate a corporation is to include the termination date in the articles of incorporation. T/F?

False

Directors are hired by the shareholders through an interview process. T/F?

False

If a corporation cannot point to a document that articulates its express power, the corporation does not have the power. T/F?

False

Preemptive rights are not important in close corporations because all of the shareholders are family or close friends. T/F?

False

Shareholders must approve any corporate decision that would cost more than $10,000. T/F?

False

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

Limited Liability of Ownership

A shareholder _______ have a stock certificate to prove ownership of the stock.

Need not

To become an S corporation, a corporation must meet specific criteria, with restriction on the ______ of shareholders, as well as the types of _____ that can be issued.

Number, stock

Because shareholders with a very small percentage of shares may not be able to travel to annual meetings, the law allows them to appoint someone else to vote their shares using a _______ authorization form. Management often _______ these.

Proxy, solicits

The articles of incorporation must include information such as the name, number of shares, and the name of its ______ , or person designated to receive legal documents on its behalf.

Registered Agent

Today most state corporate statutes are at least partially based on the _______________

Revised Model Business Corporation Act

Retained Earnings

The portion of the corporation's profits or income that is not paid out to shareholders

A corporation automatically will be taxed under subchapter C unless it elects to become an S corporation. T/F?

True

Bonds normally have a fixed payment and a maturity date when the principal is returned to the bondholder. T/F?

True

Corporate officers are hired by the directors. T/F?

True

If a board of directors declares a dividend to "pay back" investors but that dividend would cause them to have to miss paying several bills as they become due, the members of that board will be personally responsible for any loss to the corporation. T/F?

True

If one uses a business name that is the same as, or deceptively similar to, another's name, he or she may be liable for trade name infringement. T/F?

True

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

US and State constitutions, state laws, articles of incorporation, the bylaws

Acts that are beyond the express or implied powers of a corporation are called _______ acts.

Ultra vires

Private equity capital

Venture capital firms, on the other hand, mostly invest in start-ups with high growth potential. Private equity firms mostly buy 100% ownership of the companies in which they invest. As a result, the companies are in total control of the firm after the buyout.

Alien Corporation

a corporation doing business in a state but organized in another country

Benefit Corporation

a corporation formed with concern for making money but also with concern for the public good.

Professional Corporation

a corporation formed with members of certain professions

Nonprofit Corporation

a corporation formed without concern of making money

Quorum

directors required to make official actions or make decisions

Outside directors

directors that do not hold manager positions at corporations

Inside Directors

directors who are also officers of the corporation

Individual corporate directors _____ have the ability, as agents of the corporation, to bind the corporation.

do not

Foreign Corporation

in a given state, a corporation that does business in that state without being incorporated in that state

Domestic Corporation

in a given state, a corporation that is organized under the laws of that state

Preferred Stock

stock whose holders are guaranteed priority in the payment of dividends but whose holders have no voting rights

When a corporation enters into a contract or engages in business with another corporation in which one of the board members has a personal interest, that board member must fully ________ the conflict and _________ voting.

disclose, abstain from

Directors and officers have a duty to act _________, to exercise the care that a(n) __________ person would exercise in similar circumstances, and to do what the director or officer believes is in the ________ of the corporation.

in good faith, ordinarily prudent, best interest

Corporation by estoppel

An entity that has not attempted to incorporate, but holds itself out to others as a corporation.

De Facto Corporation

An entity that has not substantially complied with all statutory requirements. These only are recognized in a few states.

De Jure Corporation

An entity that has substantially complied with all statutory requirements for incorporation

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

B

The business judgment rule states that directors and officers a. must make good business judgments or be held personally liable for any loss to the corporation. b. are immune from liability for bad business judgments so long as they exercised reasonable care. c. are never liable for bad business decisions if they attend all their meetings and vote for the actions.

B

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

C

The reason that most states either permit or require cumulative voting when electing directors is to: a. reduce fraud among voters. b. allow directors to have greater input in to the election process. c. allow minority shareholders a chance at electing a director. d. allow minority shareholders to control the election process.

C

To encourage shareholders to pay attention to the board's actions, when a shareholder's derivative suit is won, the damages: a. are fully paid to the shareholders who brought the suit. b. are paid to the shareholders, but only up to 50% of the damages. c. are paid in to the corporation's treasury.

C

A__________ may give current shareholders the right to purchase a prorated share of any new issue of stock. Generally there is a time limit on the ability to exercise this right. The purpose of this right is to allow_________ to maintain their proportionate control in the company.

Corporation, shareholders

Most corporate enterprises in the United States can be considered: a. public corporations. b. S corporations. c. benefit corporations. d. close corporations.

D

One main disadvantage of the corporate form of business is __________.

Double taxation of distributed income

Venture Capital

capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.

A director or officer may violate the duty of loyalty by directly __________ the corporation, by ___________ or stealing a corporate opportunity, by having a__________ of interest, by engaging in ________ trading, by authorizing an action that is _______ to minority shareholders or by selling ________ the corporation.

competing with, usurping, conflict, insider, detrimental, control over

Shareholders have a right to inspect the corporate records for ________ purpose.

A proper

There is no difference between a public corporation and a publicly held corporation. T/F?

False

In order for shareholders to exercise control, a _______ must be present, either in person or through proxies

Quorum

The _______ , or owners, of a corporation elect the _______ who then hire the ________ to run the daily operations.

Shareholders, Directors, Officers

Directors and officers may be liable for the actions of corporate employees under their supervision as well as for their own torts and crimes. T/F?

True

Common stock

Shares of ownership in a public corporation. The shareholder has voting rights in the corporation.

Management of a close corporation often resembles that of a _________ , but a corporation must meet the statutory requirements to remain a corporation. Often, shareholders in a close corporation ________ the transferability of shares. If a majority shareholder misappropriates company funds, the normal remedy for the other shareholders is to have their shares _______ to determine value and then ______ that value.

Partnership, restrict, appraised, receive

A court will disregard the corporate form and______ the corporate ________ in four circumstances: first, if a party is _______ into dealing with the corporation rather than the individual; second, if the corporation is set up to always be _________ or is over capitalized; third, if the corporation fails to follow the statutory corporate_________ ; and fourth, if the personal and corporate interests are _________ so that the corporation has no separate identity.

Pierce, veil, tricked, insolvent, thinly, formalities, commingled

Corporations normally are financed by ________ . One type of security consists of borrowing funds and is called a _______ .The other main type of security consists of ownership in the corporation and is called a ______ , or equity security.

Securities, bond, stock

Under modern criminal law, a corporation ______ be held liable for the criminal acts of its employees. The punishment for guilt of a crime by a corporation consists of __________. Corporations may be liable for the torts of their _________ if committed within the scope of the agency.

may, fines, agents