Chapter 38: Corporations - Formation and Financing

In the United States, corporations are protected from: ______.

unreasonable searches by the Fourth Amendment to the U.S. Constitution

With a(n) ______ bond, no assets support the corporation's obligation to repay the face value of the bond.

unsecured

How many states permit professionals such as dentists or doctors to incorporate?

50

S Corporations are taxed in what way by the government?

S corporations are taxed as partnerships and profits are reported as personal income.

Which of the following set(s) forth the requirements for corporate formation?

State incorporation statutes

Corporate powers derive from which of the following?

State incorporation statutes and each corporation's articles of incorporation

Articles of incorporation must include which of the following?

The address of the registered office The name of the corporation The name and addresses of the incorporators

Courts are likely to pierce the corporate veil in all but which of the following situations?

The corporation has failed to meet profitability expectations in two or more consecutive fiscal years.

Who is liable when agents of a corporation commit torts and crimes?

The corporation is liable for the actions of its agents.

Under which doctrine are corporations are liable for torts and crimes committed by their agents during the scope of their employment?

The doctrine of respondeat superior

At a corporation's first organizational meeting, which of the following adopt(s) a set of bylaws that govern the corporation's internal management?

The shareholders

Identify a situation in which the limited liability of corporate shareholders is unlikely to exist.

The shareholders act in an illegal or wrongful manner

Where are articles of incorporation filed?

With the state entity, typically the Secretary of State's office

Regarding medical malpractice, doctors in professional corporations: ______.

are held personally liable

Rules and regulations that govern the corporation's internal management are called: ______.

bylaws

In the United States, the courts have extended ______ rights to corporations because the courts see them as "legal persons".

constitutional

If a corporation were to commit a civil wrong that made it liable to a third party, the third party should sue the: ______.

corporation, as it is the legal entity that committed the legal wrong

An unsecured bond is also referred to as a(n): ______.

debenture

A corporation whose incorporation process included an error or omission is called a: ______.

defective corporation

A public corporation is a corporation created by the government to: ______.

help administer law

Cumulative preferred stock requires that if a corporation cannot pay the required dividends in a given year, it must pay them ______ before it pays any common stock dividends.

in the next year

If a corporation is deemed defective, the: ______.

shareholders may be found personally liable for the corporation's actions

Which of the following are the two steps involved in the creation of a corporation?

General organizational activities and legal activities

Which of the following is not a recognized classification of corporations?

Limited or unlimited

To what extent are shareholders liable for the actions of a corporation?

Shareholders are personally liable for the wrongs of a corporation to the limit they have invested in the corporation.

Which of the following is the document a corporation files with the state explaining its organization and may include a restriction on the duration of the corporation?

The articles of incorporation

Who appoints officers to manage the day-to-day business of a corporation?

The board of directors

An entity is a(n) ______ corporation in the state in which it is incorporated.

domestic

A corporation is called a domestic corporation in the state in which the corporation: ______.

is incorporated

With a(n) ______ bond, specific property supports the corporation's obligation to repay the bond.

mortgage

The stock of ______ corporations are available to the public.

publicly held

According to the RMBCA, the only duty of incorporators is to: ______.

sign the articles of incorporation

Corporations are creatures of the: ______.

state

An S corporation enjoys the tax status of: ______.

partnerships

Each individual corporation's charter creates a contract between the corporation and the: ______.

state

The articles of incorporation must include the: ______.

name of the registered agent

The general public can invest in publicly held corporations by

purchasing stock in the corporation.

Which of the following is not a recognized classification of corporations?

Primary or secondary

What limitations exist when professionals, like doctors, form a corporation?

Professionals cannot escape personal liability based on the theory of malpractice.

Which of the following begin the corporate creation process by arranging for capital, financing and licenses?

Promoters

Who raises capital for corporations when they first form?

Promoters

When are the courts likely to pierce the corporate veil and deny the shareholders the protection of limited liability?

A corporation did not follow statutory mandates regarding corporate business. A corporation lacked adequate capital when it initially formed.

What is the name of an individual who file the articles of incorporation with the state on behalf of a corporation?

An incorporator

Identify the words that can be used at the end of a firm's name to indicate that the firm is incorporated.

Company Corporation Inc.

All states recognize which of the following words as an indication of incorporation?

Corporation Incorporated Limited

Which of the following types of stock requires that if a corporation cannot pay the required dividends in a given year, it must pay them in the next year before it pays any common stock dividends?

Cumulative preferred stock

The most common way a corporation obtains financing is through the issuing and selling of which of the following types of securities?

Debt and equity

More than one-half of all publicly held corporations are incorporated in which of the following states?

Delaware

Which of the following is false regarding the taxation of of corporate income and dividends?

Dividends are not subject to double taxation.

Which of the following is not a factor corporations typically consider when selecting a state for incorporation?

Does the preparation and filing of the articles of organization require the involvement and assistance of legal counsel?

What type of securities give the purchaser a part ownership in the corporation?

Equity

If a corporation distributes its income to shareholders as dividends, it will receive a tax deduction for doing so.

False

Since corporations are "for-profit" entities and since shareholders are the owners of corporations, shareholders cannot give their shares to charity.

False

The creation of a corporation has two steps: general organizational activities and equitable activities.

False

Who elects the board of directors of a corporation?

The shareholders of the corporation

Which of the following creates a public corporation?

The state or federal government

Identify the true statements about corporations.

They assume responsibility for corporate actions They are legal entities.

Which of the following is correct regarding shareholders and the transferability of corporate shares?

Generally, shareholders can freely transfer their corporate shares.

The First Amendment to the United States Constitution protects corporate commercial speech to a greater degree than corporate political speech.

False

True or false: All states have the same laws governing the incorporation process.

False

Shareholders may profit from investing in a public corporation in which of the following ways?

The value of the stock could rise, allowing the shareholders to make money by selling their shares in the corporation. Shareholders may receive dividends from the corporation.

According to United States law, which of the following is correct regarding corporations?

They can sue legal entities. They exist separately from their shareholders.

Identify the ways by which a shareholder can profit if the value of a public corporation increases.

Through dividends By selling their shares