BUS251: Chapter 30 Reading & Assessment Questions

Which of the following gives a person the right to vote at an annual meeting?

a share of stock

A corporation formed outside the United States that transacts business in the United States is known as a(n) _______.

alien corporation

To form a corporation, principals file _______ with a state authority that sets out the corporation's name, purpose, number of shares issued, and address of the corporation's headquarters.

articles of incorporation

The _______ sets the strategy and policies of the corporation and is independent from the shareholders and _______.

board of directors; officers

Large corporations may use more sophisticated forms of debt such as issuing _______ or _______.

bonds; debentures

To claim protection under the _______ rule, a director must have had no financial self-interest (or _______) in the disputed transactions or decision. (Choose two correct answers)

business judgement, self-dealing; duty of loyalty, self-dealing

A corporation's _______ typically specify the date, time, and place for the annual shareholders meetings, as well as the number of officers and directors of the corporation.

bylaws

One of the first considerations for principals forming a corporation is _______.

choosing the state in which to incorporate

In a minority of the states, the articles of incorporation are called the:

corporate charter

Even after commencement of business operations, officers and directors have a responsibility to comply with _______.

corporate formalities

Corporations often borrow money from either: _______ or _______ to fund day-to-day operations.

corporate lenders; private investors

In examining the _______ doctrine, courts consider whether the officer, director, or controlling shareholder learned of the opportunity because of his role in the corporation.

corporate opportunity

Generally, the ___ shields shareholders, directors, and officers of a corporation from personal liability in case the corporation runs up large debts.

corporate veil

Compared to other entities, a(n) _______ has perhaps the most formal filing and reporting requirements.

corporation

A(n) personal guarantee allows a _______ to obtain a judgment against the personal assets of one or more shareholders in the event of a default by the corporation. (Choose two correct answers)

creditor

A venture capital firm is a group of professional investors using private equity to:

develop a business

In the state of its incorporation, a corporation is referred to as a(n) ________.

domestic corporation

________ occurs when corporations pay taxes on their earnings, and shareholders pay taxes on any corporate earnings distributed to them in the form of dividends.

double taxation

Courts hold that a director breaches her _______ when she has failed to fulfill her role in oversight.

duty of care

Courts will sometimes pierce the corporate veil when _______ demands it.

fairness

A corporation is a(n) _______ legal entity that exists as an independent individual separate from its principals.

ficticious

Corporate formalities include all of the following except:

find investors

In analyzing the corporate opportunity doctrine, courts look for _______ and _______.

good faith; disclosure

In the case of De Lage Landen Financial Services v. Picasso Aesthetic and Cosmetic Dental Spa, Rubin, the sole principal of a professional corporation, lost the veil of corporate protection because:

he gave a personal guarantee

One important factor courts consider in piercing the corporate veil is _______.

inadequate capitalization

Chaplan Corporation is a privately held corporation that wishes to offer ownership interests to the general public and commercial investors in order to generate more capital. This process is called:

initial public offerings

Officers, directors, and controlling shareholders of a corporation (known as _______) are in a unique position of trust to guide the corporation in a certain direction.

insiders

Which statement below is correct about a promoter's liability?

it ceases to exist at the moment the corporation is formed

What is an advantage of a Subchapter S corporation that a standard corporation does not have?

it does not face double taxation

A corporation formed to maintain a charitable operation is called a:

nonprofit corporation

The corporation's _______ are hired by the board and carry out the day-to-day operations of the corporation, by executing the strategy and mandates set out by the board of directors.

officers

_______ carry out the directors' set course of direction through management of the day-to-day operations of the business.

officers

Many corporations choose to incorporate in Delaware. Which of the following is NOT an advantage to incorporating in Delaware?

Delaware's tax structure provides significant tax benefits to out-of-state corporations incorporating in the state of Delaware

The _______ are the owners of a corporation.

shareholders

_______ are the owners of the corporation and while they do not directly manage the corporation, shareholders are granted certain rights to protect their ownership interests.

shareholders

Fundamentally, corporations are structured around an allocation of power based on three categories: _______.

shareholders; directors; officers

Inadequate capitalization may mean that a corporation is a(n) _______ company with nothing invested, or that _______ siphoned the profits and assets.

shell; shareholders

In Smith v. Van Gorkom, the court considered whether the business judgment rule protected board members who permitted the sale of a significant amount of stock by the retiring chairman of the board at an undervalued price, devaluing the company. Regarding the board's liability, in this case, the court stated each of the following except:

the board in this case had the expertise to make decisions without consulting outside experts but made a poor decision.

The business judgment rule protects officers and directors from liability for decisions that may have been unwise but did not breach ______.

the duty of care

Happy Hops Brewery Inc., has found that its business is expanding very quickly. The decision to fire three new delivery drivers would be made by:

the officers

Which of the following is NOT a right enjoyed by a shareholder of a corporation?

the right to elect and remove officers

A corporation comes into existence when:

the state accepts the articles of incorporation and issues the charter

Which of the following is not true regarding venture capital firms?

they are generally long-term investors

True or false: A corporation's bylaws are not filed with the state but are kept in the corporate records.

true

When examining whether the business judgment rule applies, most courts look at the following factors: _______.

used the best information available; rational belief; no private interest

_______ is funding provided by a group of professional investors for use in a developing business, usually in a particular industry such as health care.

venture capital

CJ and Danny have incorporated and obtained a $100,000 loan in their corporate name. The loan is payable with interest over five years. After paying on the loan regularly for two years, the business falters due to the economy, and CJ and Danny default on the loan. Their business has no assets. Which of the following statements best describes CJ and Danny's liability in this case?

CJ and Danny have no personal liability for the debt unless they pledged personal assets as collateral or signed a personal guarantee

Which entity wrote the Revised Model Business Corporation Act (RMBCA)?

The American Law Institute

Suppose Joseph and James are shareholders of JJ, Inc and obtain a credit card from BIGBOX Credit Co. James and Joseph use the credit card in good faith to make purchases to operate the business. For several years, JJ Inc conducts business and pays its debts regularly. However, their business industry enters a 'great recession' and many are forced into default. Suppose that BIGBOX sues James and Joseph personally. Will the corporate veil protect them?

Yes, the corporate veil will protect them because they acted in good faith and paid their bills for three years.

If a corporation is a start-up or has limited assets, creditors will almost always require that the shareholders give a(n) _______.

personal guarantee

The most common type of corporation is the _______ corporation which does not sell ownership interests to the public.

privately held

_______ corporations have substantial flexibility in terms of their internal operating procedures and do not generally have to comply with rigorous corporate structures or formalities.

privately held

_______ corporations may also find that their expansion plans require even more capital than can be raised using private investors.

privately held

Matt and Mindy wish to incorporate their business but want to limit who can buy ownership interests in their business. Which type of corporation would you suggest?

privately held corporation

The two major categories of corporations are ______ and _____.

privately held; publicly held

When an individual begins to carry out a business venture's activities before actually filing the articles of incorporation, the individual is known as a(n) _______.

promoter

If a _______ makes a contract on behalf of a not-yet-formed corporation, she may have some degree of _______ to perform under the contract.

prompter, personal liability

The United States Postal System is an example of what type of corporation?

public

Corporations are classified into one or more categories that reflect their overall _______.

purpose; capitalization; structure (also location)

Fundamentally, officers and directors must exercise the degree of skill, diligence, and care that a(n) _______ would exercise under the same circumstances.

reasonably prudent person

Corporations also sell equity, also called ________, to capitalize their operations.

securities

When there is a possibility of _______, shareholders who have some degree of control over corporate decisions owe a duty of loyalty, especially to _______ shareholders.

self-dealing, minority

Every C corporation is considered a legal, taxable entity that is _______ for income tax purposes.

separate from the owners

A well-established and deep-seated principal of American law is that a corporation is a(n) ______.

separate person; separate entity

Most courts have used four factors to consider whether to pierce a corporation's protective veil, and if two are present is court is more likely to hold _______ personally liable for corporate debts.

shareholders