CH 39 study set BUS202

Hypothetical: to make, sell distribute candy that Ethan has developed, he incorporates the business. He designates his sister and brother corporate officers and sells them shares of stock. None of the three shareholder offers any stock to the public. They all agree that if any of them decides to leave the business , the others will buy that persons stock. The business form Ethan has chosen is known as a: -Partnership -Domestic corporation closely held corporation -Foreign corporation

ANS: Closely held corporation

A corporation is a legal entity: -Created and recognized by state law in most cases -Created and recognized by an entrepreneurial agency -Created by local government -Managed internally by the federal government

ANS: Created and recognized by state law in most cases

One of the first steps in the incorporation process is: -Drafting a prospectus -Completing the articles of incorporation -Drafting corporate bylaws -Deciding in which state to incorporate

ANS: Deciding in which state to incorporate

Articles of incorporation contain: -A list of officers of the corporation -Information about the corporation, including its organization and functions -Resolutions of the board of directors -The minutes of meetings of the board of directors

ANS: Information about the corporation, including its organization and functions

Preferred stock is often considered a more conservative (less aggressive) investment than common stock, because: -its holders have voting rights, unlike common stockholders -It is not tradable, assignable, or sellable -It is less volatile and more like a bond -It never pays dividends

ANS: It is less volatile and more like a bond

Hypothetical: Rena incorporates her business, Rena 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. -An alien corporation, because her business has been chartered in another state -A foreign corporation, and she will probably have to obtain a certificate of authority to do business there -A public corporation, so she will probably not have to obtain a license to do business there -An open corporation, so she can do business in any stat that allows open corporations

ANS: A foreign corporation, and she will probably have to obtain a license to do business there Explanation: Alien corporation: are those that are chartered in another country Foreign corporation are those chartered in another state Public corporation are those chartered by the government to meet a specific purpose (like the postal service). There is no such thing as an open corporation

Hypothetical: Wendy has been in business for 4 years, all of which have been profitable. She now thinks, for a variety of reasons, that she can successfully sell part of her company. The most important thing Wendy will gain by a stock offering is: -Increased protection from corporate liabilities -Additional capital to expand her business -Publicity -A better credit rating

ANS: Additional capital to expand her business

Hypothetical: 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: -Adopt bylaws -Create a hiring policy -Amend the articles of incorporation -Determine the details of the stock sale

ANS: Adopt bylaws

Stock may be described as: -A debt owed by the corporation to the shareholders -A document describing the ownership and management structure of the corporation -An ownership interest in the corporation -A debt owed by the government to the shareholders

ANS: An ownership interest in the corporation

The responsibility for the overall management of a corporation belongs to the: -Board of directors -Chief financial officer -Chief executive officer -Shareholders

ANS: Board of directors Explanation: Though you may think the CEO... The CEO generally is on the board of directors and is often the chairmen of the board BUT that is not always the case.

A group of lawyers in Plainsville decide to start a law firm togeather. They use the name of the three lawyers who first decided to create the firm. The law firms Adams, Vell, and Clyde has the letters "P.C" at the end of its name. The letters stands for: -Public corporation; all of its members are professionals, and they pay taxes at a lower rate than most corporations -Professional corporation; all of its members are professionals and are subject to greater liability than most corporate officers -Public company; non of its members are professionals, and they pay tax at a higher rate than most corporations -Professional corporation; all of its members are professionals and are subject to less liability than most corporate officers

ANS: Professional corporation; all of its members are professionals and are subject to greater liability than most corporate officers

Hypothetical: Ariana 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 tolls 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: -The shareholders can file a lawsuit on behalf of the corporation -The state attorney general may seek an injunction against the transaction or seek a dissolution order from a court -She can file a lawsuit against the corporation if it refuses to reimburse the expenses she incurred to make the contracts -The corporation can file a lawsuit against her

ANS: She can file a lawsuit against the corporation if it refuses to reimburse the expenses she incurred to make the contracts Explanation: She acted by her self without the approval of the corporation, SO they have the option to not reimburse her expenses

The constitutional rights enjoyed by corporations are: -Similar to the rights of a natural person -Exactly the same as the rights of a natural person -greater than those held by natural persons -Nonexistent; only individuals working for corporations have constitutional rights

ANS: Similar to the rights of a natural person

Today, Most states governing corporate formations are guided by: -The revised model business corporation Act -The restatement -Corporate personnel -The 1890 Sherman Antitrust act

ANS: The revised model business corporation Act

Hypothetical: Trey owns 250 shares of COMMON stock in a toy-store company. This means that he owns a percentage of the company based on the proportion of shares he owns out of the total shares issued by the company. With this ownership, he also acquires rights to: -Vote and receive a fixed sum on a fixed date -Vote -Vote and receive dividends before any other creditors -Determine the amount of dividend that will be paid

ANS: Vote Explanation: Share holders of COMMON stock have the right to vote (one per share) at shareholders' meetings. Share holders may receive dividend if the company makes a profit but it is NOT guaranteed.

In simple terms, a S corporation can be defined as a corporation: -Composed entirely of licensed professionals -Regulated by the securities authorities -Whose shareholders have limited liability but avoid corporate income taxes -Whose shareholders are taxed like shareholders but who face full, significant liability

ANS: Whose shareholders have limited liability but avoid corporate income taxes