BUSINESS LAW II FINAL

Under the Revised Model Business Corporation Act, which of the following items of information must be included in a corporation's articles of incorporation (charter)? A) Nature and purpose of the corporation's business. B) Name and address of the corporation's incorporator. C) Name and address of each preincorporation subscriber. D) Election of either C corporation or S corporation status.

Name and address of the corporation's incorporator.

Surplus of a corporation means A) Contributed capital. B) Liquid assets in excess of current needs. C) Total assets in excess of total liabilities. D) Net assets in excess of stated capital.

Net assets in excess of stated capital.

Following the formation of a corporation, which of the following terms best describes the process by which the promoter is released from, and the corporation is made liable for, preincorporation contractual obligations? A) Assignment. B) Accord and satisfaction. C) Novation. D) Delegation

Novation

In general, which of the following must be contained in articles of incorporation? A) Names of states in which the corporation will be doing business. B)Name of the state in which the corporation will maintain its principal place of business. C) Number of shares of stock authorized to be issued by the corporation. D) Names of the initial officers and their terms of office.

Number of shares of stock authorized to be issued by the corporation.

A shareholder's fundamental right to inspect books and records of a corporation will be properly denied if the purpose of the inspection is to A) Investigate possible management misconduct. B) Solicit shareholders to vote for a change in the board of directors. C) Commence a shareholder's derivative suit. D) Obtain shareholder names for a retail mailing list.

Obtain shareholder names for a retail mailing list.

An organization that is neither a de jure nor a de facto corporation has attempted to exercise corporate powers. It may be treated as a corporation if 1)The other party demonstrates fair and equitable conduct. 2)Injustice can be avoided only by treating the business as a corporation. 3) A good-faith but unsuccessful effort to comply with the incorporation statute has been made.

1 and 2 only

Under the Revised Model Business Corporation Act (RMBCA), which of the following statements regarding a corporation's bylaws is (are) true? 1) A corporation's initial bylaws shall be adopted by either the incorporators or the board of directors. 2) A corporation's bylaws are contained in the articles of incorporation.

1 only

Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation? A) A sale of all the assets of Trend, outside the regular course of business, to Acorn, for cash. B) A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn. C) A merger of Trend into Acorn, whereby Trend shareholders receive cash or Acorn shares. D) An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares.

A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn.

Which of the following statements is true with respect to the differences and similarities between a corporation and a limited partnership? A) Stock of a corporation may be subject to registration under federal securities laws, but limited partnership interests are automatically exempt from such requirements. B) Directors owe fiduciary duties to the corporation, and limited partners owe such duties to the partnership. C) Shareholders may be entitled to vote on corporate matters, but limited partners are prohibited from voting on any partnership matters. D) A corporation and a limited partnership may be created only under a state statute, and each must file a copy of its organizational document with the proper governmental body.

A corporation and a limited partnership may be created only under a state statute, and each must file a copy of its organizational document with the proper governmental body.

Which of the following statements is true with respect to the general structure of a corporation? A)A corporation is governed by shareholders who elect a board of directors and approve fundamental changes in its structure. B) Shareholders establish corporate policies and elect or appoint corporate officers. C) The board of directors is responsible for carrying out the corporate policies in the day-to-day management of the organizations. D) The corporation is treated as a legal person with rights and obligations jointly shared with its owners and managers.

A corporation is governed by shareholders who elect a board of directors and approve fundamental changes in its structure.

Under the Revised Model Business Corporation Act (RMBCA), which of the following statements is true regarding corporate officers of a public corporation? A) An officer may not simultaneously serve as a director. B) An officer of a corporation is required to own at least one share of the corporation's stock. C) A corporation may be authorized to indemnify its officers for liability incurred in a suit by shareholders. D) Shareholders always have the right to elect a corporation's officers.

A corporation may be authorized to indemnify its officers for liability incurred in a suit by shareholders.

Which of the following statements is true regarding the fiduciary duty? A) A director's fiduciary duty to the corporation may be discharged by merely disclosing his or her self-interest. B) A promoter of a corporation to be formed owes no fiduciary duty to anyone, unless the contract engaging the promoter so provides. C) A majority shareholder as such may owe a fiduciary duty to fellow shareholders. D)A director owes a fiduciary duty to the shareholders but not to the corporation.

A majority shareholder as such may owe a fiduciary duty to fellow shareholders.

Under the Revised Model Business Corporation Act (RMBCA), following what type of corporate acquisition does the acquiring corporation automatically become liable for all obligations of the acquired corporation? A) A cash tender offer. B) An acquisition of stock for debt securities. C) A merger. D) A leveraged buyout of assets

A merger

Under the Revised Model Business Corporation Act (RMBCA), which of the following conditions is necessary for a corporation to achieve a successful voluntary dissolution? A)Unanimous approval of the board of directors and two-thirds vote of all shareholders entitled to vote on a resolution of voluntary dissolution. B) Approval by the board of directors of an amendment to the certificate of incorporation calling for the dissolution of the corporation. C) Successful application to the secretary of state in which the corporation holds its primary place of business. D) A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote.

A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote.

Traditional concepts applicable to large publicly held corporations often do not meet the needs of closely held ones. Accordingly, the RMBCA addresses these needs. Under the RMBCA, A) A shareholder may have power to dissolve a close corporation that is similar to a partner's. B) A qualifying entity is automatically treated as a close corporation if it has fewer than 50 shareholders. C) A board of directors is required for a close corporation but shareholders have absolute power to restrict its discretion. D) Transfer of shares of a close corporation is restricted by means of a statutory buy-and-sell arrangement.

A shareholder may have power to dissolve a close corporation that is similar to a partner's.

Golden Enterprises, Inc., entered into a contract with Hidalgo Corporation for the sale of its mineral holdings. The transaction proved to be ultra vires. Which of the following parties may properly assert the ultra vires doctrine and why? A) Golden Enterprises to rescind the consummated sale. B) A shareholder of Golden Enterprises to enjoin the sale. C) Hidalgo Corporation to avoid performance. D) Golden Enterprises to avoid performance.

A shareholder of Golden Enterprises to enjoin the sale.

Which of the following statements is correct regarding the declaration of a stock dividend by a corporation having only one class of par value stock? A) A stock dividend increases a stockholder's proportionate share of corporate ownership. B) A stock dividend has the same legal and practical significance as a stock split. C) A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders. D) A stock dividend causes a decrease in the assets of the corporation.

A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders.

Absent a specific provision in its articles of incorporation, a corporation's board of directors has the power to do all of the following except A) Amend the articles of incorporation. B) Fix compensation of directors. C) Repeal the bylaws. D) Declare dividends.

Amend the articles of incorporation

A corporate shareholder is entitled to which of the following rights? A) Elect officers. B) Prevent corporate borrowing. C)Receive annual dividends. D) Approve dissolution.

Approve Dissolution

Generally, officers of a corporation A) May be removed by the board of directors without cause only if the removal is approved by a majority vote of the shareholders. B) Are elected by the shareholders. C) May declare dividends or other distributions to shareholders as they deem appropriate. D) Are agents and fiduciaries of the corporation, having actual and apparent authority to manage the business.

Are agents and fiduciaries of the corporation, having actual and apparent authority to manage the business.

Unless prohibited by the documents creating the organization, a shareholder in a publicly held corporation or the owner of a limited partnership interest has the right to A) Assign his or her interest in the business. B) An investment that has perpetual life. C) Ownership of the business assets. D) Control management of the business.

Assign his or her interest in the business

Under modern statutes, the two general prerequisites to the declaration of a dividend are 1) Corporate solvency. 2) A resolution by the directors to declare a dividend.

Both 1 and 2

Under the Revised Model Business Corporation Act (RMBCA), which of the following actions by a corporation would entitle a shareholder to dissent from the action and obtain payment of the fair value of his or her shares? 1) An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it alters or abolishes a preferential right of the shares 2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan

Both 1 and 2

Which of the following provisions must a for-profit corporation include in its articles of incorporation to obtain a corporate charter? 1) Provision for the issuance of voting stock 2) Name of the corporation

Both 1 and 2

Which of the following statements, if any, is (are) true regarding the methods a target corporation may use to ward off a takeover attempt? 1) The target corporation may make an offer ("self-tender") to acquire stock from its own shareholders. 2) The target corporation may seek an injunction against the acquiring corporation on the grounds that the attempted takeover violates federal antitrust law.

Both 1 and 2

Boyle, as a promoter of Delaney Corp., signed a 9-month contract with Austin, a CPA. Prior to the incorporation, Austin rendered accounting services pursuant to the contract. After rendering accounting services for an additional period of 6 months pursuant to the contract, Austin was discharged without cause by the board of directors of Delaney. Absent agreements to the contrary, who will be liable to Austin for breach of contract? A) Both Boyle and Delaney B) Boyle only C) Delaney only D) Neither

Both Boyle and Delaney

Blanche was vice president of the Jupiter Corporation, a major weapons dealer. She used corporate funds to bribe a government official of a small European country. Blanche also caused advertisements to be published in the U.S. press that defamed Jupiter's chief competitor. What is the legal effect of Blanche's actions? A) Jupiter cannot be found guilty of a crime because a corporation cannot form the requisite intent. B)Blanche is guilty of a crime but is not liable in tort. C) Jupiter will prevail on a defense of ultra vires. D) Both Jupiter and Blanche are liable in tort and guilty of a crime.

Both Jupiter and Blanche are liable in tort and guilty of a crime.

The Larkin Corporation is contemplating a two-for-one stock split of its common stock. Its $4 par value common stock will be reduced to $2 after the split. It has two million shares issued and outstanding out of a total of three million authorized. The distribution of the additional shares to the shareholders requires A) That surplus equal to the par value of the existing number of shares issued and outstanding be transferred to the stated capital account. B) Both authorization by the board of directors and approval by the shareholders. C) The trustees of trust recipients of the additional shares to allocate them ratably between income and corpus. D) The recipients to recognize a taxable dividend.

Both authorization by the board of directors and approval by the shareholders.

The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as the A) Full disclosure rule. B) Clean hands doctrine. C) Responsible person doctrine. D) Business judgment rule.

Business judgment rule

The president of a company has signed a $10 million contract with a construction company to build a new corporate office. Which of the following corporate documents sets forth the scope of authority under which this transaction is governed? A) Charter. B) Bylaws. C) Certificate of Incorporation D) Proxy Statement

Bylaws

Which of the following documents would most likely contain specific rules for the management of a business corporation? A) Bylaws B) Shareholders' agreement C) Articles of Incorporation D) Certificate of authority

Bylaws

Donald Walker is a dissident shareholder of the Meaker Corporation, which is listed on a national stock exchange. Walker is seeking to oust the existing board of directors and has notified the directors that he intends to sue them for negligence. Under the circumstances, Walker A) Must show personal gain on the part of the directors if he is to win his lawsuit. B) Can be validly denied access to the corporate financial records. C) Can insist that the corporation mail out his proxy materials as long as he pays the cost. D) Can be legally prohibited from obtaining a copy of the shareholder list because his purpose is not bona fide.

Can insist that the corporation mail out his proxy materials as long as he pays the cost.

Which of the following statements is correct regarding both debt and common shares of a corporation? A) Common shares represent an ownership interest in the corporation, but debt holders do not have an ownership interest. B) Common shareholders and debt holders have an ownership interest in the corporation. C) Common shares typically have a fixed maturity date, but debt does not. D) Common shares have a higher priority on liquidation than debt.

Common shares represent an ownership interest in the corporation, but debt holders do not have an ownership interest.

Which of the following states a disadvantage of debt financing for a corporation? A) Upon liquidation of a corporation, the holders of debt securities receive no more than the amount of their claims. B)Interest on debt is a tax deductible expense. C) Debt securities do not usually provide voting rights and therefore do not dilute the shareholder's control of the corporation. D) Debt must be repaid at fixed times even if the entity is not profitable.

Debt must be repaid at fixed times even if the entity is not profitable.

Corporate shareholders are entitled to A) Vote on amendments to the articles of incorporation, candidates for the board of directors, and officers. B) Participate fully in the management of the corporation. C) Dissent from decisions on fundamental changes, demand dissenters' rights, and receive the value of their stock in cash. D) File derivative suits to force the corporation to respect certain rights of the shareholders.

Dissent from decisions on fundamental changes, demand dissenters' rights, and receive the value of their stock in cash.

Which of the following statements is true concerning the similarities between a limited partnership and a corporation? A) Each is created under a statute and must file a copy of its organizational document with the proper state authorities. B) Both are recognized for federal income tax purposes as taxable entities. C) Both are allowed statutorily to have perpetual existence. D) All corporate shareholders and all partners in a limited partnership have limited liability.

Each is created under a statute and must file a copy of its organizational document with the proper state authorities.

All of the following are powers that a corporation possesses except the right to A) Sue and be sued in the corporate name. B) Engage in activities beyond its implied powers. C) Acquire and dispose of real or personal property. D) Engage in any transactions involving interests in, or obligations of, any other entity.

Engage in activities beyond its implied powers.

A major characteristic of the corporation is its status as a separate legal entity. Thus, it must withstand attempts to pierce the corporate veil. The corporation that is least likely to withstand such attempts successfully is one that A) Was formed to insulate its owners from personal liability B) Was formed for tax savings C) Holds assets only to defraud creditors D) Is a wholly owned subsidiary

Holds assets only to defraud creditors

Seymore was recently invited to become a director of Buckley Industries, Inc. If Seymore accepts and becomes a director, Seymore, along with the other directors, will not be personally liable for A) Honest errors of judgment. B)Lack of reasonable care. C) Declaration of a dividend that the directors know will impair legal capital. D) Diversion of corporate opportunities to themselves.

Honest errors of judgment.

Johns owns 400 shares of Abco Corp. cumulative preferred stock. In the absence of any specific contrary provisions in Abco's articles of incorporation, which of the following statements is true? A) If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco. B)Johns is entitled to convert the 400 shares of preferred stock to a like number of shares of common stock. C) Johns will be entitled to vote if dividend payments are in arrears. D) If Abco declares a dividend on its common stock, Johns will be entitled to participate with the common shareholders in any dividend distribution made after preferred dividends are paid.

If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco.

Smith was an officer of CCC Corp. As an officer, the business judgment rule applied to Smith in which of the following ways? A) If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused. B)If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, and CCC is prohibited from reimbursing Smith for any damages Smith paid. C) If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, but CCC may elect to reimburse Smith for any damages Smith paid. D) Because Smith is not a director, the rule does not apply.

If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.

Food Corp. owned a restaurant called The Ambers. The corporation's president, T.J. Jones, hired a contractor to make repairs at the restaurant, signing the contract, "T.J. Jones for The Ambers." Two invoices for restaurant repairs were paid by Food Corp. with corporate checks. Upon presenting the final invoice, the contractor was told that it would not be paid. The contractor sued Food Corp. Which of the following statements is correct regarding the liability of Food Corp.? A) It is not liable because the corporation was an undisclosed principal. B) It is not liable because Jones is liable. C) It is liable because Jones is not liable. D) It is liable because Jones had authority to make the contract.

It is liable because Jones had authority to make the contract.

Lobo Manufacturing, Inc., is incorporated under the laws of New Mexico. Its principal place of business is in California, and it has permanent sales offices in several other states. Under the circumstances, which of the following is true? A) California may validly demand that Lobo incorporate under the laws of the State of California. B) California may prevent Lobo from operating as a corporation if the laws of California differ regarding organization and conduct of the corporation's internal affairs. C) Lobo must obtain a certificate of authority to transact business in California and the other states in which it does business. D) Lobo is a foreign corporation in California, but not in the other states.

Lobo must obtain a certificate of authority to transact business in California and the other states in which it does business.

Baker sold an automobile to Bob's Old Autos, where Fuller is a manager. Fuller took $100 from Baker for encouraging the sale. What duty to Bob's Old Autos did Fuller violate? A) Reasonable care. B) Loyalty C) Obedience. D) Reimbursement.

Loyalty

Case Corp. is incorporated in State A. Under the Revised Model Business Corporation Act, which of the following activities engaged in by Case requires that Case obtain a certificate of authority to do business in State B? A) Hiring employees who are residents of State B. B) Collecting corporate debts in State B C) Maintaining an office in State B to conduct intrastate business. D) Maintaining bank accounts in State B

Maintaining an office in State B to conduct intrastate business.

The business judgment rule is a rule that immunizes corporate A) Management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make. B) Shareholders from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of shareholders to make. C) Management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith but are not within the power of the corporation or the authority of management to make. D) Shareholders from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith but are not within the power of the corporation or the authority of shareholders to make.

Management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.

Jeri Fairwell is executive vice-president and treasurer of Wonder Corporation. She was named as a party in a shareholder derivative action in connection with certain activities she engaged in as a corporate officer. In the lawsuit, she was held liable for negligence in performance of her duties. Fairwell seeks indemnity from the corporation. The board of directors would like to indemnify her, but the articles of incorporation do not contain any provisions regarding indemnification of officers and directors. Indemnification A) Is permitted only if Fairwell is found not to have been grossly negligent. B) Cannot include attorney's fees because Fairwell was found to have been negligent. C) May be permitted by court order although Fairwell was found to be negligent. D) Is not permitted because the articles of incorporation do not so provide.

May be permitted by court order although Fairwell was found to be negligent.

Which of the following circumstances may permit the piercing of the corporate veil of a closely held corporation and thus may cause its shareholders to be held personally liable? 1) The corporation is thinly capitalized. 2) The corporation borrows money from a shareholder without giving the shareholder a security interest in corporate assets.

Only 1

Limited liability of shareholders is one of the advantages of incorporation. Generally, a shareholder is personally liable A) For crimes of the corporation although (s)he did not participate in them. B) For torts of the corporation although (s)he did not participate in them. C) For the corporation's debts. D) Only for his or her investment in the corporation.

Only for his or her investment in the corporation.

The shares actually held by shareholders are best described as A) Issued shares. B) Treasury shares. C) Authorized shares. D)Outstanding shares.

Outstanding Shares

Which of the following must take place before a corporation may be voluntarily dissolved? A)Unanimous vote of the shareholders. B) Amendment of the certificate of incorporation. C) Approval by the officers of a resolution to dissolve. D) Passage by the board of directors of a resolution to dissolve.

Passage by the board of directors of a resolution to dissolve.

May Phillips was the principal promoter of the Waterloo Corporation, a corporation that was to have been incorporated not later than July 31. Phillips obtained written subscriptions for a total of $1.4 million of common stock from 17 individuals. She hired herself as the chief executive officer of Waterloo at $200,000 for 5 years and leased three floors of office space from Downtown Office Space, Inc. The contract with Downtown was made in the name of the corporation. Phillips had indicated orally that the corporation would be coming into existence shortly. The corporation did not come into existence, through no fault of Phillips. Which of the following is true? A) The subscribers were not bound by their subscriptions until the corporation came into existence. B) Phillips is personally liable on the lease with Downtown. C) The subscribers have a recognized right to sue for and recover damages. D) Phillips has the right to recover the fair value of her services rendered to the proposed corporation.

Phillips is personally liable on the lease with Downtown.

Hughes and Brody start a business as a close corporation. Hughes owns 51 of the 100 shares of stock issued by the firm and Brody owns 49. One year later, the corporation decides to sell another 200 shares. Which of the following types of rights would give Hughes and Brody a preference over other purchasers to buy shares to maintain control of the firm? A)Inspection rights. B) Cumulative voting rights. C) Shareholder derivative rights. D) Preemptive rights.

Preemptive rights.

A corporation formed by a political unit to achieve a governmental purpose is best described as A) Quasi-public. B) Public. C) Not-for-profit D) Publicly held

Public

Which of the following actions may a corporation take without its shareholders' consent? A) Purchase 55% of another corporation's stock. B) Consolidate with one or more corporations. C)Dissolve voluntarily. D) Merge with one or more corporations.

Purchase 55% of another corporation's stock.

An owner of common stock will not have any liability beyond actual investment if the owner A) Agreed but failed to perform future services for the corporation in exchange for original issue par value shares. B) Failed to pay the full amount owed on a subscription contract for no-par shares. C) Paid less than par value for stock purchased in connection with an original issue of shares. D) Purchased treasury shares for less than par value.

Purchased treasury shares for less than par value.

Which of the following actions may be taken by a corporation's board of directors without shareholder approval? A) Purchasing substantially all of the assets of another corporation. B) Selling substantially all of the corporation's assets not in the regular course of business. C) Amending the articles of incorporation. D) Dissolving the corporation.

Purchasing substantially all of the assets of another corporation.

Generally, a corporation's articles of incorporation must include all of the following except the A) Number of authorized shares B) Name of the corporation's registered agent C) Quorum requirements D) Name of each incorporator

Quorum requirements.

A consolidation of two corporations usually requires all of the following except A) Provision for an appraisal buyout of dissenting shareholders. B) An affirmative vote by the holders of a majority of each corporation's voting shares. C) Receipt of voting stock by all shareholders of the original corporations. D) Approval by the board of directors of each corporation.

Receipt of voting stock by all shareholders of the original corporations.

Under the Revised Model Business Corporation Act, a merger of two public corporations usually requires all of the following except A) An affirmative vote by the holders of a majority of each corporation's voting shares. B) Approval by the board of directors of each corporation. C) Receipt of voting stock by all shareholders of the original corporations. D) A formal plan or merger

Receipt of voting stock by all shareholders of the original corporations.

Davis, a director of Active Corp., is entitled to A) Take sole advantage of a business opportunity that would benefit Active. B) Unilaterally grant a corporate loan to one of Active's shareholders. C) Serve on the board of a competing business. D) Rely on information provided by a corporate officer.

Rely on information provided by a corporate officer.

Under the Revised Model Business Corporation Act (RMBCA), a corporate director is authorized to A) Sell control of the corporation. B) Profit from insider information. C) Rely on information provided by the appropriate corporate officer. D) Serve on the board of directors of a competing business

Rely on information provided by the appropriate corporate officer.

Which of the following corporate actions is subject to shareholder approval? A) Election of officers. B) Declaration of cash dividends. C) Removal of directors. D) Removal of officers

Removal of directors

What is the doctrine under which a corporation is made liable for the torts of its employees, committed within the scope of their employment? A) Ultra vires. B)Estoppel. C) Ratification. D) Respondeat superior.

Respondeat superior aka "let the master answer"

Which of the following statements describes the same characteristic for both an S corporation and a C corporation? A) Both corporations have the disadvantage of double taxation. B) Shareholders can contribute property into a corporation without being taxed. C) Shareholders can be either residents of the United States or foreign countries. D) Both corporations can have more than 100 shareholders.

Shareholders can contribute property into a corporation without being taxed.

For several years, Joe Skipper was the principal shareholder, director, and chief executive officer of the Canarsie Grocery Corporation. Canarsie is in bankruptcy. Several creditors are seeking to hold Skipper personally liable as a result of his stock ownership and as a result of his being an officer-director. Skipper in turn filed with the bankruptcy judge a claim for $1,400 salary due him. Which of the following is true? A) Skipper has no personal liability to the creditors as long as Canarsie is recognized as a separate legal entity. B) Skipper's salary claim will be allowed and he will be entitled to a priority. C) Skipper is personally liable to the creditors for Canarsie's losses. D) Skipper cannot personally file a petition in bankruptcy for seven years.

Skipper has no personal liability to the creditors as long as Canarsie is recognized as a separate legal entity.

All of the following distributions to shareholders are considered asset or capital distributions except A) Cash dividends. B) Property distributions. C) Stock splits. D) Liquidating Dividends

Stock Splits

The essential difference between a stock dividend and a stock split is that a A) Stock dividend must be paid in the same class of stock as held by the shareholder. B) Stock split will increase the amount of equity. C) Stock split will increase a shareholder's percentage of ownership. D) Stock dividend of newly issued shares will result in a decrease in retained earnings.

Stock dividend of newly issued shares will result in a decrease in retained earnings.

The board of directors of Wilcox, Inc., has noted a 7% drop in the market price of its preferred stock and decides to purchase 100,000 shares of the stock for an amount below the redemption price of the stock. Under these circumstances, which of the following is a true statement? A) Such shares may be purchased by the corporation to the extent of unreserved and unrestricted retained earnings. B) The corporation may not acquire its own shares unless the articles of incorporation so provide. C) The corporation will realize a taxable gain as a result of the transaction. D) The preferred stock so acquired must be retired and may not be held as treasury stock.

Such shares may be purchased by the corporation to the extent of unreserved and unrestricted retained earnings.

Generally, a merger of two corporations requires A) Unanimous approval of the merger plan by the shareholders of both corporations. B) Unanimous approval of the merger plan by the boards of both corporations. C) That a special meeting notice and a copy of the merger plan be given to all shareholders of both corporations. D) That all liabilities owed by the absorbed corporation be paid before the merger.

That a special meeting notice and a copy of the merger plan be given to all shareholders of both corporations

The owner of cumulative preferred stock has the right to A) A residual share in dividends after a fixed dividend has been paid to both common and preferred shareholders. B)The carryover of fixed dividends to subsequent periods from years in which they were not paid. C) Convert preferred stock into common stock. D)Receive the par value of their shares but not unpaid dividends before common shareholders receive anything in liquidation.

The carryover of fixed dividends to subsequent periods from years in which they were not paid.

Which of the following actions is required to ensure the validity of a contract between a corporation and a director of the corporation? A) An independant appraiser must render to the board of directors a fairness opinion on the contract. B) The director must resign from the board of directors. C) The director must disclose the interest to the independent members of the board and refrain from voting. D) The shareholders must review and ratify the contract.

The director must disclose the interest to the independent members of the board and refrain from voting.

A corporate director commits a breach of duty if A) The director's exercise of care and skill is minimal. B) An interest in property is acquired by the director without prior approval of the board. C) The director's action, prompted by confidential information, results in an abuse of corporate opportunity. D)A contract is awarded by the company to an organization owned by the director.

The director's action, prompted by confidential information, results in an abuse of corporate opportunity.

Under the Revised Model Business Corporation Act (RMBCA), which of the following must be contained in a corporation's articles of incorporation? A) Provisions for issuance of par and no-par shares. B) The number of shares the corporation is authorized to issue. C) Quorum voting requirements. D) Names of shareholders.

The number of shares the corporation is authorized to issue.

Which of the following statements best describes an advantage of the corporate form of doing business? A) The operation of the business may continue indefinitely. B) The business is free from state regulation. C) Ownership is contractually restricted and is not transferable. D) Day-to-day management is strictly the responsibility of the directors.

The operation of the business may continue indefinitely.

To which of the following rights is a shareholder of a public corporation entitled? A) The right to a reasonable inspection of corporate records. B) The right to vote for the election of officers. C) The right to have annual dividends declared and paid. D) The right to have the corporation issue a new class of stock.

The right to a reasonable inspection of corporate records.

Bryan Corporation decided to purchase a plant site. Bill Shephard, a newly elected director, has owned a desirable site for many years. He purchased the property for $60,000, and its present fair value is $100,000. What would be the result if Shephard offered the property to Bryan for $100,000 in an arm's-length transaction with full disclosure at a meeting of the seven directors of the corporation? A) The sale would be proper only upon requisite approval by the appropriate number of directors and at no more than Shephard's cost, thus precluding his profiting from the sale to the corporation. B) The sale would not be proper, if sold for the present fair value of the property, without the approval of all of the directors in these circumstances. C) The sale would be proper and Shephard would not have to account to the corporation for his profit if the sale was approved by a disinterested majority of the directors. D) The sale would be void under the self-dealing rule.

The sale would be proper and Shephard would not have to account to the corporation for his profit if the sale was approved by a disinterested majority of the directors.

The corporate veil is most likely to be pierced and the shareholders held personally liable if A) An ultra vires act has been committed. B) The corporation has elected S corporation status under the Internal Revenue Code. C) A partnership incorporates its business solely to limit the liability of its partners. D) The shareholders have commingled their personal funds with those of the corporation.

The shareholders have commingled their personal funds with those of the corporation.

Which of the following statements is a general requirement for the merger of two corporations? A) The absorbed corporation must amend its articles of incorporation. B) The merger plan must be approved unanimously by the boards of both corporations. C) The shareholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan. D) The merger plan must be approved unanimously by the shareholders of both corporations.

The shareholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan.

Hobson, Jones, Carter, and Wolff are medical doctors who have worked together for several years. Their attorney formed a typical professional corporation for them. Which of the following is true? A) Upon incorporation, the doctor-shareholder is insulated from personal liability beyond his or her capital contribution. B) The majority of states prohibit the formation of professional corporations by physicians. C) The state in which they incorporated must have enacted professional corporation statutes. D) Such a corporation will not be recognized for federal tax purposes.

The state in which they incorporated must have enacted professional corporation statutes.

A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary corporation and decided to merge that subsidiary into itself. Under the Revised Model Business Corporation Act, which of the following actions must be taken? A) The subsidiary corporation's dissenting shareholders must be given an appraisal remedy. B) The subsidiary corporation's board of directors must pass a merger resolution. C)The parent corporation's shareholders must be given dissenters' rights. D) The parent corporation's shareholders must approve the merger.

The subsidiary corporation's dissenting shareholders must be given an appraisal remedy

For what purpose will a shareholder of a publicly held corporation be permitted to file a shareholder derivative suit in the name of the corporation? A) To recover damages from corporate management for an ultra vires management act. B) To compel payment of a properly declared dividend. C) To compel dissolution of the corporation. D) To enforce a right to inspect corporate records

To recover damages from corporate management for an ultra vires management act.

In general, which of the following statements concerning treasury stock is true? A) Treasury stock may be distributed as a stock dividend. B) On issuance of new stock, a corporation has preemptive rights with regard to its treasury stock. C) A corporation may not reacquire its own stock unless specifically authorized by its articles of incorporation. D) A corporation is entitled to receive cash dividends on its treasury stock.

Treasury stock may be distributed as a stock dividend.

Which of the following statements about the directors of a corporation is true? A) Directors may serve only annual terms. B) The number of directors may not exceed the number of shareholders. C) Under the Revised Model Business Corporation Act, a corporation may dispense with a board of directors in certain circumstances. D) Directors may be elected by the shareholders only.

Under the Revised Model Business Corporation Act, a corporation may dispense with a board of directors in certain circumstances.

The limited liability of the shareholders of a closely held corporation will most likely be disregarded if the shareholders A) Formed the corporation solely to limit their personal liability. B) Are also corporate officers, directors, or employees. C) Undercapitalized the corporation when it was formed. D) Lend money to the corporation

Undercapitalized the corporation when it was formed.

Which of the following acts is most likely to cause a court to pierce the corporate veil? A) Failure to conduct a significant portion of business in the chartering state. B)Using corporate assets for the owner's personal purposes. C) Failure to designate a registered agent in the articles of incorporation (Charter). D) Retention of excess capital.

Using corporate assets for the owner's personal purposes.

Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc., to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority shareholder in Tine. Quick's contract with Tine is A) Valid because the contract is fair to Quick. B) Void because of Knox's self-dealing. C) Void because the disclosure was made after execution of the contract. D) Valid because of Knox's full disclosure.

Valid because the contract is fair to Quick.

Peters owned 500 shares of common stock in Kidsmart, Inc. Accordingly, Peters had the right to A) Automatically receive a dividend in any quarter in which the corporation made a profit. B) Inspect the corporate records on demand. C) Vote for and remove the corporate officers and set their compensation. D) Vote for the election and removal of the board of directors.

Vote for the election and removal of the board of directors

All of the following are legal rights of shareholders in U.S. publicly traded companies except the right to A) Vote on major mergers and acquisitions. B) Receive dividends if declared. C) Vote on major management changes. D) Vote on charter and bylaw changes

Vote on major management changes.

A shareholder's right to inspect books and records of a corporation will be properly denied if the shareholder A) Intends to commence a shareholder's derivative suit. B) Wants to use corporate shareholder records for a personal business. C) Employs an agent to inspect the books and records. D) Is investigating management misconduct.

Wants to use corporate shareholder records for a personal business.

John Watson entered into an agreement to purchase 1,000 shares of the Marvel Corporation, a corporation to be organized. Watson has since had second thoughts. Applying the RMBCA, which of the following is true? A) A transfer of the agreement to another party will eliminate his liability. B) Watson may not revoke the agreement for a period of 6 months. C) A written notice of withdrawal prior to incorporation will be valid. D) Watson may avoid liability if a majority of the other subscribers release him.

Watson may not revoke the agreement for a period of 6 months.

Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation formation? A) When the bylaws of the corporation expressly adopt all preincorporation contracts without novation. B) When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter. C) When the corporation unknowingly accepts the benefits of the contract. D) When the contracting party verbally agrees to relieve the promoter.

When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter.

Under the Revised Model Business Corporation Act (RMBCA), when a corporation's bylaws grant shareholders preemptive rights, which of the following rights is (are) included in that grant? The Right to Purchase a Proportionate Share of Newly Issued Stock // The Right to a Proportionate Share of Corporate Assets Remaining on Corporate Dissolution Yes Yes No No No Yes Yes No

YES // NO

Under the Revised Model Business Corporation Act, a dissenting shareholder's appraisal right generally applies to which of the following corporate actions? Consolidations // Short-Form Mergers yes//yes no//yes no//no yes//no

yes//yes