chapter 18 BUSA

When choosing a form of business organization, most business persons consider which of the following factors?

All of these

Which factor is NOT considered when a court is deciding to pierce the corporate veil?

All of these factors are considered.

Partnerships have double taxation with the partnership as a whole paying income tax on profits and the individual partners paying income tax on profits distributed to each.

false

While directors and officers owe fiduciary duties, it is impossible for a shareholder to owe fiduciary duties.

false

Convenience Mart, Inc., is a close corporation. Convenience Mart is:

generally allowed to restrict the transfer of its stock.

The business judgment rule immunizes corporate directors from liability for bad business decisions as long as they took reasonable steps to become informed about the matter, had no conflict of interest, and:

had a rational basis for their decision.

Egan is a director of First Realty Corporation. As a director, Egan can act as an agent to bind First Realty:

in no circumstances.

Digitech is a foreign corporation, which means that Digitech:

may be required to obtain a certificate of authority to do business.

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

not at all. Individual directors do not have agency power.

Boutique Corporation would like to change its corporate status to avoid income taxes at the corporate level. To qualify, the shareholders must not be:

partnerships.

A written agreement between a stockholder and another party in which the stockholder authorizes the other party to vote the stockholder's shares in a certain manner is a:

proxy

Piercing the corporate veil means that a court will ignore the corporate structure and:

require the corporate officers to assume personal liability to creditors for corporate debts.

John Provenza is President and CEO of Abalthus, Inc., but there is a limit to what he can do. For example, he does not have the authority to:

sell substantial corporate assets.

If a court decides to pierce the corporate veil, the result is:

shareholders may be personally liable for corporate debts.

A business that is created at will by the owner with unlimited liability and that will be automatically dissolved on the owner's death is a:

sole proprietorship.

Courts will:

sometimes ignore the corporate structure and expose shareholders to personal liability.

Shareholders have a right to inspect:

the corporate books and records, but only for a proper purpose

A board of directors does not have responsibility over:

the election and removal of members of the board.

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

the limited liability of shareholders.

The constitutional rights enjoyed by corporations are:

the same as many of those held by natural persons.

A board of directors can delegate some of its functions to corporate officers.

true

A close corporation may restrict the right of a shareholder to transfer stock.

true

A limited liability company is created by agreement of the member-owners and filing articles of organization with the state.

true

Corporations must pay organizational fees, annual license fees, and file annual reports.

true

If shareholders of a close corporation continuously use corporate property for personal use, the shareholders risk being personally liable for debts of the corporation.

true

If shareholders of a close corporation do not follow the laws of the state regarding corporate formalities, the shareholders risk being personally liable for debts of the corporation.

true

In many corporations, the directors are also the chief corporate officers.

true

Only certain funds are legally available for paying dividends.

true

Shareholders of corporations have limited liability.

true

The choice of a corporate name is subject to state approval.

true

To pierce the corporate veil means to ignore the corporate structure, exposing the shareholders to personal liability.

true

Venture capital is capital provided to new business ventures by professional, outside investors.

true

General partners in a limited partnerships have:

unlimited liability for debts of the partnership.

Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can:

vote to amend the articles of incorporation or bylaws.

A corporation has 5,000 shares of stock issued and outstanding. The minority shareholders hold 2,000 shares. The majority shareholders hold the other 3,000 shares. Three board members are to be elected by cumulative voting. The minority shareholders will have:

6,000 votes.

Damages awarded in a shareholder's derivative suit go to the shareholder personally.

false

Partners in a partnership have limited liability.

false

Partnership interests may be assigned with the assignee taking full rights of the assigning partner.

false

S Corporations are required to:

have no shareholder who is a nonresident alien and have shareholders who are individuals, estates, or certain trusts.

Connie Fernandez owns 100 shares of Prodigy Corporation, which is 2 percent of the total shares. The corporation has given shareholders preemptive rights. Prodigy Corporation issues 1,000 new shares of stock. Before Prodigy Corporation can offer the new stock to any outside buyers, Fernandez can purchase:

up to 20 shares, which is 2 percent of the new issue.

For shareholders to conduct business at a meeting, a quorum must be present. Generally, a quorum exists when the shareholders in attendance hold more than:

50% of the outstanding shares.

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan commits a tort. Liability for this tort most likely rests with:

Raw Resources and Stefan.

Albert owns Best Corporation. He completely dominates Best's operations, such that the company is not really operated as a separate legal entity. Which statement is correct?

Albert may be liable for Best's debts under the alter-ego theory.

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan disposes of the mine's waste illegally. Liability for this crime most likely rests with:

Raw Resources and Stefan.

Which form of business is not a separate entity from the owner?

Sole Proprietorship

Owners of which form(s) of business have unlimited liability for debts of the business?

Sole proprietorship and partnership

Rapid Pest Control holds itself out to others as being a corporation but makes no attempt to incorporate. Ponce signs a contract with Rapid Pest Control that is not performed. Ponce files a suit against the firm. The court will likely hold that Rapid Pest Control is:

a corporation by estoppel.

Stable Foundation Construction Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Stable is most likely:

a de jure corporation.

Gelato Ice, Inc., is incorporated in the state of New Jersey and is doing business in the state of New York. In New York, Gelato is properly referred to as:

a foreign corporation.

A type of business entity which limits a partner's liability for the acts committed by other partners is a:

a limited liability partnership.

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is:

adopting Java's bylaws.

A holding company (parent company):

all of these answers are correct.

The reason most states either permit or require the use of cumulative voting when electing directors is to:

allow minority shareholders a greater chance at representation on the board of directors.

A major power held by shareholders is the power to:

amend the articles of incorporation or the corporate bylaws.

Stock may be described as:

an ownership interest in the corporation

Corporations are obligated to return a principal amount per share to each holder of common stock.

false

The expectation that a director will act with the same diligence that an ordinarily prudent person would in similar circumstances is part of the:

duty of due care.

"Piercing the corporate veil" means revealing to shareholders the internal rules of corporate management.

false

A board of directors cannot conduct business outside a formal meeting.

false

A business incorporated in one state has an automatic right to do business in any other state.

false

A court will not pierce the corporate veil of a corporation that is formed merely to evade an existing legal obligation.

false

A person must be a shareholder of a corporation to serve as a director.

false

A public corporation is also known as a publicly held corporation.

false

JKL Corporation has 4,000 shares of stock outstanding. Cho owns 200 shares. JKL declares a $10,000 dividend. The amount of dividend Cho will receive is:

$500.

The Trapp family has operated its own catering business for years, but has never formed a formal business entity. They realize now they should do this. Their concerns are that they maintain ownership within the family, that they not have too many formalities to deal with in maintaining the entity, and that they can all participate in management of the business, as they have been doing. Of the following choices, what would be the best form of entity for them?

A close corporation

Which form of business has "double taxation"?

Corporation

Which form of business may have a perpetual existence?

Corporation

To create a partnership, the partners must register a charter with the state.

False

Jack is the sole shareholder of Fritz Corporation. He ignores the recommendations of both the company's lawyer and accountant and fails to hold any corporate meetings. Which statement is correct?

The failure to hold corporate meetings is a factor considered in deciding whether to pierce the veil of Fritz Corporation.

Tom and Sally operate a sky-diving business and decide to incorporate to avoid personal liability for any harm to clients. However, Tom and Sally give no assets to the corporation, keeping all of the equipment in their personal names and paying all business income to themselves as salaries. If a client is injured and sues, may the judge order Tom and Sally to pay the client with their personal assets?

Yes, because the judge would have grounds to pierce the corporate veil.

Cooper is a member of the board of SportsNet, Inc. He is also the chief executive officer of Marathon Sporting Corp., which competes directly with SportsNet, Inc. This situation is called:

a conflict of interest.

Quik Company claims to be a corporation but it is not. Pam signs a contract with Quik that is not performed. In Pam's suit against Quik, a court will likely recognize the firm as:

a corporation by estoppel.

Corporate officers are hired by the:

board of directors.

The responsibility for the overall management of a corporation belongs to the:

board of directors.

Chip is a director of Diners Restaurants, Inc. Chip would breach his duty of loyalty if he:

buys a controlling interest in Gulpin' Foods Corporation, a competing firm.

Putting funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities is called:

commingling.

Corporate bylaws must be approved by the appropriate state official before the corporation's first organizational meeting.

false

Mitch owns a corporation with his family. They have a lot of money and so agree that if the company has any losses, they will cover it, so they do not buy insurance. If a court pierces the corporate veil when the company loses a lawsuit, it is most likely because:

he corporation was too thinly capitalized.

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, after taking reasonable steps to be informed about matters. He always has a rational basis for his decisions and acts in what he believes is the firm's best interest. If, despite these circumstances, Luke's decisions result in poor business outcomes, under the business judgment rule Luke is:

immune from liability.

Watered stock is shares of stock issued by a corporation for which the corporation receives as payment:

less than the stated value of the shares.

Bailey, a majority shareholder in Best Bikes, Corp., owns enough shares to exercise de facto control over the corporation. If Bailey uses her control to "freeze out" minority shareholders and to exclude minority shareholders from benefits of the corporation, then:

minority shareholders can sue for damages.

Abe Schultz, Sol Schultz, and Lawrence Newfeld were the managing directors and officers of Chemical Dynamics, Inc., a close corporation. The corporation leased a building to house its offices and operations. Included in the lease agreement was a provision giving Chemical Dynamics, an option to purchase the property for $300,000. Three years later, Chemical Dynamics was experiencing financial problems and could not pay its rent. It assigned the lease and the purchase option to Newfeld in return for Newfeld's loan to the corporation of $21,500. Three years after that, Newfeld purchased the property and continued to lease it to the corporation. Eventually, the corporation's financial situation improved, and its debts were paid. Abe Schultz filed a lawsuit against Newfeld on behalf of the corporation, claiming that Newfeld had breached his fiduciary duty by usurping a corporate opportunity when he purchased the property. The court most likely held that Newfeld was:

not liable to the corporation, because the option to purchase the property rightfully belonged to Newfeld, not to the corporation.

Superior Home Products, Inc., is a corporation. Superior's implied powers enable it to:

perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

An action in which a court disregards the corporate entity and holds the shareholders personally liable for corporate debts and obligations is:

piercing the corporate veil.

The number of members of a decision-making body that must be present before business may be transacted is a:

quorum.

Stan is a registered agent for Transport, Inc., which incorporated in Utah. As a registered agent, Stan:

receives legal documents on behalf of Transport.

Beth and Cody want to form a corporation to market MP3 players and products. The first step in the incorporation procedure is to:

select a state in which to incorporate.

Jacob Schachter and Herbert Kulik, the founders of Ketek Electric Corp., each owned 50 percent of the corporation's shares and served as the corporation's only officers. Arnold Glenn, as trustee, and Kulik brought a shareholder's derivative suit in a New York state court against Schachter, alleging that Schachter had diverted Ketek assets and opportunities to Hoteltron Systems, Inc., a corporation wholly owned by Schachter. The court held that Schachter had wrongfully diverted the funds. On the issue of the damages, Kulik argued that they should be awarded to him personally so that Schachter, as a shareholder of Ketek, would not be able to share in the proceeds of the award. The court most likely granted damages to:

the corporation, because Schachter's actions deprived the entire corporation, not just Kulik, of profits.

For de facto status to be obtained:

there must be a state statute under which the corporation can be validly incorporated.

Articles of incorporation can state generally that the corporation is organized to conduct "any legal business."

true