LAW 3800 Ch. 22
Who can challenge a de facto corporation's existence?
the state
______ is a document issued by the secretary of state certifying that a corporation is authorized to conduct business in the state.
A certificate of incorporation
______ is a document issued by the secretary of state certifying that a corporation is incorporated in the state.
A certificate of incorporation
The Revised Model Business Corporation Act recognizes that shareholders have the legal right to initiate dissolution if the corporation engages in all but which of the following behaviors?
A majority of shareholders own stock in other corporations, violating their duty of loyalty to the corporation.
______ takeovers are takeovers to which the management of the target corporation objects.
Hostile
______ raise capital for an infant corporation by making subscription agreements with subscribers in which the subscribers agree to purchase stock in the new corporation.
Promoters
An acquiring corporation, or ______, can buy any or all of another corporation's voting shares. Through such a stock purchase, the purchasing corporation gains control of the selling corporation in a corporate takeover.
aggressor
If a U.S. corporation wants to do business in Canada or Mexico, it is a(n) ______ corporation in those countries
alien
Acting with due care requires one to exercise the care that ______ would exercise in the management of his or her own assets.
an ordinary prudent person
In the context of the legal process of incorporation, generally, an incorporator's only duty is to sign the ______.
articles of incorporation
Which of the following are the two types of self-dealing that violate the duty of loyalty directors and officers owe to their corporation?
business and personal
S corporations are a particular type of ______ corporation.
closely held
Which of the following is not a way corporations can be classified?
constructive or symbolic
The main liability that shareholders of the corporation face is liability for the ______ of the company.
debts
Although ______ are in charge of major policy decisions, ______ run the day-to-day business of a corporation.
directors; officers
In the first step of corporate dissolution, the directors of the corporation must file the articles of ______ with the secretary of state.
dissolution
A corporation is a(n) ______ corporation in the state in which it is incorporated
domestic
Corporate officers are technically ______ of the corporation.
employees
Because corporations are separate legal ______, government ______
entities; taxes their income directly
Most corporations are ______ corporations
for-profit
When a ______ succeeds, the target corporation's management frequently compares the transition to a full-scale invasion characterized by layoffs and dramatic changes in company policy.
hostile takeover
Corporations may take whatever actions are necessary to execute their express powers. Thus, corporations have ______ powers
implied
States give powers to corporations through state incorporation statutes and through each corporation's articles of ______
incorporation
The articles of ______ is a document that contains basic information about a corporation and is filed with the state.
incorporation
A shareholder's liability for corporate actions is ______
limited to his or her corporate investment
The board of directors of a corporation selects ______ to manage the day-to-day business of the corporation
officers
Directors of a corporation who are not officers or employees of that corporation are called ______ directors.
outside
For par-value shares of a corporation, a shareholder must pay the corporation at least the ______ value of the stock.
par
No-par shares of a corporation are shares that do not have a(n) ______ value.
par
A ______ is a corporation created by government to help administer law
public corporation
The Federal Deposit Insurance Corporation (FDIC) is an example of a ______
public corporation
Even if a corporate officer knew nothing about a criminal activity in his or her firm, the officer can still be held criminally liable if the court determines that a(n) ______ person would have known about and could have prevented the illegal activity.
responsible
Corporations' investment of ______ earnings can lead to higher stock prices, thus benefiting shareholders when they sell their stock
retained
When corporate directors or officers violate their duty of loyalty, they are ______.
self-dealing
In the context of a corporate takeover, a(n) ______ offer is a takeover-resistance strategy in which the target corporation offers to buy its shareholders' stock.
self-tender
Dividends are paid to the ______ of a corporation on the orders of its ______
shareholders; directors
Each individual corporation's charter creates a contract between that corporation and the ______
state
The articles of incorporation is a document that contains basic information about a corporation and is filed with the ______.
state
Which of the following is not a factor business owners consider when selecting a state for incorporation?
state laws governing copyrights
To initiate a stock purchase, the aggressor must appeal directly to the shareholders of the corporation it hopes to buy, known as the ______ corporation.
target
In an exchange tender offer, the aggressor offers to exchange target shareholders' current stock for stock in ______.
the aggressor's corporation
Which of the following is one of the two primary fiduciary duties directors and officers owe to the corporation?
the duty of care
Which of the following is one of the two primary fiduciary duties directors and officers owe to the corporation?
the duty of loyalty
According to the Revised Model Business Corporation Act, a corporation's articles of incorporation must include all but which of the following?
the mission statement of the corporation
In the context of corporate dissolution, the articles of dissolution must include all but which of the following types of information?
the parties who will bear the cost of dissolution
Which of the following is not an express power state incorporation statutes typically grant to a corporation?
the power to be immune from corporate taxation
According to the Revised Model Business Corporation Act, a corporation's articles of incorporation must include all but which of the following?
the vision statement of the corporation
Courts are likely to pierce the corporate veil in all but which of the following situations?
A corporation is closely held.
Courts are likely to pierce the corporate veil in all but which of the following situations?
A corporation is publicly traded.
Which of the following is an accurate statement about the right of first refusal?
A corporation or its shareholders have the right of first refusal.
______ of a corporation can initiate the voluntary dissolution procedures.
Either directors or shareholders
______ can initiate involuntary dissolution of a corporation.
Either government or private parties
If a corporation commits an ultra vires act, the Revised Model Business Corporation Act (RMBCA) provides all but which of the following remedies?
Shareholders may sue the state government for allowing the corporation to commit the ultra vires act
Which of the following is an accurate statement about the duties of corporate shareholders?
Shareholders typically owe few fiduciary duties to the corporation.
Which of the following is an inaccurate statement about publicly held corporations?
Shareholders wishing to sell their shares of stock in publicly held corporations usually face many transfer restrictions.
Which of the following is a requirement for allowing a corporate decision to be made that will personally benefit a director or officer?
There must be a full disclosure of the interest.
Which of the following is an accurate statement about corporate criminal liability?
Today, criminal prosecutions of corporations are much more common than they were in the past
In a shareholder's ______ suit, the shareholder alleges that he or she has suffered damages caused by the corporation.
direct
Inside ______ are also officers or employees of a corporation.
directors
Which of the following is involved in the creation of a corporation?
general organizational activities necessary for incorporation
Although ordinary decisions by a board of directors require a ______ vote, more important decisions sometimes require a ______ vote.
majority; two-thirds majority
A corporate ______ is the purchase of one corporation's stock by another corporation as a means of gaining control of the selling corporation.
takeover
In a leveraged buyout, a group within a corporation gains control over corporate operations by becoming a ______ corporation.
privately held
A(n) ______ offer is a type of corporate takeover in which the aggressor corporation offers the target shareholders a price above their stock's current market value.
tender
Equity securities are ______.
stocks
Preemptive rights give preferences to shareholders to purchase shares of ______.
a new issue of stock
A shareholder's derivative suit is a lawsuit filed by ______ on behalf of ______.
a shareholder; the corporation
A shareholder's direct suit is a lawsuit filed by ______ against ______.
a shareholder; the corporation
In the context of corporate takeovers, in a tender offer, the aggressor offers target shareholders a price ______ the ______ value of the stock.
above; current market
Which of the following are the two subcategories of outside directors?
affiliated and unaffiliated
Officers act as ______ of a corporation.
agents
In a potential corporate takeover, the ______ may make a cash tender offer to the target shareholders in which it pays them cash for their stock.
aggressor
Owners of ______ stock own a portion of a corporation but do not enjoy any preferences.
common
In U.S. law, ______ are legal entities
corporations
A(n) ______ is an individual who applies to the state for incorporation on behalf of a corporation.
incorporator
Because corporate directors are in positions of great legal vulnerability, they have the right to ______.
indemnification
The right to ______ is a corporate director's right to reimbursement for any legal fees incurred in lawsuits against him or her.
indemnification
Generally, the statement of corporate ______ in each corporation's articles of ______ gives each corporation its implied powers
purpose; incorporation
The directors and officers have a fiduciary duty of loyalty to a corporation. In other words, they have a duty to ______.
put the corporation's interests above their own
Corporations are liable for the torts and crimes committed by their agents during the scope of their employment. Courts refer to this liability as the doctrine of ______
respondeat superior
Which of the following is an accurate statement about the fiduciary duty of loyalty of the directors and officers of a corporation?
Both directors and officers have a fiduciary duty of loyalty to the corporation.
Which of the following is an incorrect statement about common stock?
Common stock owners have the highest priority when a corporation distributes dividends.
Which of the following is a true statement about whether corporations can sue and/or be sued by others?
Corporations can sue or be sued by others
Which of the following is an accurate statement about corporations and due process rights?
Corporations have due process rights under both the Fifth and the Fourteenth Amendments to the U.S. Constitution
Which of the following is an incorrect statement about preferred stock?
Corporations may not have more than one class of preferred stock.
Which of the following is an incorrect statement about the rights and duties of directors as managers of a corporation?
Directors select shareholders as they see fit.
A(n) ______ is a type of corporate takeover in which the aggressor corporation offers to pay the target shareholders cash for their stock.
cash tender offer
A stock ______ is a document that serves as a stockholder's proof of ownership in a corporation.
certificate
In ______ corporations, the transfer of stock is usually restricted so that shareholders can choose the corporation's other shareholders.
closely held
Which of the following is a major type of stock?
common
All corporate directors have a right to ______ for their work.
compensation
The four major rights of corporate directors include the rights to ______, participation, inspection, and indemnification.
compensation
Rules and regulations that govern a corporation's internal management are known as ______.
corporate bylaws
A subscriber is an investor who agrees to purchase stock in a new ______.
corporation
In the context of corporate financing, ______ securities represent loans to a corporation.
debt
If the incorporator or promoters of a corporation make an error or omission during the incorporation process, courts may rule that the organization is not a corporation. In such a case, the organization is a ______.
defective corporation
Shareholders of a corporation elect a board of ______ to manage the corporation
directors
The most influential power of corporate shareholders is the power to elect and remove ______.
directors
Which of the following is one of the two phases of the death of a corporation?
dissolution
In many cases, corporate directors have good reason to withhold ______ for a limited amount of time to finance major undertakings such as research or expansion.
dividends
If shareholders die, corporations ______
do not dissolve
McDonald's Corporation is incorporated in Delaware but does business in all 50 states. Thus, McDonald's is a(n) ______ corporation in Delaware and a(n) ______ corporation in all of the other 49 states
domestic; foreign
Directors and officers of a corporation have a fiduciary duty of care, meaning that they must exercise ______ care when making decisions for the corporation.
due
In the context of corporate financing, ______ securities represent ownership in a corporation.
equity
If corporations act beyond their ______ and ______ powers, the act is called an ultra vires act
express; implied
For no-par shares of a corporation, a shareholder must pay the corporation the ______ value of the shares.
fair market
Watered stock is stock issued to individuals below its ______ value.
fair market
If a corporation establishes the right of ______ in its bylaws, the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time.
first refusal
Before the maturity date, corporations usually pay bondholders ______ interest payments on a scheduled basis.
fixed-dollar
Bonds are sometimes called ______ securities.
fixed-income
A corporation is a(n) ______ corporation in states in which it conducts business but is not incorporated
foreign
Some directors of a corporation are also officers or employees of that corporation. These directors are known as ______ directors.
inside
Generally, because shareholders are the owners of the corporation, they are liable to the extent of their ______ when the company loses money.
investment
In the context of the creation and organization of a corporation, a subscriber is a(n) ______.
investor
What is the legal reason for holding corporate directors and officers personally responsible for the torts and crimes of employees within their organization?
lack of adequate supervision
Which of the following is a recognized part of creating a corporation?
legal activities necessary for incorporation
A ______ occurs when a group within a corporation buys all the outstanding corporate stock held by the public.
leveraged buyout
Which of the following is one of the two phases of the death of a corporation?
liquidation
Business self-dealing is a violation of a corporate director's or officer's duty of ______.
loyalty
Personal self-dealing is a violation of a corporate director's or officer's duty of ______.
loyalty
Typically, shareholders use a ______ vote to elect directors.
majority
Major groups of individuals within a corporation include all but which of the following?
members
Which of the following is not a characteristic of a corporation?
non-transferability of corporate shares
A(n) ______ operates for educational, charitable, social, religious, civic, or humanitarian purposes rather than to earn a profit
nonprofit corporation
A corporate director's rights of ______ ensure the opportunity for the director to get involved in and understand every aspect of the business.
participation and inspection
Because corporate directors are required to make informed business decisions, they have the rights of ______ and ______.
participation; inspection
Major groups of individuals within a corporation include all but which of the following?
partners
Which of the following is a major type of stock?
preferred
Shareholders can inspect corporate records and books only if they ask in advance and have a(n) ______ purpose.
proper
A(n) ______ corporation is a corporation whose stock is available to the public
publicly held
Which of the following terms is not used to refer to closely held corporations?
publicly held corporations
A minimum number of directors, or a ______, must be present at each meeting of the board of directors for decisions made at the meeting to be valid.
quorum
According to the ______ person doctrine, a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in a criminal activity.
responsible
Because corporations are legal entities distinct from their ______, corporations are ______ for corporate actions
shareholders; liable
A ______ number of states set maximum length for corporations in existence
small
According to the ______ rule, the directors and officers of a corporation are not liable for decisions that harm the firm if they were acting in good faith at the time of the decision.
business judgment
Which of the following is not a factor business owners consider when selecting a state for incorporation?
state laws governing trademarks and patents
Two groups of important players responsible for the organization of the corporation are promoters and ________.
subscribers
Generally, shareholders can freely transfer ______
their corporate shares
When ______ stock is issued to a shareholder, the shareholder is individually liable for paying the difference between the price he or she paid for the shares and the stated corporate value of the shares.
watered
Typically, shareholders meet once every ______.
year
______ self-dealing occurs when a corporate director or officer makes business decisions that benefit him or her personally.
Personal
______ Amendment to the U.S. Constitution protects corporations from unreasonable searches and seizures
The Fourth
Which of the following is an accurate statement about the fiduciary duties of individuals within a corporation?
The fiduciary duties of the individuals depend on whether they are directors, officers, or shareholders.
Which of the following is a way a shareholder can recognize a profit from a stock investment?
The shareholder can receive dividends from the corporation
If a corporation commits an ultra vires act, the Revised Model Business Corporation Act (RMBCA) provides all but which of the following remedies?
The state attorney general can declare eminent domain on the corporation
Which of the following is an accurate statement about the taxation of corporations?
Corporations are required to pay federal and state taxes on their income
______ voting ensures that minority shareholders have a voice in electing the board of directors of a corporation.
Cumulative
______ powers typically granted to corporations by state incorporation statutes include the power to make contracts, the power to borrow and lend money, the power to make charitable donations, and the power to establish rules for managing the corporation
Express
Because all individuals within a corporation depend on one another, the law requires directors, officers, and shareholders to perform certain duties within the business. These duties to the corporation are called ______ duties.
fiduciary
In most cases, stock is considered ______ property.
transferable
Corporations commit ______ acts most frequently when they create contracts outside the scope of their powers
ultra vires
Which of the following is not a characteristic of a corporation?
unlimited liability of shareholders
A stock ______ is a type of security issued by a corporation that gives the holder the right to purchase a certain amount of common stock at a stated price.
warrant
If preemptive rights exist within a corporation, all shareholders receive stock ______, which they can redeem for a certain number of shares at a specified price within a given time period.
warrants
A(n) ______ is a distribution of corporate profits or income to the shareholders
dividend
If corporate directors fail to declare and distribute ______, shareholders have the right to take legal action to force the directors to declare them.
dividends
If a corporation has fewer than ______ shareholders, the Revised Model Business Corporation Act allows companies to eliminate the board of directors altogether.
50
Which of the following is a way a shareholder can recognize a profit from a stock investment?
Assuming the market price of the stock increases, the shareholder can sell his or her stock at a higher price than the purchase price of the stock
The Revised Model Business Corporation Act recognizes that shareholders have the legal right to initiate dissolution if the corporation engages in all but which of the following behaviors?
Directors are not devoting their full professional commitment and careers to the corporation.
True or false: A de facto corporation is a corporation that has substantially met the requirements of the state incorporation statutes.
False
Although the directors and officers of a corporation are expected to make decisions that are in the best interests of the firm, they are not expected to make perfect decisions all the time. Many directors and officers make decisions that inadvertently harm the corporation. Although shareholders may want to hold their directors and officers liable for these decisions, the ______ rule does not allow them to do so.
business judgment
A subscription agreement is an agreement between ______ and ______ in which the latter parties agree to purchase stock in a new corporation.
promoters; subscribers
Because corporations are creatures of the ______, they have only those powers ______ grant(s) them
state; states
A(n) ________ makes offers to purchase stock in a corporation in the incorporation process.
subscriber
What is the effect of a court ruling of corporation by estoppel?
It prevents a business from denying corporate status.
Which of the following is not an appropriate term to include in the name of a corporation?
LP
A(n) ______ agreement is an agreement between promoters and subscribers in which the subscribers agree to purchase stock in the new corporation.
subscription
Which of the following is a requirement for allowing a corporate decision to be made that will personally benefit a director or officer?
The disinterested board members and/or disinterested shareholders must approve the decision.
Shareholders seeking to make a profit in for-profit corporations purchase the ______ issued by the corporations
stock
Which of the following is an inaccurate statement about the criminal and tort liabilities of corporate officers and directors?
Corporate directors cannot be held personally responsible for the torts and crimes of other employees within the organization.
To initiate a stock purchase in an attempted corporate takeover, the ______ must appeal directly to the shareholders of the corporation it hopes to buy, known as the target corporation.
aggressor
A ______ corporation has met the substantial elements of the incorporation process.
de jure
If corporate directors fail to sue when the corporation has been harmed by an individual, another corporation, or a director, individual shareholders can file a shareholder's ______ suit on behalf of the corporation.
derivative
In some cases, the articles of ______, a document a corporation files with the state explaining its organization, may include a restriction on the duration of the corporation
incorporation
In the context of the dissolution of a corporation, ______ dissolution results when government or private parties successfully obtain a court order dissolving the corporation.
involuntary
Private persons create ______ corporations for private purposes
private
Which of the following is an incorrect statement about the rights and duties of directors as managers of a corporation?
Directors exclusively determine the value of their company's stock in the secondary market.
A corporation that does business in states other than the state in which it is incorporated must obtain a certificate of ______ in each state in which it does business
authority
Courts may disregard an error in a corporation's articles of incorporation by recognizing the corporation as a ______ corporation.
de jure
If a majority shareholder owns such a significant portion of a corporation's stock that he or she essentially controls the firm, the majority shareholder has a ______ duty to act with care and loyalty in selling his or her shares because the sale of his or her shares will shift control of the company to another individual.
fiduciary
An alien corporation is a business incorporated in another ______
country
The ______ process divides the shareholders of a corporation into majority and minority shareholders, and each group has a certain number of votes to cast in the election.
cumulative-voting
A corporation that has not substantially met the requirements of the state incorporation statutes is known as a ______ corporation.
de facto
Courts may disregard an error in a corporation's articles of incorporation by recognizing the corporation as a ______ corporation.
de facto
In the context of corporate financing, debt securities are ______.
bonds
Because there are many times when individual directors and officers may personally benefit from decisions made by the board of directors, the directors and officers have a fiduciary duty to disclose ______ that arise in corporate transactions.
conflicts of interest
______ earnings are profits that a corporation keeps
Retained
An S Corporation can not have more than _____ shareholders
100
Generally, a quorum of shareholders exists when shareholders holding more than ______ percent of the outstanding shares are present.
50
______ of a corporation own it.
Shareholders
Which of the following is not a way corporations can be classified?
T corporations
Which of the following is a requirement a de facto corporation must meet?
The organization has already conducted business as a corporation.
Owners of ______ stock enjoy preferences with respect to assets and dividends.
preferred
______ directors have business contacts with the corporation, while ______ directors do not.
Affiliated; unaffiliated
______ self-dealing occurs when a corporate director or officer makes decisions that benefit other companies with which he or she has a relationship.
Business
Which of the following is an accurate statement about the personal malpractice liability of dentists, doctors, or other professionals who practice in a professional corporation?
Courts sometimes impose personal malpractice liability on those who practice in a professional corporation.
A(n) ______ corporation enjoys the tax status of a partnership
S
______ adopt a set of corporate bylaws at the first organizational meeting of a corporation.
Shareholders
______ attempt to hide behind the corporate veil of limited liability to protect themselves from personal liability.
Shareholders
Which of the following is an incorrect statement about the shareholders of a corporation?
Shareholders are directly responsible for the daily management of the corporation.
______ generally governs corporations
State law
______ dissolution of a corporation occurs when its directors or shareholders trigger the dissolution process.
Voluntary
Which of the following is an accurate statement about professional corporations in the United States?
All 50 states permit professional corporations to incorporate.
______ states have adopted at least part of the Revised Model Business Corporation Act (RMBCA)
More than 25
Which of the following is an incorrect statement about nonprofit corporations?
Nonprofit corporations issue common stock, but not preferred stock
______ begin the creation and organization of a corporation by arranging for necessary capital, financing, and licenses.
Promoters
Which of the following is an accurate statement about the power of corporate shareholders?
Shareholders have the power to elect and remove members of the board of directors.
Which of the following is an accurate statement regarding shareholder liability for the actions of a defective corporation?
Shareholders may be personally liable for a defective corporation's actions.
Which of the following is an accurate statement about the life of a corporation?
The life of a corporation does not end when the lives of its owners end
Which of the following is not a requirement for becoming an S corporation?
All of the shares of an S corporation must have identical voting rights.
Which of the following is an accurate statement about the inspection rights of shareholders?
All shareholders have the right to inspection under both statutory and common law.
Which of the following is an incorrect statement about a de jure corporation?
De jure means unlawful.
______ shares of a corporation are stock shares that have a fixed face value noted on the stock certificate.
Par-value
Which of the following is an incorrect statement about shareholder transferability of corporate shares?
Shareholders' shares are only transferable upon their death
______ incorporation statutes establish the requirements for corporate formation
State
What does it mean for a court to "pierce the corporate veil"?
The court imposes personal liability on corporate shareholders.
Which of the following is true of the requirements a de facto corporation must meet?
The incorporator made a good-faith attempt to comply with the incorporation statute.
Corporate officers are in a contractual relationship with a corporation, and if they are removed from their positions in violation of the terms of the contract, the corporation may be liable for ______.
breach of contract
In the context of a corporate takeover, in a self-tender offer, the target corporation offers to ______.
buy its shareholders' stock
Which of the following is an incorrect statement about stock certificates?
A shareholder's ownership in a corporation depends on his or her possession of a physical stock certificate.
Which of the following is an inaccurate statement about closely held corporations?
Closely held corporations account for the majority of total corporate assets and revenues in the United States
Which of the following is an accurate statement about the existence of a corporation?
In most states, unless the articles of incorporation provide otherwise, corporations continue to exist indefinitely
Outside ______ are not officers or employees of a corporation.
directors
A corporation by ______ is a defective corporation that has conducted business with a third party and therefore cannot deny its status as a corporation to escape liability.
estoppel
In the context of a corporate takeover, in a(n) ______ offer, the aggressor offers to exchange target shareholders' current stock for stock in the aggressor's corporation.
exchange tender
The duty of corporate directors and officers to disclose conflicts of interest is an example of a(n) ______ duty directors and officers owe to their corporation.
fiduciary
Which of the following is not an appropriate term to include in the name of a corporation?
LLP
______ rights give preference to shareholders to purchase shares of a new issue of stock.
Preemptive
Which of the following is an accurate statement about private corporations and government duties?
Private corporations do not have government duties
