Chapter 33. Nature, Formation, and Powers
1. A corporation has perpetual existence unless otherwise stated in its articles of incorporation.
a. True
b. False
2. A corporation owned by one person is treated under the law as that person.
a. True
b. False
3. Once a shareholder sells the stock of the corporation, since the ownership of the corporation changes, a new
corporation is formed.
a. True
b. False
4. A corporation can be formed in the State of New York by complying with New York statutes or with the Federal
Model Corporation Act.
a. True
b. False
5. A corporation is considered to be a person within the Fifth Amendment’s clause that protects a person against self-
incrimination.
a. True
b. False
6. Zeron Corporation is incorporated in the State of West Virginia. It now wants to open a retail outlet in Kentucky.
Zeron must obtain a certificate of authority allowing it to do business in the Commonwealth of Kentucky.
a. True
b. False
7. “Doing business” within a particular state will subject a foreign corporation to the litigation, regulation, and taxation of
that state.
a. True
b. False
8. Under the RMBCA, a pre-incorporation subscription may be revoked at any time without the consent of the
subscribers.
a. True
b. False
9. The Model Business Corporation Act has been adopted by all of the states in the United States to make state
incorporation statutes uniform throughout the United States.
a. True
b. False
10. Promoters have a fiduciary duty to the corporation.
a. True
b. False
11. Under the Statutory Close Corporation Supplement to the MBCA, a close corporation must have bylaws on file with
the Office of the Secretary of State or some other public office.
a. True
b. False
12. A suit may be brought by the state to challenge the existence of a de facto corporation in a quo warranto action.
a. True
b. False
13. The Tennessee Valley Authority is an example of a private corporation.
a. True
b. False
14. “Piercing the corporate veil” will result in personal liability of shareholders.
a. True
b. False
15. In the absence of contractual restrictions, shares in a corporation may be transferred by sale, gift, or pledge.
a. True
b. False
16. If an act is ultra vires, it is beyond the legal authority of the corporation.
a. True
b. False
17. Under the RMBCA, a newly formed corporation need not hold an organizational meeting.
a. True
b. False
18. Under the Model Act, the bylaws may contain any provision for managing the business and regulating the affairs of
the corporation as long as it is not contrary to or inconsistent with the law or articles of incorporation.
a. True
b. False
19. The Revised Model Business Corporation Act has been adopted at least in part by more than half of the states.
a. True
b. False
20. The modern approach follows the common law rule in holding that a corporation cannot commit a criminal act.
a. True
b. False
21. The doctrine of corporation by estoppel is distinct from that of corporation de facto; estoppel does not create a
corporation.
a. True
b. False
22. In corporations, the managers are necessarily owners.
a. True
b. False
23. The business corporation is a key institution not only in the American economy but also in the world power structure.
a. True
b. False
24. A corporation must keep its funds separate from those of its shareholders.
a. True
b. False
25. Under the RMBCA, the filing of the articles of incorporation by the Secretary of State is conclusive proof that the
incorporators have satisfied all conditions precedent to incorporation so that a shareholder or creditor would be
unable to challenge the existence of the corporation.
a. True
b. False
26. A corporation has no constitutional protection against unreasonable searches and seizures.
a. True
b. False
27. Michael, employed by Romer Corporation, fraudulently represents Romer’s product while attempting to make a sale.
Michael, but not Romer Corporation, may be found liable for fraud.
a. True
b. False
28. In many states, the services of the incorporators are perfunctory and short-lived.
a. True
b. False
29. Under the RMBCA, a corporation can act as an incorporator of another corporation.
a. True
b. False
30. A corporation whose principal place of business operation is Florida must be incorporated in Florida.
a. True
b. False
31. Although, in general, internal affairs of foreign corporations are not regulated by the state, at least a few states,
including New York, regulate such matters of those corporations that conduct a majority of their business in the state
but are incorporated elsewhere.
a. True
b. False
32. The Model Business Corporation Act provides for small, closely held corporations to be organized and creates
Subchapter S corporations with special benefits.
a. True
b. False
33. The Internal Revenue Service allows taxation of certain corporations to be similar to that of partnerships.
a. True
b. False
34. A nonprofit corporation may make a profit, but it may not be distributed to members, directors, or officers.
a. True
b. False
35. The “corporate veil” is most likely to be pierced in the case of closely held corporations and in parent-subsidiary
relationships.
a. True
b. False
36. A publicly held corporation is one that is both (a) owned by at least 50 shareholders and (b) required to register
under the Federal Securities and Exchange Act of 1934.
a. True
b. False
37. The Revised Act provides that only one person need act as the incorporator, though more may do so.
a. True
b. False
38. Shareholders do not have limited liability for corporate debts.
a. True
b. False
39. Which of the following is not a characteristics of a corporation?
a. It has perpetual existence.
b. It is a legal entity of its own.
c. It is able to be sued and to sue.
d. It is usually managed by its shareholders.
40. The City of Chicago would best be described as which of the following?
a. A corporation formed pursuant to the Model Business Corporation Act
b. A close corporation
c. A public corporation
d. A domestic corporation
41. If a foreign corporation wishes to avoid transacting business in Arkansas, it would be careful NOT to do which of
the following in Arkansas?
a. Own a piece of real estate on which it may build in the future
b. Own a building in which to warehouse stock
c. Maintain a bank account
d. None of these
42. Which of the following is not true of promoters of a corporation?
a. They arrange for capital and financing to start a corporation.
b. They assemble the necessary assets to start a corporation.
c. They attend to the actual legal formation of a corporation.
d. They continue to solicit capital whenever needed after incorporation.
43. A promoter is personally liable on contracts made by him in the name of the unformed corporation:
a. even if the corporation adopts the contract.
b. only until the corporation is formed.
c. if the promoter, the third party, and the corporation enter into a novation substituting the corporation for the
promoter.
d. only if the corporation is never formed.
44. The majority of courts view a stock subscription as merely an offer that cannot be accepted until:
a. the corporation enters a novation with the subscriber.
b. the promoter signs in the name of the corporation.
c. the corporation comes into existence.
d. there is a written agreement.
45. Which of the following may influence a promoter to choose to incorporate in a particular state?
a. Its restrictions on dividend payments
b. Its tax on corporate earnings
c. The rights granted to shareholders
d. All of these