Business Law, 8e (Cheeseman)
Chapter 36 Corporate Formation and Financing
1) Corporation codes regulate the formation, operation, and dissolution of corporations.
2) Corporations are not allowed to enter into contracts in their own name.
3) The board of directors makes policy decisions concerning the operation of a corporation.
4) Shareholders of a closely held corporation play a minor role in its management.
5) Publicly held corporations are corporations run by the government.
6) Shareholders are liable for the debt and obligations of a corporation.
7) The earnings of a not-for-profit corporation are distributed among its members.
8) A foreign corporation can conduct intrastate commerce if it obtains a certificate of authority
from the state.
9) A corporation is a foreign corporation in states other than the one in which it is incorporated.
10) A corporation can be incorporated into several states.
11) Incorporators cannot become shareholders of the corporation they are associated with.
12) The articles of incorporation must contain the name and address of every incorporator.
13) Amendments to the articles of incorporation must be filed with the secretary of state of the
state of incorporation.
14) The RMBCA provides that corporate existence begins when the articles of incorporation are
filed.
15) The registered office in the articles of incorporation must be the same as the corporation’s
place of business.
16) According to the RMBCA, only corporations with 50 or fewer shareholders may elect
statutory close corporation status.
17) Bylaws of a corporation must be filed with a government official.
18) The shareholders of the corporation have the absolute right to amend bylaws.
19) An S corporation must pay federal income tax at the corporate level.
20) Foreign corporations can elect to be taxed as an S corporation.
21) Any corporation with more than 100 shareholders is automatically considered a C
corporation for federal income tax purposes.
22) An S corporation can have nonresident aliens as shareholders.
23) A C corporation pays taxes at the corporate level and the shareholder’s level.
24) An S corporation cannot have more than 100 shareholders.
25) Corporations formed under general incorporation laws cannot engage in businesses like
banking.
26) A corporation reimbursing its employees for expenses would fall under its implied powers.
27) Shareholders cannot move an injunction against an ultra vires act engaged by the
corporation.
28) Common stockholders receive dividends declared by the board of directors.
29) Preferred stockholders are given the right to vote for the board of directors of the
corporation.
30) In case the corporation’s assets are liquidated, the preferred stockholders are paid before
common stockholders.
31) Convertible preferred stock permits the preferred stockholders to convert their shares into
common stock.
32) Authorized shares that have been sold by the corporation are called issued shares.
33) Shares that are repurchased by a corporation are called unissued shares.
34) Treasury shares cannot be issued by the corporation.
35) Only outstanding shares have the right to vote.
36) In debt securities, the corporation is the debtor and the holder is the creditor.
37) Secured bondholders can foreclose on the collateral in the event of nonpayment of interest.
38) The debt security of notes doesn’t have a maturity period.
39) A corporation is dissolved upon the effective date of the articles of dissolution.
40) Owners of a corporation who elect the board of directors and vote on fundamental changes in
the corporation are known as ________.
A) spectators
B) shareholders
C) electors
D) associates
41) A(n) ________ is a fictitious legal entity that is created according to statutory requirements.
A) corporation
B) cartel
C) outfit
D) conference
42) A panel of persons who are elected by the shareholders that make policy decisions
concerning the operation of a corporation is known as ________.
A) legal aides
B) cartel
C) consortium
D) board of directors
43) Which of the following can dismiss the existence of a corporation?
A) voluntary termination by shareholder
B) death of a shareholder
C) bankruptcy of a shareholder
D) voluntary termination by the corporation’s creditors
44) Which of the following elects members of the board of directors for a corporation?
A) the CEO
B) corporate officers
C) shareholders
D) employees
45) ________ is a general rule of corporate law that provides that generally shareholders are
liable only to the extent of their capital contributions for the debts and obligations of their
corporation and are not personally liable for the debts and obligations of the corporation.
A) Limited-purpose clause
B) Limited liability of shareholders
C) Preferred shareholder rule
D) Nonparticipating shareholder rule
46) A corporation in the state in which it was formed is referred to as a(n) ________.
A) foreign corporation
B) domestic corporation
C) alien corporation
D) overseas corporation
47) A corporation that is incorporated in another country is known as a(n) ________.
A) alien corporation
B) public corporation
C) domestic corporation
D) municipal corporation
48) ________ are corporations that have many shareholders and whose securities are often
traded on national stock exchanges.
A) Closely held corporations
B) Non-profit corporations
C) Publicly held corporations
D) Shore-up corporations
49) Which of the following is a definition of a foreign corporation?
A) A corporation with incorporations in multiple states.
B) A corporation in the state in which it is incorporated.
C) A corporation in states other than the one in which it is incorporated.
D) A corporation in the United States which has been incorporated in another country.
50) A corporation is a(n) ________ corporation in the state in which it is incorporated.
A) offshore
B) domestic
C) alien
D) foreign
51) A corporation in the United States that has been incorporated in another country is referred to
as a(n) ________ corporation.
A) foreign
B) domestic
C) onshore
D) alien
52) Which of the following is true for a corporation’s incorporation in a state?
A) Domestic corporations can incorporate into only one state.
B) Domestic corporations can incorporate into all states that it conducts business in.
C) Alien corporations can only incorporate into one state.
D) Foreign corporations can incorporate into more than one state.
53) The person or persons, partnerships, or corporations that are responsible for incorporation of
a corporation is known as a(n) ________.
A) promoter
B) shareholder
C) incorporator
D) director
54) A(n) ________ is a person or persons who organize and start a corporation, negotiate and
enter into contracts in advance of its formation, find the initial investors to finance the
corporation, and so forth.
A) incorporator
B) promoter
C) articles drafter
D) negotiator
55) Which of the following is true for a corporation’s liability on the promoters’ contracts if the
corporation is never formed?
A) The corporation assumes liability of the promoters’ contract automatically upon its creation.
B) The promoter’s liabilities are transferred to the board of directors of the corporation upon its
formation.
C) The promoter, corporation, and the third-party enter into a novation whereby liability is solely
transferred to the corporation.
D) The promoters have joint personal liability on the contract unless the third party specifically
exempts them from such liability.
56) A(n) ________ is the basic governing documents of a corporation which must be filed with
the secretary of state of the state of incorporation.
A) debt security
B) debenture
C) certificate of authority
D) articles of incorporation
57) Which of the following must be included in an article of incorporation?
A) The minutes of the first organizational meeting of the board of directors.
B) The number of shares the corporation is authorized to issue.
C) The dissolution terms of the incorporation.
D) The corporate seal must be used in the articles of incorporation.
58) Which of the following is true for the amendment of articles of incorporation that does not
affect the rights attached to shares?
A) The shareholders need to propose a resolution of recommending such an amendment.
B) The shareholders need to provide vote of approval for the amendment.
C) The board of directors can approve the amendment without shareholder approval.
D) The amendment need not be filed with the secretary of state of the state of incorporation.
59) Which of the following acts is seen as conclusive proof for the existence of a corporation?
A) creation of the promoter’s contracts
B) filing of the articles of incorporation
C) acquiring the domain name for the corporation
D) selecting a state for incorporation
60) A(n) ________ is a clause that can be included in the articles of incorporation that permits
the corporation to engage in any activity permitted by law.
A) general-purpose clause
B) limited-purpose clause
C) dissolution clause
D) ultra vires clause
61) A(n) ________ is a clause that can be included in the articles of incorporation that stipulates
the activities that the corporation can engage in. The corporation can engage in no other purposes
or activities.
A) ultra vires clause
B) dissolution clause
C) general-purpose clause
D) limited-purpose clause
62) A person or corporation that is empowered to accept service of process on behalf of a
corporation is referred to as a(n) ________.
A) promoter
B) shareholder
C) registered agent
D) incorporator
63) Which of the following must necessarily be met for a corporation to elect as a statutory close
corporation?
A) The corporation must have 100 or more shareholders.
B) The corporation must have 50 or fewer shareholders.
C) The corporation must contain a board of directors.
D) The corporation must have a set of bylaws.
64) A detailed set of rules adopted by the board of directors after a corporation is incorporated
that contains provisions for managing the business and the affairs of the corporation are referred
to as ________.
A) ultra vires rules
B) articles of incorporation
C) bylaws
D) corporation codes
65) Which of the following is true of corporate bylaws?
A) They only contain rules on how the corporation can deal with the government.
B) They are only adopted by the shareholders of the corporation.
C) They are not binding on the directors, or shareholders of the corporation.
D) They do not have to be filed with any government official.
66) Which of the following is true of a C Corporation?
A) It doesn’t pay tax at the corporate level.
B) Shareholders of such a corporation don’t pay tax on their dividends.
C) It must have more than 100 shareholders.
D) Nonresident aliens cannot be shareholders.
67) Which of the following is true of an S corporation?
A) The corporation can have no more than 100 shareholders.
B) Only foreign corporations can be an S corporation.
C) They are taxed at the corporate level.
D) The corporation must be a member of an affiliated group of corporations.
68) Which of the following criteria must be met for a company to be treated as an S corporation?
A) Shareholders must be other corporations or partnerships.
B) Nonresident aliens cannot be shareholders.
C) The corporation must have more than 100 shareholders.
D) The corporation must have more than one class of stock.
69) ________ are powers beyond express powers that allow a corporation to accomplish its
corporate purpose.
A) Cumulative powers
B) Corporation codes
C) Ultra vires acts
D) Implied powers
70) Which of the following would be considered an express power of a corporation?
A) opening a bank account
B) issuing notes and bonds
C) purchasing advertisement
D) purchasing insurance
71) An act by a corporation that is beyond its express or implied powers is called a(n) ________.
A) Subchapter Revision S Act
B) novation
C) cooperate code act
D) ultra vires act
72) ________ is a type of equity security that represents the residual value of a corporation.
A) Common stock
B) Preferred stock
C) Cumulative preferred stock
D) Participating preferred stock
73) ________ is a preferred stockholder right to be paid a stated dollar amount if a corporation is
dissolved and its assets redistributed.
A) Noncumulative preference
B) Cumulative dividend preference
C) Dividend preference
D) Liquidation preference
74) Stock for which any missed dividend payments must be paid in the future to the preferred
shareholders before the common shareholders can receive any dividends are known as
________.
A) cumulative preferred stocks
B) noncumulative preferred stocks
C) common stocks
D) participating preferred stock
75) Stock that permits a corporation to buy back the preferred stock at some future date is known
as ________.
A) cumulative preferred stock
B) participating preferred stock
C) convertible preferred stock
D) redeemable preferred stock
76) Which of the following shares have the right to vote?
A) unissued shares
B) treasury shares
C) outstanding shares
D) liquidated shares
77) The WaterGlove Corporation issues ________ preferred stock that requires the payment of a
quarterly dividend of $5.00 per share. The WaterGlove Corporation falls behind with four
quarterly payments, i.e., $20.00 per share of preferred stock. The next quarter, the corporation
makes a profit of $25.00 per share. The corporation must pay the $20.00 per share of arrearages
to the preferred shareholders plus this quarter’s payment of $5.00 per share.
A) convertible
B) redeemable
C) cumulative
D) participating
78) Issued shares that have been repurchased by the corporation are referred to as ________.
A) outstanding shares
B) liquidated shares
C) unissued shares
D) treasury shares
79) Which of the following is true of treasury shares?
A) They cannot be issued by the corporation.
B) They cannot be voted by the corporation.
C) They are owned by shareholders.
D) They are paid dividends for.
80) Authorized shares that have not been sold by the corporation are known as ________.
A) issued shares
B) unissued shares
C) outstanding shares
D) liquidated shares
81) Securities that establish a debtor-creditor relationship in which the corporation borrows
money from the investor to whom a debt security is issued is known as ________.
A) authorized shares
B) preferred stocks
C) common stocks
D) fixed income securities
82) A ________ is a long-term unsecured debt instrument that is based on a corporation’s general
credit standing.
A) debenture
B) bond
C) note
D) treasury share
83) A long-term debt security that is secured by some form of collateral is referred to as a
________.
A) treasury share
B) bond
C) note
D) debenture
84) A(n) ________ is a debt security with a maturity of five years or less.
A) bond
B) debenture
C) indenture
D) note
85) A contract between a corporation and a holder that contains the terms of a debt security is
known as a(n) ________.
A) bond
B) indenture
C) debenture
D) liquidation
86) Which of the following has a fixed maturity date?
A) bonds
B) common stock
C) cumulative preferred stock
D) participating preferred stock
87) Dissolution of a corporation that has begun business or issued shares upon recommendation
of the board of directors and a majority vote of the shares entitled to vote is known as ________.
A) liquidation
B) judicial dissolution
C) administrative dissolution
D) voluntary dissolution
88) Involuntary dissolution of a corporation that is ordered by the secretary of state if a
corporation has failed to comply with certain procedures required by law is known as ________.
A) judicial dissolution
B) administrative dissolution
C) cumulative dissolution
D) liquidation
89) Judicial dissolution of a corporation can be instituted by the attorney general of the state of
incorporation if the corporation ________.
A) procured its articles of incorporation through fraud
B) did not pay its franchise fee
C) failed to file an annual report
D) failed for 60 days to maintain a registered agent in the state
90) According to priority, which of the following claimants is the last to be paid after assets have
been liquidated of a corporation?
A) creditors
B) common stockholders
C) preferred shareholders
D) bond holders
91) Give an account of publicly held and closely held corporation.
92) Give an account of how articles of incorporations are amended.
93) What are the express powers of a corporation?
94) What is the conversion right for preferred stocks?
95) What is an indenture agreement?