The Legal Environment of Business and Online Commerce, 7e (Cheeseman)
Chapter 16 Corporations and the Sarbanes-Oxley Act
1) One of the powers of a shareholder is his or her right to elect the board of directors.
2) Corporation codes regulate the formation, operation, and dissolution of corporations.
3) Corporations are not allowed to enter into contracts in their own name.
4) Shareholders of a closely held corporation play a minor role in its management.
5) Shareholders have unlimited liable for the debt and obligations of a corporation.
6) A corporation is a foreign corporation in states other than the one in which it is incorporated.
7) A corporation can be incorporated into several states.
8) The articles of incorporation must contain the name and address of every incorporator.
9) Amendments to the articles of incorporation must be filed with the secretary of state of the
state of incorporation.
10) The registered office in the articles of incorporation must be the same as the corporation’s
place of business.
11) Bylaws of a corporation must be filed with a government official.
12) The shareholders of the corporation have the absolute right to amend bylaws.
13) An S corporation must pay federal income tax at the corporate level.
14) Foreign corporations can elect to be taxed as an S corporation.
15) Any corporation with more than 100 shareholders is automatically considered a C
corporation for federal income tax purposes.
16) An S corporation can have nonresident aliens as shareholders.
17) A C corporation pays taxes at the corporate level and the shareholder level.
18) An S corporation cannot have more than 100 shareholders.
19) An S corporation must pay federal income tax at the corporate level.
20) Common stockholders receive dividends declared by the board of directors.
21) Preferred stockholders are given the right to vote for the board of directors of the
corporation.
22) In case the corporation’s assets are liquidated, the preferred stockholders are paid before
common stockholders.
23) Convertible preferred stock permits the preferred stockholders to convert their shares into
common stock.
24) Authorized shares that have been sold by the corporation are called issued shares.
25) Shares that are repurchased by a corporation are called unissued shares.
26) Treasury shares cannot be issued by the corporation.
27) Only outstanding shares have the right to vote.
28) In debt securities, the corporation is the debtor and the holder is the creditor.
29) Secured bondholders can foreclose on the collateral in the event of nonpayment of interest.
30) The debt security of notes doesn’t have a maturity period.
31) Shareholders of a corporation act as agents of the corporation.
32) The annual shareholders’ meeting is held to elect new shareholders.
33) Shareholders do not have to attend a shareholders’ meeting to vote.
34) A system in which each shareholder votes the number of shares he or she owns on candidates
for each of the positions open is known as cumulative voting.
35) In a voting trust, the legal titles to the shares given to the trustee are held in the name of the
shareholders.
36) The buy-and-sell agreement allows shareholders to sell their shares to people other than
fellow shareholders or the corporation.
37) Dividends are distribution of profits of the corporation to shareholders.
38) The shareholders are responsible for determining how much will be paid in dividends.
39) Once declared, a cash or property dividend cannot be revoked.
40) Proxy solicitation for shareholder votes cannot be made by electronic transmission.
41) The election of directors of the corporation can be held by electronic transmission.
42) The board of directors makes policy decisions concerning the operation of a corporation.
43) The president of a corporation is an example of a corporate officer.
44) The business judgment rule protects shareholders for honest mistakes of judgment.
45) The determination of whether a corporate director or officer has met his or her duty of care is
measured in hindsight.
46) The duty of loyalty requires directors and officers to subordinate their personal interests to
those of the corporation and its shareholders.
47) The secret profits obtained by a director or officer cannot be recovered by a corporation.
48) Usurping a corporate opportunity is a breach that can only be committed by a shareholder.
49) Self-dealing is when shareholders use their position to deprive the board of directors of
personal monetary gain.
50) The Sarbanes-Oxley Act requires CEO and CFO certification for annual and quarterly
reports.
51) A merger occurs when one corporation enters into a permanent business partnership with
another corporation.
52) A merged corporation ceases to exist after the merger.
53) In a share exchange, one corporation ends up owning all the shares of the other.
54) The corporation that is owned by the parent corporation in a share exchange is known as the
surviving corporation.
55) A corporation is dissolved upon the effective date of the articles of dissolution.
56) A corporation that uses subsidiary corporations to operate in more than one country cannot
be termed as a multinational corporation.
57) The ________ Act of 2002 is a federal statute enacted by Congress to improve corporate
governance.
A) Brown-Kaufmann
B) Lanham
C) Glass-Steagall
D) Sarbanes-Oxley
58) Which of the following entities elects members of the board of directors for a corporation?
A) the CEO
B) corporate officers
C) shareholders
D) employees
59) ________ 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
60) 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
61) ________ 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
62) 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.
63) 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
64) 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.
65) ________ 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
66) Which of the following must be included in the articles 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.
67) 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
68) 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
69) 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.
70) 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.
71) 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.
72) 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.
73) ________ 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
74) ________ 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
75) 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
76) Which of the following shares have the right to vote?
A) unissued shares
B) treasury shares
C) outstanding shares
D) liquidated shares
77) 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
78) 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.
79) Securities that establish a debtor-creditor relationship in which the corporation borrows
money from the investor to whom a debt security is issued are known as ________.
A) authorized shares
B) preferred stocks
C) common stocks
D) fixed income securities
80) 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