Chapter 19a A corporation is a legal entity created and recognized by federal law

Page Count
13 pages
Word Count
1692 words
Book Title
The Legal Environment of Business: Text and Cases: Ethical-- Regulatory-- Global-- and Corporate Issues 8th Edition
Frank B. Cross, Roger LeRoy Miller
1. A corporation is a legal entity created and recognized by federal law.
1. Corporate profits can be subject to double taxation.
1. A holding company is a company whose business activity consists of
holding shares in another company.
1. A corporation cannot be held liable for the criminal acts of its
1. A corporation formed in another country but doing business in the
United States is referred to in the United States as an alien
1. An agreement between shareholders to restrict the transfer of a closely
held corporation’s stock is illegal.
1. For liability purposes, some courts treat professional corporations
somewhat like a partnership.
1. The articles of incorporation serve as a primary source of authority for
a corporation.
1. Each incorporator must have an interest in the corporation.
1. To pierce the corporate veil means to ignore the corporate structure,
exposing the shareholders to personal liability.
1. Shareholders are the ultimate authority in every corporation.
1. Many qualifications are required for directors.
1. Directors have a right to participate in all board of directors’ meetings.
1. Officers hire the directors and other executive employees.
1. Directors are not obligated to refrain from self-dealing.
1. A director must make a full disclosure of any potential conflict of
interest that might arise in any corporate transaction.
1. Shareholders’ meetings need not occur at any certain interval.
1. Every shareholder is entitled to examine specified corporate records.
1. When a third party harms a corporation, only the shareholders can
bring a suit in the corporation’s name against that party.
1. Shareholders are personally liable for the debts of a corporation.
1. Ivy and Justin want to form and do business as Kayak Adventures
Corporation. A corporation can be owned by
a. natural persons only.
b. artificial persons only.
c. artificial or natural persons.
d. neither “artificial” nor “natural” persons.
1. Skyla and Terry want to form and do business as Unbound Games
Corporation. Most statutes governing the formation and use of
corporations are guided by
a. city or county corporate codes.
b. the Entrepreneur’s Corporate Handbook.
c. the federal Administrative Procedure Act.
d. the Revised Model Business Corporation Act.
1. Mountaintop Clearview Corporation authorizes Niles, its employee, to
oversee its timber operation. In the course of his employment, Niles
disposes of the operation’s waste illegally. Orson is a Mountaintop
shareholder. Liability for this crime most likely rests with Orson to
a. no extent.
b. the proportionate extent of the number of shares Orson owns.
c. the amount of Orson’s investment in the firm.
d. the full extent.
1. Boutique Corporation would like to change its corporate status to avoid
income taxes at the corporate level. To qualify, the shareholders must
not be
a. corporations.
b. estates.
c. individuals.
d. partnerships.
1. Convenience Mart, Inc., is a closely held corporation. Convenience Mart
a. eligible to make public offerings of securities.
b. exempt from filing a certificate of incorporation.
c. generally allowed to restrict the transfer of its stock.
d. taxed in the same manner as a partnership.
1. Sullivan and Taylor want to form a corporation to provide catering
services. The first step in the incorporation procedure is to
a. file the articles of incorporation.
b. hold the first organizational meeting.
c. secure a corporate name.
d. select a state in which to incorporate.
1. Hailey and Ike hold the first organizational meeting of Java Drive-In
Corporation. Probably the most important function of this meeting is
a. adopting Java’s bylaws.
b. agreeing on Java’s purpose.
c. drafting Java’s articles.
d. obtaining a charter for Java.
1. Start-Up Corporation substantially complies with all conditions precedent
to incorporation. Start-Up has
a. corporate existence by estoppel.
b. de facto existence.
c. de jure existence.
d. ultra vires existence.
1. Wild & Scenic River Tours, Inc., is a corporation. Wild & Scenic has
the implied power to
a. issue stocks and bonds.
b. execute contracts and negotiable instruments.
c. buy and sell (or lease) property.
d. perform all acts reasonably appropriate and necessary to accom-
plish its corporate purposes.
1. Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for
policy decisions necessary to the management of corporate affairs rests
with Delite’s
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.
1. Rhea is a director of Spex Corporation, which makes and sells
sunglasses and other eyewear. As a Spex director, Rhea sits on the
board, which
a. governs Spex.
b. is governed by the Spex incorporators.
c. is governed by the Spex officers.
d. is governed by the Spex shareholders.
1. Reba is a director of Quantum Mechanix Corporation. Reba’s rights, as
a director, do not include a right to
a. indemnification.
b. inspection.
c. participation.
d. self-dealing.
1. VeriVisual Company makes HD 3D film and video equipment. VeriVisual
is like most corporations in that its officers are hired by the firm’s
a. board of directors.
b. incorporators.
c. other officers.
d. shareholders.
1. Odell is a director of Price Rite, Inc. As a director, with respect to the
corporation, Odell is
a. a fiduciary.
b. a forum.
c. a proxy.
d. a quorum.
1. Gladys is a shareholder of Frozen Yogurt, Inc. As a shareholder,
Gladys must approve
a. amending the bylaws.
b. declaring a corporate dividend.
c. hiring a chief executive officer.
d. issuing additional shares.
1. Heidi and Ian are directors and shareholders of Globe Software, Inc.
Heidi’s written authorization to Ian to vote Heidi’s shares at a Globe
shareholders’ meeting is
a. a violation of the duty of loyalty.
b. a preemptive right.
c. a proxy.
d. a quorum.
1. Fiona owns one share of stock in GR8 Boards Corporation, as
evidenced by a stock certificate. Fiona loses the certificate. Her
ownership of the stock is
a. forfeited immediately.
b. forfeited within ten days of a third party’s claim to ownership.
c. forfeited within thirty days if she cannot find the certificate.
d. not affected.
1. Bev is a shareholder of All-Terrain Vehicle Company. As a shareholder,
Bev does not have
a. a right to compensation.
b. dividend rights.
c. inspection rights.
d. preemptive rights.
1. Clark is a shareholder of Bedrest Mattress Company. Clark will be
deemed to have a fiduciary duty to Bedrest and its minority share-
holders if he has
a. preferred stock.
b. a right of first refusal.
c. a sufficient number of shares to exercise de facto control.
d. watered stock.
1. Ruben is a shareholder of Speed Bikes Company (SBC). When the
directors fail to undertake an action to redress a wrong suffered by
SBC, Ruben files a suit on the firm’s behalf. Any damages recovered
by Ruben’s suit will normally go to
a. Ruben.
b. SBC.
c. SBC’s directors.
d. the state in which SBC is incorporated.
1. Officers and employees of Apples Corporation and Oranges Corporation
are convicted of conspiring to violate a federal law that is punishable
by a term of imprisonment and a fine. Can Apples and Oranges be
held liable for these crimes? If so, how can they be punished?
1. Tank is a director and the majority shareholder of Unique New
Investment Corporation (UNIC). Tank buys, for $1,500, an option to
purchase a tract of real estate for $50,000. Tank forms Vista Property,
Inc., to hold the option. As the majority shareholder, and thus
controlling director, of UNIC, Tank orders the firm to authorize the pur-
chase of the land from Vista Property for $500,000. Tank then has
Vista Property buy the land, sell it to UNIC, and loan the money to
UNIC for the purchase at a 10 percent interest rate. Wim, a minority
shareholder in UNIC, complains to UNIC’s board, which takes no
action. Wim files a suit against Tank on UNIC’s behalf. Will Wim
prevail? Explain.

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