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1. When a corporation earns profits, it must distribute them to
shareholders.
1. A corporation is referred to as a domestic corporation by its home
state.
1. A publicly held corporation is a private corporation.
1. An S corporation is treated the same as a regular corporation for tax
purposes
1. The first step in the incorporation process is to select a state in which
to operate.
1. The primary document needed to incorporate a business is the articles
of incorporation.
1. A new corporation’s name can be deceptively similar to, but not the
same, as the name of an existing corporation doing business within the
state.
1. Implied powers of a corporation are expressed in state statutes.
1. Express powers of a corporation are found in its articles of
incorporation.
1. When the corporate privilege is abused for personal benefit, the courts
will require the owners to assume personal liability.
1. Many states permit a corporate board to have fewer than three
directors.
1. In most states, one individual cannot be both an officer and a director.
1. The board of directors normally can remove a corporate officer at any
time with or without cause.
1. A director or officer is not liable to the corporation for a bad business
decision.
1. Directors are entitled to use confidential corporate information for their
personal advantage.
1. A director does not need to disclose any conflict of interest before
voting on a proposed transaction.
1. Shareholders must approve fundamental changes affecting the corpora-
tion before the changes can be implemented.
1. A shareholder’s right to inspect corporate books and records is
unlimited.
1. Before shareholders can bring a derivative suit, they must submit a
written demand to the corporation, asking the board of directors to take
action.
1. In certain instances of fraud, a court may “pierce the corporate veil” to
hold the shareholders individually liable.
1. Felicity and Gideon want to form and do business as Home Healthcare
Corporation. A corporation is
a. a natural being.
b. a tangible thing.
c. an artificial person.
d. a visible radiance.
1. Gelato Ice, Inc., is incorporated in the state of New Jersey and is
doing business in the state of New York. In New York, Gelato is
properly referred to as
a. a domestic corporation.
b. a foreign corporation.
c. an alien corporation.
d. a de jure corporation.
1. The shares of Capital Corporation are publicly traded in securities mar-
kets. Capital Corporation is
a. a private corporation.
b. a privately held corporation.
c. a public corporation.
d. a publicly held corporation.
1. Bertram, Claudia, and Dynah form Eat Local, Inc., a closely held corpo-
ration, and agree to restrict the transfer of its stock to anyone else. A
reasonable purpose for a stock transfer restriction in a closely held cor-
poration, like the agreement between Bertram, Claudia, and Dynah, is
a. a desire to limit the participation of outsiders in the firm.
b. a goal to restrain insiders from taking advantage of their position.
c. an attempt to restrain the free flow of commerce among
investors.
d. a wish to restrict the transfer of the shareholders’ physical assets.
1. Frida and Gregor want to market a new line of fishing gear. To avoid
income taxes at the corporate level, they should form
a. a C corporation.
b. a close corporation.
c. an S corporation.
d. a private corporation.
1. The abbreviation “P.A.” in the name “Painless Dental, P.A.” means that
this organization is
a. a private association.
b. a professional association.
c. a public association.
d. a publicly administered corporation.
1. Caffeine Café, Inc., files its articles of incorporation with the appropriate
government agency. Least likely to appear in the articles is the name
of
a. each of the corporation’s incorporators.
b. each of the corporation’s shareholders.
c. the corporation.
d. the corporation’s initial registered agent.
1. Like the bylaws of other corporations, the bylaws of Farmland
Equipment, Inc.,
a. establish the operating name of the corporation.
b. establish the value and classes of corporate stock.
c. were adopted at its first organizational meeting.
d. were submitted for approval to the public official in charge.
1. Rapid Pest Control itself out to others as being a corporation but
makes no attempt to incorporate. Ponce signs a contract with Rapid
Pest Control that is not performed. Ponce files a suit against the firm.
The court will likely hold that Rapid Pest Control is
a. a corporation by estoppel.
b. an alien corporation.
c. an S corporation.
d. ultra vires.
1. Niki owns O.K. Oil Corporation. Niki uses O.K.’s funds to pay her
personal expenses, creates Pure Fuel Corporation to engage in the same
business as O.K., transfers O.K.’s assets to Pure Fuel, and petitions O.K. into
bankruptcy. This most likely warrants
a. a bonus to Niki for financial maneuvers.
b. a discharge for O.K. in bankruptcy.
c. a pierce of O.K.’s corporate veil.
d. a review of Pure Fuel’s articles of incorporation.
1. Sophie and Tiny incorporate their beverage-container business as U-
Twist Products, Inc. The first board of directors may be appointed by
the firm’s
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.
1. Whit is a director of Vids Corporation. With respect to policymaking de-
cisions necessary to the management of corporate affairs, Whit and the
other Vids directors have responsibility for
a. all of the decisions.
b. only the decisions referred to them by the shareholders.
c. only the decisions referred to them by the officers.
d. none of the decisions.
1. Raul is chairman of the board of Swif-Vac Corporation. Pinky, a con-
sumer, is injured while using a Swif-Vac product. Pinky sues Swif-Vac,
and Raul individually. Swif-Vac may pay Raul’s legal fees under
a. the director’s right to certification.
b. the director’s right to compensation.
c. the director’s right to indemnification.
d. no circumstances.
1. Viola is a director of Water Pure Corporation. With respect to Water
Pure, Viola’s most important right is the right of
a. compensation.
b. indemnification.
c. participation.
d. certification.
1. Sylvia is an officer of Triad Hotel Company. As an officer, with respect
to the corporation, Sylvia is
a. a fiduciary.
b. a forum.
c. a proxy.
d. a quorum.
1. Rocco is a director of Spa Lids & Tubs, Inc. Under the standard of
due care owed by directors of a corporation, Rocco’s decisions must be
a. unwavering and unquestionable.
b. arguable and defensible.
c. informed and reasonable.
d. perfect and unassailable.
1. Genna is a director of Fab Stuff Corporation. Without informing Fab,
Genna starts up Evertrendy, Inc., to compete with Fab. Genna is liable
for breach of
a. no duty or rule
b. the business judgment rule.
c. the duty of loyalty.
d. the right of participation.
1. Naomi and Ogden are shareholders of MediCare Residences, Inc. As
shareholders, they must approve
a. conducting a merger.
b. deciding to pursue new business opportunities.
c. terminating a managerial employee.
d. negotiating a contract between management and labor.
1. Zero Sum Games Corporation has forty-three shareholders. The mini-
mum number that must be present at a meeting for a shareholders’
vote is
a. all of the shareholders.
b. a quorum.
c. a proxy.
d. three of the shareholders.
1. Orin is a shareholder of Pinkwater Corporation. In some states, Orin
might incur personal liability for Pinkwater obligations if he
a. accepts a dividend knowing that it was paid from retained earn-
ings.
b. buys stock for less than its fair-market value.
c. fails to fulfill his fiduciary duty to the majority shareholders.
d. sells his shares.
1. Starr Cardio, Inc., is a small business. Ted, Uma, and eleven other
members of the Starr family own all of its stock. Currently, Starr’s
income is taxed at the corporate level and, after being distributed to
the family members, at the shareholder level. Can Starr retain its
corporate status but otherwise avoid this double taxation? If so, how?
1. Mitch is a director and officer of Numero Uno, Inc. Mitch makes a mar-
keting decision that results in a dramatic decrease in profits for Numero
Uno and its shareholders. The shareholders accuse Mitch of breaching
his fiduciary duty to the corporation. What is Mitch’s best defense
against this accusation? Later, a resolution comes before the Numero
Uno board to compete with One-of-a-Kind Corporation. Mitch is a direc-
tor and shareholder of One-of-a-Kind. What is Mitch’s responsibility in
this situation?
