1. If a party enters into a contract believing in good faith that the corporation exists, he cannot later take advantage of the
fact that it does not.
a.
True
b.
False
2. A de jure corporation is not legal and cannot be recognized as a corporation because the incorporation process was
defective.
a.
True
b.
False
False
Moderate
3. A business corporation can be incorporated under either state law or federal law.
a.
True
b.
False
False
Easy
4. Sara decided to incorporate her business under the name Gomo, Inc. Before Gomo was incorporated, Sara signed a
contract in the name of Gomo, Inc. to lease a store front. Sara did not tell the other party that Gomo was not yet formed.
Sara is personally liable on the lease.
a.
True
b.
False
True
Moderate
5. Zach decided to incorporate his business under the name of “Zamm.” In addition to “Zamm,” the Model Act requires
that Zach include one of the following words: “corporation,” “incorporated,” “limited,” or “company” or an abbreviation
thereof.
a.
True
b.
False
True
6. A corporation must have a registered agent within the state of incorporation only if the corporation maintains an office
True
Moderate
in that state.
a.
True
b.
False
7. Under corporate law, a corporation that officially states its purpose is “to engage in any lawful activity for which
corporations may be organized under the General Corporation Law of Idaho” is too broad. A corporation’s purpose must
be more narrowly defined.
a.
True
b.
False
False
Easy
8. Incorporators of Maizey Co. signed and delivered the corporate charter to the proper office, but due to inefficiencies in
the government office, the filing was delayed. During the period between the delivery of the charter and the filing, a
promoter of Maizey Co. entered a contract for the delivery of goods using the corporate name. The supplier, if it finds out
the filing had not been completed when the contract was entered, may hold the promoter personally liable on the contract.
a.
True
b.
False
False
Moderate
9. A corporation is not allowed to issue dividends to shareholders unless it is solvent.
a.
True
b.
False
True
Easy
10. Incorporators are required to sign the charter, deliver it to the proper state officials, and purchase a certain percentage
of the initial stock offering.
a.
True
b.
False
False
11. When a corporation accepts legal responsibility for a contract, it is called novation.
False
Easy
a.
True
b.
False
12. TriColor, Inc. is doing business in Minnesota, West Virginia, and Oklahoma. TriColor must register in all three of
these states.
a.
True
b.
False
True
Moderate
Bloom’s: Comprehension
13. When a company dissolves, preferred stockholders typically have the right to receive their share of corporate assets
before common shareholders.
a.
True
b.
False
True
Moderate
Bloom’s: Comprehension
14. Common stock is the last stock in line for any corporate payouts, including dividends and liquidation payments.
a.
True
b.
False
True
Moderate
Bloom’s: Comprehension
15. Terminating a corporation is a three-step process: dissolution, winding up, and termination.
a.
True
b.
False
False
Easy
Bloom’s: Knowledge
16. Laurie is incorporating her business. Laurie’s home state is Wisconsin. Business will be conducted in California,
Michigan, Pennsylvania, and Virginia. Laurie
a.
must incorporate the business in Wisconsin, the home state.
b.
must incorporate the business in Wisconsin, California, Michigan, Pennsylvania and Virginia.
c.
must incorporate in Delaware.
False
Easy
Bloom’s: Knowledge
d.
can incorporate the business in any state.
17. Carey decided to incorporate her business under the name yStar Inc. Before yStar was incorporated, Carey signed a
contract in the name of yStar, Inc. to have some office space remodeled. Which statement is correct?
a.
yStar is liable on the contract because the contract was signed in its name.
b.
yStar becomes liable on the contract as soon as it is incorporated.
c.
yStar is liable on the contract if the contractor knows that the corporation does not yet exist.
d.
yStar will be liable on the contract only if the corporation adopts the contract.
Bloom’s: Application
18. A corporate charter is filed with
a.
a state’s Secretary of State office.
b.
a state’s Treasury and/or Revenue Division.
c.
the United States Department of Commerce.
d.
the Securities and Exchange Commission.
Bloom’s: Knowledge
19. MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors. The stock
MegaCorp repurchased is called
a.
authorized and unissued.
b.
authorized and issued.
c.
treasury stock.
d.
repurchased stock.
Bloom’s: Knowledge
20. In Delaware, lawsuits involving corporations are tried in a special court called
a.
corporate court.
b.
CEO’s court.
c.
common court.
d.
chancery court.
Bloom’s: Comprehension
21. In incorporating E-prise, the promoter gave an incorrect ZIP Code for the registered agent. All of the other
requirements for incorporation were met. E-prise is a(n)
a.
de jure corporation.
b.
de facto corporation.
c.
corporation by estoppel.
d.
indemnified corporation.
Bloom’s: Knowledge
22. Preemptive rights are
a.
not legal in the majority of states.
b.
designed to prevent dilution of a shareholder’s ownership in the company.
c.
required to be offered to shareholders by the Model Act.
d.
designed to indemnify managers who act in good faith.
Bloom’s: Comprehension
23. Corporate stock can be divided into categories called ________, which can be further divided into ________.
a.
authorized shares, classes
b.
classes, series
c.
equity, assets
d.
debentures, classes
Bloom’s: Knowledge
24. Which of the following can challenge the validity of a de jure corporation?
a.
A majority vote of the shareholders
b.
The Secretary of State in the state in which the company was incorporated
c.
The state in which the company was incorporated as well as any third party
d.
No entity can challenge the validity of a de jure corportaion.
Bloom’s: Knowledge
25. Which of the following states that a corporation cannot undertake any transaction unless its charter permits it?
a.
The ultra vires doctrine
b.
The estoppel doctrine
Bloom’s: Knowledge
c.
The exculpatory clause
d.
The indemnification clause
26. The directors of MegaCorp learn that an outsider is planning on buying enough voting stock to get herself elected to
the board of directors. MegaCorp, which has cumulative voting, quickly puts together a vote of shareholders to eliminate
the company’s cumulative voting procedure. The shareholders vote to do away with cumulative voting. The outsider,
Dawn, who wanted to get herself elected to MegaCorp’s board, claims that the company has committed an illegal act. Is
she right?
a.
Yes. The United States Supreme Court has ruled that a publicly held corporation that purposefully sets about
to eliminate cumulative voting to prevent a person from getting herself elected to the board has acted illegally.
b.
Yes, but only if the company is incorporated in a state that has adopted the Model Act.
c.
No, provided the company did not change its cumulative voting provision solely for the purpose of preventing
a particular person from taking advantage of that right.
d.
No. Under the Model Act, regardless of MegaCorp’s motives, it had the right to act as it did.
Moderate
Bloom’s: Application
27. Mike is planning on incorporating his business in the state of Delaware. Which of the following regarding the name of
Mike’s business is TRUE?
a.
He will be able to use the words “Association” or “Institute” in his company name.
b.
He will not be able to use abbreviations (such as Inc. or Corp.) in his company name.
c.
His company name will not have to include one of the following words: Corporation, Incorporated, Company
or Limited.
d.
His company name can be the same as another corporation that already exists in Delaware.
Moderate
Bloom’s: Comprehension
28. Fashions, Inc. has 12 shareholders. There is no shareholder agreement concerning the board of directors. The company
is subject to the Model Act. How many directors is Fashions, Inc. required to have?
a.
None.
b.
One.
c.
Two.
d.
Five.
Moderate
Bloom’s: Comprehension
29. Fashions, Inc. has 12 shareholders. The company is subject to the Model Act. What officers is Fashions, Inc. required
to have?
Easy
Bloom’s: Knowledge
a.
A president, secretary, and treasurer
b.
A president and a secretary, and they can be the same person
c.
A president, at least one vice-president, a secretary, and a chief financial officer
d.
Whatever officers are described in the corporate bylaws
30. The officers of a corporation are
a.
chosen by the board of directors.
b.
appointed by the president of the company.
c.
elected by shareholders.
d.
appointed by the Secretary of State.
Easy
Bloom’s: Knowledge
31. Under most state statutes, a corporation may
a.
include in its charter a provision indemnifying directors unless they have engaged in intentional misconduct or
bad faith.
b.
include in its charter a provision indemnifying directors under any circumstances in the conduct of their duties
for the corporation.
c.
not include in its charter a provision indemnifying directors who engage in negligent conduct of their duties.
d.
not include in its charter any provisions regarding indemnification of directors.
Moderate
Bloom’s: Comprehension
32. What is an exculpatory clause?
a.
A requirement that the company pay the legal fees of directors who are sued for actions taken on behalf of the
company
b.
A provision that if a party enters into a contract believing in good faith that the corporation exists, he cannot
later take advantage of the fact that it does not
c.
A requirement that a corporation cannot undertake any transaction unless the charter permits it
d.
A provision that protects directors from personal liability to the corporation and its shareholders
Easy
Bloom’s: Knowledge
33. MegaCorp is incorporated under Delaware law. It is registered to do business in New York. Legally, in New York
MegaCorp is known as what kind of corporation?
a.
Domestic
b.
Foreign
Moderate
Bloom’s: Comprehension
c.
Secondary
d.
Cumulative
34. MegaCorp occasionally sells products in Michigan. It does not have an office in that state and does not advertise in
Michigan. The company’s marketing representatives are based in New York but do travel to Michigan once a year to
attend a trade show. Which statement is correct?
a.
MegaCorp must register in Michigan because its sales representatives attend a trade show in Michigan.
b.
MegaCorp is not required to register in Michigan because it does not have an ongoing presence in Michigan.
c.
MegaCorp must register in Michigan because its actions qualify as doing business.
d.
Whether MegaCorp has to register in Michigan depends on where its shareholders reside.
Moderate
Bloom’s: Comprehension
35. MegaCorp is incorporated in the state of Delaware and is registered only in Delaware. Jolene purchased a MegaCorp
product from a company’s sales representative following a presentation in Michigan. Jolene was seriously injured by the
product in Michigan. Under the Model Act, if Jolene sues in Michigan, can MegaCorp defend the suit there?
a.
MegaCorp may only defend against a lawsuit in Michigan if it first registers by paying back fees, taxes, and
penalties.
b.
Yes, MegaCorp can bring or defend against a lawsuit in any state regardless of whether the corporation is
registered to business in that state.
c.
Yes, MegaCorp can defend against a lawsuit in Michigan regardless of whether MegaCorp is registered to do
business in that state.
d.
No. Jolene must sue and MegaCorp may defend a lawsuit only in Delaware.
Moderate
Bloom’s: Comprehension
36. Hank owns 100 shares of cumulative preferred stock in Wayside Transport, Inc. Kelsey owns 50 non-cumulative
preferred shares, and Oleg owns 120 shares of common stock. Wayside does not pay dividends in 2007. In 2009
a.
Hank and Kelsey must receive their 2009 dividends before Oleg is paid any 2009 dividends.
b.
Oleg cannot receive any 2009 dividends until Hank is paid for the 2007 dividends.
c.
Kelsey cannot receive the dividends Wayside could not afford to pay in 2007. She will just lose them.
d.
All of the above.
Moderate
Bloom’s: Comprehension
37. What term identifies stock that has been authorized and sold?
a.
authorized and paid stock
Easy
Bloom’s: Knowledge
b.
outstanding stock
c.
treasury stock
d.
authorized and unissued stock
38. The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance
their expansion plans. The executives
a.
cannot sell that many shares unless they were authorized initially in the corporate charter.
b.
can sell as many shares as the market will bear.
c.
are limited by the number of shares authorized in the corporate charter, but this number can be increased by
amending the charter and paying a fee.
d.
can sell the shares only if the shares have a par value which is close to the current market price.
Bloom’s: Comprehension
39. Wizardry Corporation’s purpose clause in its charter states, “To operate a home-cleaning service business.” After a few
years of successful operation, Wizardry is offered the challenge of landscaping a neighboring business. If Wizardry
accepts the offer, it would be violating its charter under
a.
the de jure doctrine.
b.
the de facto doctrine.
c.
the ultra vires doctrine.
d.
an estoppel theory.
Bloom’s: Comprehension
40. What are some of the advantages for a business to incorporate in Delaware?
Bloom’s: Knowledge
41. Discuss how a corporation is terminated.
42. MegaCorp has five directors. The company has 1,050 shares of voting stock. Jessica would like to purchase enough
stock to elect herself to the board of directors. The company allows for cumulative voting. Explain the concept of
cumulative voting and also state how many shares of MegaCorp stock Jessica will need to own to assure herself a place on
the board of directors.
43. Identify four circumstances that might persuade a court to pierce the corporate veil.
44. Denise is a promoter for a proposed corporation, EVR-Young Corp. As promoter, she signed a three-year lease to rent
office space in an office park. She signed her name and indicated below her signature she is signing as “promoter for
EVR-Young Corp., a company yet to be incorporated.”
EVR-Young is never incorporated. The lessor believes that Denise is personally liable for any damages it will sustain as a
result of the three-year lease having to be breached. Is Denise personally liable? Explain.
45. Isabel, Wesley, Gina, and Lucas worked together intensively to form and become the only shareholders of a
corporation that is environmentally conscious. Is there anything they can do to avoid having shares of stock in their
company sold to someone who does not share their vision for the environment?