STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ27—3ȱPRACTICEȱACTIVITYȱ
Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ
spaceȱisȱneededȱforȱanswers.ȱ
ȱ
1.ȱTheȱFordȱMotorȱCompanyȱhadȱgeneratedȱextremelyȱlargeȱearningsȱfromȱtheȱsaleȱ
ofȱitsȱModelȱT’s.ȱHenryȱFord,ȱtheȱcompany’sȱlargestȱshareholderȱandȱpresident,ȱ
persuadedȱtheȱBoardȱofȱDirectorsȱtoȱissueȱonlyȱaȱsmallȱportionȱofȱtheseȱearningsȱ
beȱaltruisticȱwithȱtheȱmoneyȱearnedȱbyȱtheȱcompany.ȱCanȱtheȱlargestȱshareȬ
holderȱinsistȱthatȱtheȱshareholdersȱmoneyȱbeȱusedȱinȱthisȱway?ȱCouldȱtheȱDodgeȱ
brothersȱinsistȱthatȱFordȱdeclareȱdividendsȱsoȱthatȱtheyȱcouldȱreceiveȱtheirȱprofitȱ
fromȱtheȱcompany?ȱ[Dodgeȱv.ȱFordȱMotorȱCo.,ȱ170ȱN.W.ȱ668ȱ(Mich.ȱ1919)ȱ]ȱ
2.ȱInȱ1859,ȱtheȱIllinoisȱlegislatureȱadoptedȱtheȱRosehillȱCharter,ȱwhichȱcreatedȱtheȱ
originalȱRosehillȱCemeteryȱCompanyȱasȱaȱnotȬforȬprofitȱcorporation.ȱCorporaȬ
tionsȱcreatedȱbyȱtheȱlegislatureȱareȱcalledȱ“specialȱacts”ȱcorporations.ȱTheȱlegislaȬ
tionȱgaveȱRosehillȱtheȱrightȱtoȱacquireȱrealȱestateȱforȱtheȱpurposeȱofȱmaintainingȱ
Companyȱitȱbecameȱsubjectȱtoȱtheȱsameȱrestrictionsȱthatȱhadȱbeenȱplacedȱinȱtheȱ
originalȱRosehillȱCharterȱinȱ1859.ȱTheseȱrestrictionsȱincludedȱoperationȱasȱaȱnotȬ
forȬprofitȱcorporationȱwhichȱwasȱnotȱauthorizedȱtoȱsellȱanything.ȱIsȱGastȱcorrect?ȱ
6-32 Chapter 27 The Law of Corporations
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ27—3ȱRETEACHȱ
Directions:ȱWriteȱtheseȱtwoȱcategoriesȱonȱtheȱchalkboard:ȱPowersȱofȱCorporationsȱandȱ
RightsȱofȱShareholders.ȱMakeȱaȱcopyȱofȱtheȱfollowingȱphrasesȱorȱstatements.ȱCutȱtheȱ
paperȱintoȱpiecesȱwithȱoneȱstatementȱonȱeach.ȱGiveȱoneȱpaperȱtoȱeachȱstudent.ȱAskȱ
eachȱstudentȱtoȱclassifyȱtheȱstatementȱorȱphraseȱonȱherȱorȱhisȱpaperȱasȱaȱcorporateȱ
power,ȱaȱshareholderȱright,ȱorȱboth.ȱ
ȱ
2.ȱSelectȱaȱnameȱforȱtheȱcorporationȱ
4.ȱBorrowȱmoneyȱforȱtheȱcorporationȱ
6.ȱReceiveȱstockȱcertificatesȱ
7.ȱCreateȱbylawsȱ
8.ȱIssueȱstocksȱandȱbondsȱ
9.ȱPurchaseȱadditionalȱsharesȱtoȱmaintainȱaȱcertainȱpercentageȱofȱinterestȱ
10.ȱShareȱinȱtheȱearningsȱofȱtheȱcorporationȱ
11.ȱInspectȱcorporateȱbooksȱofȱaccountȱ
12.ȱBuyȱbackȱstockȱfromȱshareholdersȱ
13.ȱGiveȱawayȱsharesȱofȱstockȱ
14.ȱAttendȱshareholderȱmeetingsȱ
16.ȱHoldȱstockȱinȱotherȱcorporationsȱ
17.ȱMortgageȱcorporateȱpropertyȱ
18.ȱShareȱinȱtheȱdistributionȱofȱcapitalȱ
Chapter 27 The Law of Corporations
6-33
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ27—3ȱENRICHMENTȱ
Thisȱlessonȱdiscussesȱcorporateȱpowersȱandȱshareholderȱrights.ȱTheȱbusinessȱofȱaȱ
corporationȱisȱdetailedȱeachȱyearȱinȱanȱannualȱreportȱavailableȱtoȱshareholdersȱandȱ
theȱgeneralȱpublic.ȱObtainȱaȱcopyȱofȱaȱlargeȱcorporation’sȱrecentȱannualȱreportȱfromȱ
aȱshareholderȱyouȱknow,ȱfromȱtheȱlibrary,ȱorȱbyȱcontactingȱtheȱcompany.ȱReviewȱ
theȱannualȱreportȱandȱanswerȱtheȱfollowingȱquestions.ȱ
ȱ
1.ȱWhatȱisȱtheȱcorporation’sȱmission?ȱ
ȱ
ȱ
ȱ
ȱ
2.ȱWhatȱareȱsomeȱofȱtheȱspecificȱbylawsȱofȱtheȱcorporation?ȱ
ȱ
ȱ
ȱ
ȱ
3.ȱWhereȱandȱwhenȱisȱtheȱregularȱshareholderȱmeetingȱheld?ȱ
ȱ
ȱ
ȱ
ȱ
4.ȱWasȱtheȱcorporationȱprofitable?ȱDoesȱtheȱannualȱreportȱgiveȱreasonsȱforȱtheirȱ
success?ȱIfȱso,ȱlistȱsomeȱofȱthem.ȱȱ
ȱ
ȱ
ȱ
ȱ
5.ȱIfȱtheȱcorporationȱwasȱnotȱprofitable,ȱlistȱsomeȱofȱtheȱreasonsȱtheȱcompanyȱgivesȱ
forȱtheirȱshortcomings.ȱ
ȱ
ȱ
ȱ
ȱ
6.ȱWereȱdividendsȱdistributedȱtoȱshareholders?ȱIfȱso,ȱwereȱtheȱdividendsȱpaidȱinȱ
moneyȱorȱinȱstock?ȱ
6-34 Chapter 27 The Law of Corporations
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱ
ȱ
TESTȱ
CHAPTERȱ27
SECTION I—IDENTIFY LEGAL TERMS
Directions:ȱPlaceȱaȱTȱforȱTrueȱorȱanȱFȱforȱFalseȱinȱtheȱAnswersȱcolumnȱtoȱshowȱ
hetherȱeachȱofȱtheȱfollowingȱstatementsȱisȱtrueȱorȱfalse.ȱw
Answers
2.ȱTheȱbiggestȱdisadvantageȱofȱaȱcorporationȱisȱtransferringȱownershipȱ
interestȱinȱtheȱfirm.ȱ
3.ȱCorporationsȱareȱclassifiedȱaccordingȱtoȱtheirȱplaceȱofȱincorporationȱ
andȱpurpose.ȱ
4.ȱUsuallyȱanȱapplicationȱforȱincorporationȱmustȱbeȱfiledȱwithȱtheȱSecȬ
retaryȱofȱStateȱofȱtheȱstateȱinȱwhichȱincorporationȱisȱsought.ȱ
5.ȱTheȱpromisedȱdividendȱofȱcumulativeȱpreferredȱstockȱremainsȱdueȱ
andȱpayableȱinȱtheȱfuture,ȱifȱitȱisȱnotȱpaidȱinȱaȱgivenȱyear.ȱ
6.ȱAȱshareholderȱthatȱownsȱmostȱorȱallȱtheȱstockȱcanȱactȱforȱtheȱcorpoȬ
rationȱandȱbindȱitȱbyȱcontract.ȱ
7
.ȱBankruptcyȱofȱaȱcorporationȱdoesȱnotȱinȱitselfȱcauseȱdissolution.ȱ
8.ȱAȱcorporationȱmayȱbeȱgrantedȱtheȱpowerȱofȱperpetualȱsuccessionȱbyȱ
theȱstateȱofȱitsȱincorporation.ȱ
9.ȱAȱcorporationȱmayȱdoȱanyȱlegalȱactȱthatȱisȱnecessaryȱorȱconvenientȱ
forȱtheȱexecutionȱofȱitsȱexpressȱpowers.ȱ
10.ȱCorporateȱofficersȱmayȱholdȱsharesȱinȱtheȱcompanyȱtheyȱworkȱfor.ȱ
ȱ
ȱ2.ȱȱ ȱ
ȱ
ȱ3.ȱȱ ȱ
ȱ
ȱ4.ȱȱ ȱ
ȱ
ȱ5.ȱȱ ȱ
ȱ
ȱ6.ȱȱ ȱ
ȱ
ȱ7.ȱȱ ȱ
ȱ8.ȱȱ ȱ
ȱ
ȱ9.ȱȱ ȱ
ȱ
ȱ10.ȱȱ ȱ
SECTION II—THINK CRITICALLY ABOUT LEGAL CONCEPTS
Directions:ȱInȱtheȱAnswersȱcolumnȱatȱtheȱrightȱofȱeachȱstatement,ȱwriteȱtheȱletterȱthatȱ
representsȱtheȱword,ȱorȱgroupȱofȱwords,ȱthatȱcorrectlyȱcompletesȱtheȱstatement.ȱ
ȱȱ Answers
11.ȱAȱcorporationȱdoingȱbusinessȱinȱoneȱstateȱbutȱcharteredȱinȱanȬ
otherȱstateȱisȱcalledȱ(a)ȱanȱalienȱcorporation,ȱ(b)ȱaȱdomesticȱcorȬ
11._______ȱ
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ȱȱ Answers
12.ȱCorporationsȱestablishedȱforȱaȱgovernmentalȱpurposeȱareȱcalledȱ
(a)ȱprivateȱcorporations,ȱ(b)ȱpublicȱcorporations,ȱ(c)ȱpublicȱserȬ
viceȱcorporations,ȱ(d)ȱprofitȬmakingȱcorporationsȱ
12._______ȱ
13.ȱElectric,ȱgas,ȱandȱwaterȱcompaniesȱareȱexamplesȱofȱ(a)ȱprivateȱ
13._______ȱ
14.ȱAnȱapplicationȱforȱaȱcorporateȱcharterȱisȱtypicallyȱcalledȱtheȱ(a)ȱ
articlesȱofȱincorporation,ȱ(b)ȱbusinessȱjudgmentȱrule,ȱ(c)ȱbylaws,ȱ
(d)ȱsharesȱofȱstockȱ
14._______ȱ
15.ȱTheȱbasicȱtypeȱofȱstockȱcarryingȱtheȱrightȱtoȱoneȱvoteȱperȱshareȱ
ownedȱisȱ(a)ȱcommonȱstock,ȱ(b)ȱpreferredȱstock,ȱ(c)ȱstockȱdiviȬ
dend,ȱ(d)ȱimpliedȱstockȱ
15._______ȱ
16.ȱTheȱdirectorsȱofȱaȱcorporationȱ(a)ȱactȱtogetherȱtoȱmakeȱcontractsȱ
forȱtheȱcorporation,ȱ(b)ȱappointȱandȱsetȱtheȱsalariesȱofȱtheȱtopȱofȬ
ficersȱofȱtheȱcompany,ȱ(c)ȱsetȱmajorȱgoalsȱandȱdetermineȱbasicȱ
policies,ȱ(d)ȱallȱofȱtheseȱ
16._______ȱ
17.ȱWhenȱtwoȱcorporationsȱceaseȱtoȱexistȱandȱaȱnewȱcorporationȱisȱ
formed,ȱitȱisȱcalledȱ(a)ȱaȱconsolidation,ȱ(b)ȱaȱmerger,ȱ(c)ȱeitherȱaȱ
orȱb,ȱ(d)ȱdualȱcorporationȱ
17._______ȱ
18.ȱȱ Aȱcorporationȱhasȱtheȱpowerȱ(a)ȱofȱperpetualȱsuccession,ȱ(b)ȱtoȱ
makeȱitȱownȱbylaws,ȱ(c)ȱtoȱuseȱanyȱlegalȱmeansȱtoȱconductȱauȬ
thorizedȱbusiness,ȱ(d)ȱallȱofȱtheseȱ
18._______ȱ
19.ȱȱ Shareholdersȱdoȱnotȱhaveȱtheȱrightȱtoȱ(a)ȱinspectȱcorporateȱbooksȱ
ofȱaccount,ȱ(b)ȱpossessȱanyȱcorporateȱproperty,ȱ(c)ȱtransferȱ
shares,ȱ(d)ȱuseȱtheirȱstockȱasȱcollateralȱforȱaȱloanȱ
19._______ȱ
20.ȱȱ Theȱrightȱtoȱincreaseȱtheȱcapitalȱstockȱofȱtheȱcorporationȱ(a)ȱbeȬ
20._______ȱ
6-36 Chapter 27 The Law of Corporations
SECTION III—APPLY LEGAL PRACTICES
21.ȱAceȱPetȱFoods,ȱInc.,ȱdealsȱwithȱnutritionȱforȱallȱtypesȱofȱpetȱstoreȱpets.ȱStewartȱisȱ
theȱpresident,ȱandȱhisȱwifeȱSharonȱisȱtheȱassistant.ȱTheyȱhaveȱtwoȱsonsȱwhoȱ
wouldȱlikeȱtoȱstartȱaȱcorporationȱdealingȱwithȱnutritionȱforȱlargeȱfarmȱanimals.ȱ
Theyȱwantȱtheirȱparentsȱtoȱbeȱdirectorsȱinȱthisȱnewȱventure.ȱCanȱStewartȱandȱ
Sharonȱholdȱofficesȱinȱtwoȱseparateȱcorporations?ȱSinceȱfarmȱanimalsȱcanȱalsoȱ
includeȱdogsȱandȱcats,ȱcouldȱthisȱbeȱconstruedȱasȱaȱcompetitiveȱventure?ȱExȬ
plain.ȱ
Chapter 27 The Law of Corporations
6-37
ANSWERS
Lessonȱ27—1ȱ
Quiz
4.ȱincorporatorsȱ
5.ȱnonprofitȱ
rateȱveilȱ
ȱ
Practice Activity
1.ȱTheȱcourtȱdisagreedȱwithȱIBM.ȱItȱruledȱthatȱifȱaȱbusinessȱhasȱaȱdefectiveȱincorpoȬ
ration,ȱbutȱitȱactuallyȱactsȱasȱaȱcorporationȱwithoutȱknowledgeȱofȱtheȱdefect,ȱthenȱ
2.ȱYes,ȱtheȱVillageȱcanȱbeȱtreatedȱasȱaȱnonprofit,ȱevenȱthoughȱitȱmightȱactuallyȱ
Reteach
ȱ1.ȱprivateȱ
3.ȱpublicȱ
6.ȱalienȱ
8.ȱincorporatorsȱ
CȱOȱIȱNȱCȱOȱRȱPȱOȱRȱAȱTȱOȱ
MȱEȱTȱFȱOȱRȱEȱIȱGȱNȱIȱMȱEȱ
EȱRȱSȱOȱNȱAȱLȱPȱRȱIȱVȱAȱTȱ
FȱIȱTȱOȱNȱSȱIȱBȱLȱEȱFȱOȱRȱ
Chapter 27 The Law of Corporations
6-38
ȱ
Enrichment Activity
ȱ
Lessonȱ27—2ȱ
Quiz
ȱ
ȱ
13. Directorsȱmayȱnotȱhaveȱothersȱserveȱasȱsubstitutesȱatȱboardȱmeetings.ȱSaraȱcannotȱ
14. Theȱboardȱisȱprotectedȱbyȱtheȱbusinessȱjudgmentȱrule.ȱIfȱaȱboardȱmakesȱaȱdecisionȱ
Practice Activity
1.ȱYes,ȱtheȱdirectorsȱareȱcorrect.ȱTheȱdirectorsȱarguedȱthatȱaȱdisgruntledȱshareȬ
holderȱorȱotherȱpartyȱcouldȱalwaysȱallegeȱoneȱorȱmoreȱactsȱofȱnegligenceȱbyȱ
bankȱdirectorsȱinȱapprovingȱaȱbadȱloan.ȱTheȱbusinessȱjudgmentȱruleȱprotectsȱ
level.ȱ
2.ȱDennisȱwillȱhaveȱtoȱpay,ȱbutȱCarolineȱwillȱnot.ȱLiabilityȱisȱimposedȱonȱDennisȱ
becauseȱheȱpersonallyȱguaranteedȱtheȱcosts.ȱAsȱforȱCaroline,ȱtheȱcourtȱfoundȱ
Chapter 27 The Law of Corporations 6-39
Reteach
Theȱcorrectȱwordȱmatchesȱareȱasȱfollows:ȱ1ȱandȱ10ȱ
6ȱandȱ18ȱ
Enrichment Activity
Answersȱwillȱvary.ȱ
Lessonȱ27—3ȱ
Quiz
ȱ
11.ȱTheȱboardȱofȱdirectorsȱcanȱrecommendȱanȱincreaseȱinȱcapitalȱstock,ȱbutȱshareȬ
Practice Activity
1.ȱAlthoughȱtheȱtrialȱcourtȱheldȱthatȱFordȱMotorȱCompanyȱcouldȱwithholdȱpayoutȱ
ofȱearningsȱasȱdividendsȱtoȱstockholdersȱforȱtheȱcompany’sȱfutureȱuseȱasȱitȱsawȱ
2.ȱNo.ȱȱTheȱIllinoisȱappellateȱcourtȱupheldȱtheȱsummaryȱjudgmentȱofȱtheȱtrialȱcourtȱ
inȱfavorȱofȱRosehillȱMemorial,ȱInc.ȱInȱdoingȱsoȱitȱstatedȱthatȱtheȱoriginalȱrestricȬ
6-40 Chapter 27 The Law of Corporations
Reteach
AnswersȱareȱindicatedȱwithȱanȱSȱforȱtheȱrightsȱofȱshareholdersȱandȱaȱCȱforȱtheȱpowȬ
ersȱofȱtheȱcorporationȱinȱwhichȱtheȱshareholdersȱholdȱstock.ȱȱ
Enrichment Activity
ANSWERS TO TEST QUESTIONS
SECTIONȱIȱ
ȱ
SECTIONȱIIȱ
ȱ
SECTIONȱIIIȱ
21.ȱItȱwouldȱnotȱbeȱadvisableȱforȱStewartȱandȱSharonȱtoȱholdȱofficesȱinȱtwoȱseparateȱ
Chapter 27 The Law of Corporations 6-41