Chapter 34
Corporations - Formation and Financing
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1. A corporation is a legal entity:
a. created by the local government.
b. created and recognized by an entrepreneurial agency.
c. managed internally by the federal government.
d. created and recognized by state law in most cases.

2. Today, most state statutes governing corporate formation are guided by:
a. corporate personnel.
b. the Revised Model Business Corporation Act.
c. the 1890 Sherman Antitrust Act.
d. the Restatement (Fourth) of Corporations.

3. The responsibility for the overall management of a corporation belongs to:
a. the chief financial officer.
b. the employees.
c. the board of directors.
d. the shareholders.

4. Corporations are taxed by:
a. state and federal governments.
b. the state government where they are incorporated only.
c. the state government where they do business only.
d. the federal government only.

5. A culpability score, under the Corporate Sentencing Guidelines, relates to:
a. resolutions of the board of directors.
b. wrongdoing by senior management, past corporate violations, and cooperation with federal investigators.
c. the doctrine of express and implied powers.
d. the illegal formation of S corporations.

6. With respect to constitutional rights, corporations:
a. enjoy many of the rights held by natural (living) persons.
b. enjoy more rights than those held by natural persons.
c. do not exist. Only individuals working for corporations have constitutional rights.
d. are identical to those held by natural persons.

7. In corporate law, when a corporation acts beyond the scope of its authority, it is said to:
a. engage in respondeat superior.
b. pierce the corporate veil.
c. hide the corporate veil.
d. engage in ultra vires transactions.

8. Which of the following IS NOT a remedy for an ultra vires transaction?
a. The corporation can sue the responsible corporate officers.
b. The responsible officers can sue the corporation for damages.
c. The shareholders can sue on behalf of the corporation.
d. The state attorney general may seek an injunction against the transaction or seek a dissolution order from a court.

9. An example of a public corporation would be:
a. the Corporation for Public Broadcasting.
b. Microsoft Corporation.
c. the General Mills Corporation.
d. any publicly traded corporation.

10. An example of a close corporation would be:
a. the U.S. Postal Service.
b. Microsoft.
c. IBM.
d. a corporation owned by five family members.

11. In simple terms, an "S" corporation could be defined as:
a. a corporation regulated by the securities industry.
b. a corporation whose shareholders have limited liability but avoid corporate income tax.
c. a corporation whose shareholders are taxed like shareholders but who face full, significant liability.
d. a corporation composed entirely of licensed professionals.

12. Articles of incorporation contain:
a. a set of governing rules adopted by a corporation.
b. resolutions of the board of directors.
c. information about the corporation, including its organization and functions.
d. the minutes of meetings of the board of directors.

13. A person who takes preliminary steps in organizing a corporation is known as:
a. a promoter.
b. a novator.
c. a de jure attorney.
d. a bondsman.

14. The first step in the incorporation process is:
a. to draft a prospectus.
b. to draft corporate bylaws.
c. to decide which state to incorporate in.
d. to complete the articles of incorporation.

15. Which of the following are, generally speaking, NOT included in the articles of incorporation?
a. The duration of the corporation.
b. The employment policy of the corporation.
c. The nature and purpose of the corporation.
d. The address of the corporation's registered agent.

16. Which of the following IS NOT required to prove de facto corporate status?
a. The parties made a good faith attempt to comply with a state incorporation statute.
b. Statutory corporate formalities were not followed.
c. A state statute must exist under which a valid incorporation could take place.
d. The enterprise must be doing business as a corporation.

17. Stock may be described as:
a. a debt owed by the government to the shareholder.
b. a debt owed by the corporation to the shareholder.
c. an ownership interest in the corporation.
d. a document describing the ownership and management structure of the corporation.

18. Preferred stock is a more conservative (less aggressive) investment than common stock because:
a. it never pays dividends.
b. it is less volatile and more like a bond.
c. its holders have voting rights, unlike common stock holders.
d. it is not tradeable, assignable, or sellable.

19. In Case 34.1, Bullington v. Palangio, the court ruled in favor of:
a. Jerry Bullington.
b. Bullington Builders, Inc.
c. Helen Palangio.
d. The case was thrown out on a technicality.

20. In Case 34.1, Bullington v. Palangio, the court held that the stockholders were personally liable for the corporation's obligations because:
a. the stockholders did not provide the corporation with sufficient assets to meet its obligations.
b. the corporation's charter had been revoked.
c. stockholders are always liable for the corporation's obligations.
d. The stockholders were not personally liable.

21. In Case 34.2, Crowder Construction v. Kiser, the court held that Kiser could recover:
a. the full value of his stock.
b. the reduced value set by the company.
c. punitive damages for the intentional actions of the company.
d. nothing.

22. In Case 34.2, Crowder Construction v. Kiser, the court held that Crowder's stock option plan, under which an employee was paid less for his stock if he was terminated within seven years of being hired, was:
a. illegal, because Crowder could terminate its employees within the seven year period without just cause.
b. legal, as long the value offered was at least ninety percent of full market value.
c. illegal, because the seven-year period was not reasonable.
d. legal.

23. In Case 34.3, Hoskins Chevrolet, Inc. v. Hochberg, Hochberg was held personally liable for the debts of Diamond Auto Construction because:
a. the debts of Diamond Auto Construction were not paid.
b. the name "Diamond Auto Construction" was not registered with the state.
c. Hochberg did not disclose the registered corporate name to Hoskins.
d. All of the above.

24. In Case 34.3, Hoskins Chevrolet, Inc. v. Hochberg, the court decided not to treat Diamond Auto Construction as a de facto corporation because:
a. Diamond Auto Construction was not registered with the state.
b. there was no good-faith effort on Hochberg's part to comply with the statutory requirements for either creating a corporation or operating under an assumed name.
c. Hochberg did not inform Hoskins that Diamond Auto Construction was a de facto corporation.
d. All of the above.



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