Question 1

In which of the following does a shareholder sue alleging that he has suffered damages caused by the corporation?

Accepted Answer

A)   Investigative action
B)   Shareholder action suit
C)   Shareholder's direct suit
D)   Shareholder derivative suit
E)   Active allocation suitF) B) and D)
G) A) and E)

Question 2

Which of the following are directors who are not officers or employees of the corporation?

Accepted Answer

A)   Approved directors
B)   Outside directors
C)   Inside directors
D)   Affiliated directors
E)   Unaffiliated directorsF) B) and C)
G) None of the above

Question 3

Decisions of courts in _______________ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there.

Accepted Answer

A)   New York
B)   California
C)   Florida
D)   Delaware
E)   New JerseyF) C) and E)
G) B) and D) D

Question 4

Which of the following was the result on appeal in J-Mart Jewelry Outlets, Inc. v. Standard Design, the case in the text in which a creditor of a defunct corporation sued the major shareholder seeking to pierce the corporate veil and hold the shareholder personally responsible for corporate debts after the shareholder paid off his personal credit cards using corporate funds and paid the corporation $1 for a new Cadillac?

Accepted Answer

A)   That insufficient evidence existed that the shareholder controlled the corporation and that the corporate veil could not be pierced.
B)   That the corporate veil could not be pierced because the shareholder was not also an inside director.
C)   That the corporate veil could not be pierced because the shareholder was not either an insider or outside director.
D)   That the corporate veil could be pierced and that evidence supported abuse of the corporate form.
E)   That the corporate veil could be pierced regardless of whether evidence of abuse of the corporate form existed because of the unfairness involved.F) C) and D)
G) A) and C)

Question 5

In order to prevent a defective corporation from escaping corporate responsibility a court may hold that that the entity is a[n] _______________.

Accepted Answer

A)   Corporation in fact
B)   Unrealized corporation
C)   Corporation by estoppel
D)   Corporation by reservation
E)   Partnership liabilityF) All of the above
G) A) and B)

Question 6

By way of which of the following may corporations distribute their income to shareholders?

Accepted Answer

A)   Allocations
B)   Grants
C)   Dividends
D)   Provisions
E)   AllowancesF) B) and C)
G) A) and B)

Question 7

Which of the following occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist?

Accepted Answer

A)   A merger
B)   A consolidation
C)   A combination
D)   An alteration
E)   A reorganizationF) A) and B)
G) C) and E)

Question 8

In a consolidation, shareholders of the new corporation create new articles of incorporation called _______________.

Accepted Answer

A)   Revised articles of incorporation
B)   Merged articles of incorporation
C)   Articles of consolidation
D)   Revised articles of consolidation
E)   None of these because new articles of incorporation are not created in a consolidationF) C) and D)
G) B) and E)

Question 9

If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization is a[n] _______________ corporation.

Accepted Answer

A)   Illegal
B)   Defunct
C)   Uncertified
D)   Defective
E)   ExpelledF) A) and E)
G) B) and C) D

Question 10

No shareholder of an S corporation may be a nonresident alien.

Accepted Answer

A) True 
 B)False  True

Question 11

Mary is a director of a company that develops expensive residential subdivisions. The company is considering attempting to purchase a large section of land on which to put a development. Mary happens to own some of the land. What duty, if any, does she have regarding disclosure and why or why not; what steps, if any should be taken by the board when considering the matter; and may the board take action that benefits Mary personally?

Accepted Answer

Mary has a duty to disclose her self-int...

Question 12

Which of the following is a term for stock issued to individuals below its fair market value?

Accepted Answer

A)   No-par stock
B)   Reduced stock
C)   Watered stock
D)   Less-value stock
E)   Unapproved stockF) C) and D)
G) B) and E)

Question 13

A[n] _______________ corporation is a business incorporated in another country.

Accepted Answer

A)   Visiting
B)   Foreign
C)   Interstate
D)   Alien
E)   ApprovedF) B) and E)
G) All of the above

Question 14

Which of the following is needed in order for a business to qualify as an S corporation?

Accepted Answer

A)   No more than 100 shareholders.
B)   Only individuals, trusts, and in some circumstances corporations as shareholders.
C)   At least $10,000 in capital.
D)   No more than 100 shareholders; only individuals, trusts, and in some circumstances corporations as shareholders, and at least $10,000 in capital.
E)   No more than 100 shareholders and only individuals, trusts, and in some circumstances corporations as shareholders; but there is no requirement of at least $10,000 in capital.F) B) and E)
G) A) and C)

Question 15

Reference - Self-Centered President. Tina is the new president of "We ManageYou," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares while majority shareholders own 8,000 shares. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the duties of an officer. She explains to him that only the corporation can be charged with liability in such cases. Is Tina accurate that she owes no duties to shareholders?

Accepted Answer

A)   Yes, she is accurate because it is the directors who owe a duty to shareholders.
B)   No, she is inaccurate because she owes a duty of care to shareholders although she owes no other duties.
C)   No, she is inaccurate because she owes a duty of loyalty to shareholders although she owes no other duties.
D)   No, she is inaccurate and owes both a duty of care and a duty of loyalty to shareholders.
E)   She is partially accurate. She owes both a duty of care and a duty of loyalty to minority shareholders but no duties to majority shareholders because the law assumes that they have the power to protect their own interests.F) All of the above
G) B) and E)

Question 16

Corporations have implied powers.

Accepted Answer

A) True 
 B)False

Question 17

Directors and officers have a fiduciary duty of care.

Accepted Answer

A) True 
 B)False

Question 18

Each director has one vote.

Accepted Answer

A) True 
 B)False

Question 19

Reference - Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Are Jack and Bobby correct that tax liability will likely be greater with a corporate form of business (not an S corporate form)  and why?

Accepted Answer

A)   No, they are incorrect because with only three shareholders, tax liability with a corporation would likely be less than tax liability with a partnership.
B)   No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the net income of the corporation was not over $250,000.
C)   No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the gross income of the corporation was not over $150,000.
D)   No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the gross income of the corporation was not over $100,000.
E)   Yes, they are correct because the corporate form of business would result in double taxation with the corporation being taxed on income and shareholders being taxed again on dividends they receive.F) A) and D)
G) D) and E)

Question 20

Which of the following is false regarding the liability of directors and officers for criminal behavior?

Accepted Answer

A)   Directors and officers can be held personally responsible for their own crimes.
B)   Directors and officers can be held personally responsible for the crimes of other employees within the organization when they have failed to adequately supervise the employee's behavior.
C)   An officer can be held criminally liable for conduct of an employee if the court determines that a responsible person would have known about and could have prevented the illegal activity.
D)   Directors and officers who use insider information to trade the corporation's stock for a profit can be held liable for breaching their fiduciary duty.
E)   According to the responsible person doctrine, a court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.F) All of the above
G) B) and D)

Exam 22: Corporations: Formation and Organization

In which of the following does a shareholder sue alleging that he has suffered damages caused by the corporation?

Correct Answer
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Which of the following are directors who are not officers or employees of the corporation?

Correct Answer
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Decisions of courts in _______________ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there.

Correct Answer
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D

Correct Answer
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In order to prevent a defective corporation from escaping corporate responsibility a court may hold that that the entity is a[n] _______________.

Correct Answer
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By way of which of the following may corporations distribute their income to shareholders?

Correct Answer
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Which of the following occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist?

Correct Answer
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In a consolidation, shareholders of the new corporation create new articles of incorporation called _______________.

Correct Answer
verified

If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization is a[n] _______________ corporation.

Correct Answer
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D

No shareholder of an S corporation may be a nonresident alien.

Correct Answer
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True

Correct Answer
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Mary has a duty to disclose her self-int...
View Answer

Which of the following is a term for stock issued to individuals below its fair market value?

Correct Answer
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A[n] _______________ corporation is a business incorporated in another country.

Correct Answer
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Which of the following is needed in order for a business to qualify as an S corporation?

Correct Answer
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Correct Answer
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Corporations have implied powers.

Correct Answer
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Directors and officers have a fiduciary duty of care.

Correct Answer
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Each director has one vote.

Correct Answer
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Correct Answer
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Which of the following is false regarding the liability of directors and officers for criminal behavior?

Correct Answer
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Exam 22: Corporations: Formation and Organization

In which of the following does a shareholder sue alleging that he has suffered damages caused by the corporation?

Correct AnswerverifiedShow Answer

Which of the following are directors who are not officers or employees of the corporation?

Correct AnswerverifiedShow Answer

Decisions of courts in _______________ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there.

Correct AnswerverifiedD

Correct AnswerverifiedShow Answer

In order to prevent a defective corporation from escaping corporate responsibility a court may hold that that the entity is a[n] _______________.

Correct AnswerverifiedShow Answer

By way of which of the following may corporations distribute their income to shareholders?

Correct AnswerverifiedShow Answer

Which of the following occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist?

Correct AnswerverifiedShow Answer

In a consolidation, shareholders of the new corporation create new articles of incorporation called _______________.

Correct AnswerverifiedShow Answer

If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization is a[n] _______________ corporation.

Correct AnswerverifiedD

No shareholder of an S corporation may be a nonresident alien.

Correct AnswerverifiedTrue

Correct AnswerverifiedMary has a duty to disclose her self-int...View AnswerShow Answer

Which of the following is a term for stock issued to individuals below its fair market value?

Correct AnswerverifiedShow Answer

A[n] _______________ corporation is a business incorporated in another country.

Correct AnswerverifiedShow Answer

Which of the following is needed in order for a business to qualify as an S corporation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Corporations have implied powers.

Correct AnswerverifiedShow Answer

Directors and officers have a fiduciary duty of care.

Correct AnswerverifiedShow Answer

Each director has one vote.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is false regarding the liability of directors and officers for criminal behavior?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
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D

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True

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Mary has a duty to disclose her self-int...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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