Question 1

A debenture is a long-term debt security that is secured by some form of collateral.

Accepted Answer

A) True 
 B)False  False

Question 2

"Preferred" stock can be issued in different classes,with one class of preferred stock given preference over another class of preferred stock.

Accepted Answer

A) True 
 B)False  True

Question 3

A promoter is automatically released from liability on a promoter's contract if the newly-formed corporation agrees to be bound by the contract.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following is true about the registered agent of a corporation?

Accepted Answer

A)  The registered agent is the chief promoter in the formation of the corporation. 
B)  The registered agent is the entity designated to receive service of process on behalf of the corporation. 
C)  The registered agent must be an individual person. 
D)  The registered agent is the party authorized to enter into contracts on behalf of the corporation. 
E)  The registered agent is the corporation's outside legal counsel. 
A)  The registered agent is the chief promoter in the formation of the corporation. 
B)  The registered agent is the entity designated to receive service of process on behalf of the corporation. 
C)  The registered agent must be an individual person. 
D)  The registered agent is the party authorized to enter into contracts on behalf of the corporation. 
E)  The registered agent is the corporation's outside legal counsel.

Question 5

Shareholders may agree among themselves as to restrictions on the transfer of shares.

Accepted Answer

A) True 
 B)False

Question 6

Not-for-profit corporations are formed for charitable,educational,religious,or scientific purposes.

Accepted Answer

A) True 
 B)False

Question 7

A corporation has the same basic rights to perform acts and enter into contracts as an actual person.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following generally does not need to be included in the articles of incorporation?

Accepted Answer

A)  the name of the corporation 
B)  the number of shares of stock that the corporation is authorized to issue 
C)  the name of the initial registered agent 
D)  a copy of the bylaws 
E)  the names of the incorporators 
A)  the name of the corporation 
B)  the number of shares of stock that the corporation is authorized to issue 
C)  the name of the initial registered agent 
D)  a copy of the bylaws 
E)  the names of the incorporators

Question 9

A closely-held corporation is one whose shares are owned by a small number of shareholders,who are often family members,relatives,or friends.

Accepted Answer

A) True 
 B)False

Question 10

Donna formed a corporation several years ago by issuing five hundred shares of stock.There are ten shareholders,with the smallest shareholder owning twenty-five shares,and Donna holding the most shares,one hundred.The corporation needs additional cash,but current shareholders do not wish to permit any additional shareholders.What are their options,and what additional factors should current shareholders consider in raising the additional cash?

Accepted Answer

They could issue additional common stock

Question 11

Private corporations are formed by government entities to meet a specific governmental or political purpose.

Accepted Answer

A) True 
 B)False

Question 12

A corporation's ________ powers are found in the United States Constitution,state constitutions,federal statutes,state statutes,articles of incorporation,bylaws,and resolutions of the board of directors.

Accepted Answer

A)  conditional 
B)  equitable 
C)  implied 
D)  express 
E)  defined 
A)  conditional 
B)  equitable 
C)  implied 
D)  express 
E)  defined

Question 13

Professional corporations have normal corporate attributes,and are formed like other corporations.

Accepted Answer

A) True 
 B)False

Question 14

The bylaws of a corporation:

Accepted Answer

A)  take precedence over the articles of incorporation. 
B)  must be filed in the appropriate state office. 
C)  are not binding on the officers and directors of the corporation. 
D)  govern the internal management of the corporation, and typically include the time and place of the annual shareholders' meeting. 
E)  may be amended only by the board of directors. 
A)  take precedence over the articles of incorporation. 
B)  must be filed in the appropriate state office. 
C)  are not binding on the officers and directors of the corporation. 
D)  govern the internal management of the corporation, and typically include the time and place of the annual shareholders' meeting. 
E)  may be amended only by the board of directors.

Question 15

"Convertible preferred" stock is stock that can be easily converted into the stock of another corporation.

Accepted Answer

A) True 
 B)False

Question 16

A corporation can be incorporated in only one state.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not true about promoters of a corporation?

Accepted Answer

A)  A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if, after the corporation is formed, there is a novation. 
B)  A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if, at the time the contract is entered into, the third party agrees to a novation to occur automatically upon the valid creation of the corporation. 
C)  The creation of the corporation does not automatically release the promoter from contracts entered into on behalf of the corporation. 
D)  If the corporation fails to come into existence, the promoter cannot be held liable on a contract entered into on behalf of the corporation. 
E)  If the corporation is formed, it becomes liable on a promoter's contract only if the promoter agrees to be bound by the contract. 
A)  A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if, after the corporation is formed, there is a novation. 
B)  A promoter can be relieved of liability on a contract entered into on behalf of a corporation with a third party if, at the time the contract is entered into, the third party agrees to a novation to occur automatically upon the valid creation of the corporation. 
C)  The creation of the corporation does not automatically release the promoter from contracts entered into on behalf of the corporation. 
D)  If the corporation fails to come into existence, the promoter cannot be held liable on a contract entered into on behalf of the corporation. 
E)  If the corporation is formed, it becomes liable on a promoter's contract only if the promoter agrees to be bound by the contract.

Question 18

Jane wishes to create a corporation to operate an art gallery.She completes the articles of incorporation,and mails them to the appropriate state office.She then leases space,hires a receptionist,buys supplies,and contracts with artists to exhibit their artwork,all on behalf of her corporation.Sometime later,the state issues its certificate of incorporation.
A.Discuss the liability of Jane and the corporation with regard to the contracts Jane has made with third parties.
B.Based on the above fact situation,discuss whether a "novation" has occurred.

Accepted Answer

A corporation is liable on contracts a p

Question 19

The first meeting of the board of directors after the bylaws are filed is called the:

Accepted Answer

A)  promoters' meeting. 
B)  adoption meeting. 
C)  initiation meeting. 
D)  organizational meeting. 
E)  novation meeting. 
A)  promoters' meeting. 
B)  adoption meeting. 
C)  initiation meeting. 
D)  organizational meeting. 
E)  novation meeting.

Question 20

The shareholders do not have the power to terminate a corporation.

Accepted Answer

A) True 
 B)False

Exam 27: Corporate Formation and Financing

A debenture is a long-term debt security that is secured by some form of collateral.

"Preferred" stock can be issued in different classes,with one class of preferred stock given preference over another class of preferred stock.

A promoter is automatically released from liability on a promoter's contract if the newly-formed corporation agrees to be bound by the contract.

Which of the following is true about the registered agent of a corporation?

Shareholders may agree among themselves as to restrictions on the transfer of shares.

Not-for-profit corporations are formed for charitable,educational,religious,or scientific purposes.

A corporation has the same basic rights to perform acts and enter into contracts as an actual person.

Which of the following generally does not need to be included in the articles of incorporation?

A closely-held corporation is one whose shares are owned by a small number of shareholders,who are often family members,relatives,or friends.

Private corporations are formed by government entities to meet a specific governmental or political purpose.

A corporation's ________ powers are found in the United States Constitution,state constitutions,federal statutes,state statutes,articles of incorporation,bylaws,and resolutions of the board of directors.

Professional corporations have normal corporate attributes,and are formed like other corporations.

The bylaws of a corporation:

"Convertible preferred" stock is stock that can be easily converted into the stock of another corporation.

A corporation can be incorporated in only one state.

Which of the following is not true about promoters of a corporation?

The first meeting of the board of directors after the bylaws are filed is called the:

The shareholders do not have the power to terminate a corporation.

Legal Heritage and the Information Age

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