Question 1

Discuss how a corporation is terminated.

Accepted Answer

Ordinarily,terminating a corporation is a three-step process.First,the directors recommend to the shareholders that the corporation be dissolved,and a majority of the shareholders agree.Second,the corporation files "Articles of Dissolution" with the Secretary of State.Third,the officers of the corporation pay its debts and distribute the remaining property to shareholders.When this winding up is completed,the corporation ceases to exist.Alternatively,the Secretary of State may dissolve a corporation that violates state law or a court may dissolve a corporation if it is insolvent or if its directors and shareholders cannot resolve conflict over how the corporation should be managed.

Question 2

Define and discuss the purposes of the "business judgment rule."

Accepted Answer

The business judgment rule is a common law concept that a director or officer who makes a business judgment in good faith fulfills his duty to the company if (1)he is not financially interested in the subject of his business judgment; (2)he is informed with respect to the subject matter involved and to the extent appropriate under the circumstances; and (3)he reasonably believes his judgment is in the best interests of the company.To be protected by the business judgment rule,managers must act in good faith.
The "business judgment rule" is designed to accomplish three primary goals:
1.To allow directors to do their job without constantly being concerned about personal liability.
2.To keep judges out of corporate decision making.
3.To encourage people to become corporate directors by limiting their potential liability.

Question 3

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.

Accepted Answer

Cumulative voting allows a shareholder to pool her votes for one nominee to the board.The alternative,noncumulative voting,would allow her to vote one vote for each of her voting shares for each nominee (not place multiple votes with one person).The formula for cumulative voting is: Number of shares needed to elect one director = (Number of shares outstanding ÷ Number of directors to be elected plus one)plus one.In this situation,if all five directors are elected at the same time,then Jessica needs to purchase at least 176 shares of voting stock [1,050/5 + 1] + 1 = 176].If she has 176 votes,she can cast all her votes for herself.Since 176 votes is enough to guarantee her election to the board,she will be elected.

Question 4

MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called:

Accepted Answer

A)  authorized and unissued. 
B)  authorized and issued. 
C)  treasury stock. 
D)  repurchased stock. 
A)  authorized and unissued. 
B)  authorized and issued. 
C)  treasury stock. 
D)  repurchased stock.

Question 5

The Dodd Frank Wall Street Reform and Consumer Protection Act:

Accepted Answer

A)  requires companies every three years to take a binding shareholder vote on executive compensation. 
B)  requires companies every three years to take a non- binding shareholder vote on executive compensation. 
C)  requires companies every three years to take a binding board of directors' vote on executive compensation. 
D)  not include in its charter any provisions regarding indemnification of directors. 
A)  requires companies every three years to take a binding shareholder vote on executive compensation. 
B)  requires companies every three years to take a non- binding shareholder vote on executive compensation. 
C)  requires companies every three years to take a binding board of directors' vote on executive compensation. 
D)  not include in its charter any provisions regarding indemnification of directors.

Question 6

Who establishes executive compensation?

Accepted Answer

A)  The board of directors. 
B)  The shareholders. 
C)  The officers themselves. 
D)  An independent CPA firm. 
A)  The board of directors. 
B)  The shareholders. 
C)  The officers themselves. 
D)  An independent CPA firm.

Question 7

Mike is planning on incorporating his business in the state of Delaware.The corporate name of Mike's business must be different from:

Accepted Answer

A)  that of any corporation that already exists in Delaware. 
B)  that of any limited liability company in Delaware. 
C)  the name of any sole proprietorship in Delaware. 
D)  all of the above. 
A)  that of any corporation that already exists in Delaware. 
B)  that of any limited liability company in Delaware. 
C)  the name of any sole proprietorship in Delaware. 
D)  all of the above.

Question 8

Generally,managers that make informed decisions will not be liable even if their decision turned out badly.

Accepted Answer

A) True 
 B)False

Question 9

Corporate stock can be divided into classes called ________,which can be further divided into ________.

Accepted Answer

A)  authorized shares,preferred 
B)  preferred,common 
C)  equity,common 
D)  debentures,classes. 
A)  authorized shares,preferred 
B)  preferred,common 
C)  equity,common 
D)  debentures,classes.

Question 10

Controlling shareholders have no fiduciary responsibility to minority shareholders.

Accepted Answer

A) True 
 B)False

Question 11

Under Sarbanes Oxley what is true?

Accepted Answer

A)  If a company restates its earnings the executive must reimburse its company for any profit they made based on those misstated earnings. 
B)  a company may not restate its earnings. 
C)  Executives may retain their bonus even if the earnings of the corporation are restated. 
D)  None of the above are correct. 
A)  If a company restates its earnings the executive must reimburse its company for any profit they made based on those misstated earnings. 
B)  a company may not restate its earnings. 
C)  Executives may retain their bonus even if the earnings of the corporation are restated. 
D)  None of the above are correct.

Question 12

Fashions,Inc.has 12 shareholders.
-The company is subject to the Model Act.What officers is Fashions,Inc.required to have?

Accepted Answer

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. 
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.

Question 13

Incorporation protects:

Accepted Answer

A)  shareholders against personal liability for the debts of the company. 
B)  anyone involved in management of the business against personal liability for wrongdoing. 
C)  the public from wrongdoing by either the shareholders or the management of the corporation. 
D)  All the above are correct. 
A)  shareholders against personal liability for the debts of the company. 
B)  anyone involved in management of the business against personal liability for wrongdoing. 
C)  the public from wrongdoing by either the shareholders or the management of the corporation. 
D)  All the above are correct.

Question 14

If a court determines a manager's corporate decision amounted to self-dealing:

Accepted Answer

A)  the business judgment rule will not apply. 
B)  the transaction being challenged will be automatically voided. 
C)  the manager is automatically personally liable to the corporation. 
D)  All the above. 
A)  the business judgment rule will not apply. 
B)  the transaction being challenged will be automatically voided. 
C)  the manager is automatically personally liable to the corporation. 
D)  All the above.

Question 15

Corporate shareholders who undercapitalize their corporations and do not keep their corporate books are in jeopardy of having their corporation pierced and becoming personally liable for the debts of the corporation.

Accepted Answer

A) True 
 B)False

Question 16

Luella just purchased 5 shares of common stock in TriColor,Inc.for $250.Luella has the right to:

Accepted Answer

A)  manage the day-to-day business of the corporation. 
B)  set executive compensation. 
C)  require that a proposal be placed in the company's proxy statement to be voted on at the shareholder meeting. 
D)  vote to elect directors. 
A)  manage the day-to-day business of the corporation. 
B)  set executive compensation. 
C)  require that a proposal be placed in the company's proxy statement to be voted on at the shareholder meeting. 
D)  vote to elect directors.

Question 17

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?

Accepted Answer

A)  None. 
B)  One. 
C)  Two. 
D)  Five. 
A)  None. 
B)  One. 
C)  Two. 
D)  Five.

Question 18

Identify four circumstances that might persuade a court to pierce the corporate veil.

Accepted Answer

Courts generally pierce the corporate ve

Question 19

Owners of preferred stock typically have a preference in liquidation.

Accepted Answer

A) True 
 B)False

Question 20

What is meant by the term "piercing the corporate veil"?

Accepted Answer

A)  Corporate directors and/or officers may be held personally liable to a person damaged by an act of the corporation. 
B)  Corporate shareholders may be held personally liable to a person damaged by an act of the corporation. 
C)  Both of the above. 
D)  None of the above. 
A)  Corporate directors and/or officers may be held personally liable to a person damaged by an act of the corporation. 
B)  Corporate shareholders may be held personally liable to a person damaged by an act of the corporation. 
C)  Both of the above. 
D)  None of the above.

Exam 22: Life and Death of a Corporation

Discuss how a corporation is terminated.

Define and discuss the purposes of the "business judgment rule."

MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called:

The Dodd Frank Wall Street Reform and Consumer Protection Act:

Who establishes executive compensation?

Mike is planning on incorporating his business in the state of Delaware.The corporate name of Mike's business must be different from:

Generally,managers that make informed decisions will not be liable even if their decision turned out badly.

Corporate stock can be divided into classes called ________,which can be further divided into ________.

Controlling shareholders have no fiduciary responsibility to minority shareholders.

Under Sarbanes Oxley what is true?

Fashions,Inc.has 12 shareholders. -The company is subject to the Model Act.What officers is Fashions,Inc.required to have?

Incorporation protects:

If a court determines a manager's corporate decision amounted to self-dealing:

Corporate shareholders who undercapitalize their corporations and do not keep their corporate books are in jeopardy of having their corporation pierced and becoming personally liable for the debts of the corporation.

Luella just purchased 5 shares of common stock in TriColor,Inc.for $250.Luella has the right to:

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?

Identify four circumstances that might persuade a court to pierce the corporate veil.

Owners of preferred stock typically have a preference in liquidation.

What is meant by the term "piercing the corporate veil"?

Introduction to Law

Business Ethics and Social Responsibility

Courts,Litigation and Alterntive Dispute Resolution

Constitutional, Statutory, Administrative, and Common Law

Intentional Torts and Business Torts

Negligence and Strict Liability

Crime

International Law

Introduction to Contracts

Contract Impediments

Conclusion to Contracts

Practical Contracts

Introduction to Sales

Negotiable Instruments

Secured Transactions

Bankruptcy

Agency Law

Employment Law

Employment Discrimination

Labor Law

Starting a Business: Llcs and Other Option

Government Regulation: Securities and Antitrust

Accountants' Liability

Consumer Law

Environmental Law

Cyberlaw

Intellectual Property

Real Property and Tenant: Landlord Law

Personal Property and Bailment

Estate Planning

Insurance

Filters

Corporate stock can be divided into classes called ,which can be further divided into .