Chapter 26 Test Bank Docx The Corporate Entity Sukys

Business Law with UCC Applications, 15e (Sukys)

Chapter 26 The Corporate Entity

1) In the new Classic Case, Burwell v. Hobby Lobby, the Supreme Court concludes that the term person in the statute is meant to protect corporate "persons" only because the real protection flows to the people behind that corporate veil.

Difficulty: 2 Medium

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-01 Describe some of the strategies for avoiding a new 21st century economic crisis.; 26-02 Explain what is meant by the term corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) The entire corporate, capitalist state is based on the faith and trust that investors have no liability for their investments.

Difficulty: 2 Medium

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-01 Describe some of the strategies for avoiding a new 21st century economic crisis.; 26-02 Explain what is meant by the term corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

3) The Fourteenth Amendment grants due process rights to corporate shareholders and stakeholders only.

Difficulty: 2 Medium

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-03 List the four methods of protecting a corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

4) Limited liability means that shareholders can be held personally liable for the debts of the corporation, but will not lose their capital investment.

Difficulty: 2 Medium

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-03 List the four methods of protecting a corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

5) A corporation is a domestic corporation in the state where its principal office is located, but it is an alien corporation in all other states.

Difficulty: 2 Medium

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-03 List the four methods of protecting a corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

6) An electric company would be an example of a S-Corporation.

Difficulty: 2 Medium

Topic: Types of Corporate Persons

Learning Objective: 26-04 Describe the differences among a private, a public, and a quasi-public corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7) Dividends are the net profits, or surplus, set aside for the shareholders.

Difficulty: 3 Hard

Topic: Types of Corporate Persons

Learning Objective: 26-04 Describe the differences among a private, a public, and a quasi-public corporation.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

8) Outstanding shares of stock of the Cattleman Corp. are held by seven shareholders, four from the Tate family, and 3 from the Anchustegui family. The Cattleman Corp. cannot be designated a close corporation because the shareholders are not from the same family.

Difficulty: 3 Hard

Topic: Types of Corporate Persons

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

9) A limited liability company is a business arrangement that permits an individual to lease the right to use a parent entity's business operation, intellectual property, goods, and services under a fee arrangement provided to the parent.

Difficulty: 3 Hard

Topic: Types of Corporate Persons

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

10) If only a minor requirement of incorporation has been left unsatisfied, the court will allow any shareholder to directly sue and challenge the de facto corporation's existence.

Difficulty: 2 Medium

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

11) Janet is the promoter of a corporation called Time Inc., which is in the process of being formed. Janet rents office space in Time's name which is a de jure corporation. Time is bound by Janet's contract.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

12) Undercapitalization will be considered convincing evidence that the corporate owners intended to use the corporate façade to escape liability.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

13) The main issue in the William Stewart v. R. A. Eberts, Company, Inc. case, detailed in A New Classic Case, was whether the corporate veil should be pierced and hold the shareholders owners liable for ignoring the terms of a contract that had been made several years earlier.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

14) The issuing and selling of shares of stock to raise capital is known as debt financing.

Difficulty: 2 Medium

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

15) A joint venture is an IRS-created taxable entity that allows limited liability for its owners.

Difficulty: 1 Easy

Topic: Formation of the Corporate Person

Learning Objective: 26-07 Distinguish between the articles of organization and the operating agreement of a limited liability company.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

16) If NEWCo. was not properly incorporated, but the owners believed they had a valid corporation, NEWCo may qualify as a corporation by estoppel.

Difficulty: 2 Medium

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

17) A promoter can escape personal liability on a preformation contract by having the corporation and the third party execute an adoption.

Difficulty: 2 Medium

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

18) The operating agreement is the written application prepared by the incorporators asking the state for permission to incorporate.

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

19) Preferred stock typically does not have the right to payment of dividends on the dissolution of the corporation.

Difficulty: 1 Easy

Topic: Corporate Identity

Learning Objective: 26-09 Identify the goal of piercing the corporate veil.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

20) No par value is the value placed on the shares of stock at incorporation by the Secretary of Commerce.

Difficulty: 1 Easy

Topic: Financing the Corporate Person

Learning Objective: 26-10 Distinguish between common and preferred stock.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

21) The four fundamental legal principles that are designed to protect the corporate structure are (1) corporate status as an entity, (2) corporate constitutional rights, (3) corporate citizenship and (4):

A) anticipatory repudiation.

B) unconscionable contract.

C) mutual recession.

D) limited liability.

Difficulty: 2 Medium

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-02 Explain what is meant by the term corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

22) Kay, an 80% shareholder of Big Corp., dies leaving her stock to her nephew, Carl. Big Corp. will be:

A) unaffected.

B) reorganized.

C) dissolved and then reconstituted.

D) dissolved.

Difficulty: 3 Hard

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-03 List the four methods of protecting a corporation.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

23) The Panon Corporation is incorporated in Tennessee, but its corporate headquarters is in Massachusetts. As a result, the Panon Corporation is:

A) considered a citizen of only Massachusetts.

B) considered a citizen of only Tennessee.

C) not considered a citizen of either Massachusetts or Tennessee.

D) considered a citizen of both Massachusetts and Tennessee.

Difficulty: 3 Hard

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-03 List the four methods of protecting a corporation.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

24) Nodest Co., a Delaware corporation, wants to do business in California. Since Nodest is a foreign corporation, it:

A) does not need to take any particular action.

B) must incorporate in California.

C) must obtain a certificate of authority from California.

D) must obtain certificates of authority from both California and Delaware.

Difficulty: 3 Hard

Topic: Types of Corporate Persons

Learning Objective: 26-04 Describe the differences among a private, a public, and a quasi-public corporation.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

25) A(n) ________ is a corporation where the outstanding shares of stock and managerial control are held by fewer than ________ shareholders.

A) S corporation; 25

B) close corporation; 50

C) alien corporation; 50

D) shell corporation; 100

Difficulty: 2 Medium

Topic: Types of Corporate Persons

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

26) A limited liability company is best thought of as a cross between a partnership and a:

A) sole proprietorship.

B) governmental institution.

C) limited partnership.

D) corporation.

Difficulty: 2 Medium

Topic: Types of Corporate Persons

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

27) Jan signs the articles of incorporation for a corporation being formed, and Tom wants to locate possible investors in the new corporation. Jan is a(n):

A) incorporator.

B) promoter.

C) registered agent.

D) shareholder.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

28) In terms of the steps in the incorporation process, which of the following occurs after the charter is issued?

A) A statutory agent is appointed.

B) The organizational meeting is held.

C) Filing fees are paid.

D) Promoters do preliminary work.

Difficulty: 2 Medium

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

29) Henry, a promoter, signs a five-year lease agreement for office space for Ajax Corp., which has not yet been formed. After formation, Ajax moves into the office space, pays rent and occupies it for six months, but then finds a cheaper location and moves out. Which party is liable on the lease?

A) Henry

B) Ajax

C) No one, since it was a tenancy at will

D) Both Henry and Ajax

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) A promoter can escape liability by having the corporation and the third party create a(n):

A) novation.

B) estoppel.

C) operating agreement.

D) certificate of organization.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

31) Liz, a promoter, hired an office support staff for a corporation that had not yet been incorporated. If there is a novation clause in a subsequent contract with the corporation and the staff, which of these is correct?

A) The corporation will not be bound by any of Liz's contracts.

B) The office support staff will work without pay until the corporation becomes incorporated.

C) Liz will escape potential liability under the novation contract entered into.

D) Liz and the corporation will be held equally liable under all contracts entered into.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

32) Which of the following is the official authorization of a corporation to do business in a state?

A) Articles of incorporation

B) Certificate of incorporation

C) Articles of organization

D) Certificate of authority

Difficulty: 1 Easy

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

33) Grant wants to know the date of the annual shareholders meeting of Big Co. Which document will contain this information?

A) Articles of corporation

B) Articles of organization

C) Bylaws or regulations

D) Operating agreement

Difficulty: 2 Medium

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

34) ________ refer(s) to the written application to the state for permission to form a limited liability company.

A) Novation

B) Estoppel

C) Operating agreement

D) Articles of organization

Difficulty: 2 Medium

Topic: Formation of the Corporate Person

Learning Objective: 26-07 Distinguish between the articles of organization and the operating agreement of a limited liability company.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

35) Janice requires information about the voting rights of members of Titan, LLC. Which document will contain this information?

A) Articles of incorporation

B) Articles of organization

C) Bylaws

D) Operating agreement

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-07 Distinguish between the articles of organization and the operating agreement of a limited liability company.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

36) A(n) ________ is one that has been formed properly by incorporators who followed all of the steps outlined by the state incorporation statute.

A) corporation by estoppel

B) de facto corporation

C) de jure corporation

D) alien corporation

Difficulty: 2 Medium

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

37) The status of a de facto corporation can be directly challenged by:

A) private citizens.

B) the state government.

C) both private citizens and the state government.

D) neither private citizens nor the state government.

Difficulty: 2 Medium

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

38) Alan sells merchandise on credit to ABC Co. ABC fails to pay for the merchandise. Alan later discovers that ABC is not a corporation, but a partnership consisting of Alice, Betty, and Charles. Which legal doctrine might shield Alice, Betty, and Charles from personal liability?

A) De facto corporation

B) De jure corporation

C) Corporation by estoppel

D) Piercing the corporate veil

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

39) Vivian, owner of Titan Corp., uses Titan Corp. as a way to order merchandise for her personal benefit and fails to pay for the merchandise. Creditors who have shipped merchandise to Titan want to sue Vivian personally. Which of the following legal doctrines would allow a personal suit against Vivian?

A) Corporation by estoppel

B) Piercing the corporate veil

C) De facto corporation

D) De jure corporation

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-09 Identify the goal of piercing the corporate veil.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

40) Patricia holds 150 shares of common stock in a large corporation. Patricia:

A) is guaranteed the rights to some of the profits of the corporation.

B) is most likely entitled to two votes for each share of stock she holds.

C) will not be included in the distribution of capital upon dissolution of the corporation.

D) risks whatever money she invested in the 150 shares of common stock.

Difficulty: 3 Hard

Topic: Financing the Corporate Person

Learning Objective: 26-10 Distinguish between common and preferred stock.

Bloom's: Evaluate

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

41) ABC Co. owns land that is in the path of a new proposed interstate highway. ABC does not want to surrender this land. Discuss what rights ABC or the shareholders of ABC have to challenge this proposed taking.

Difficulty: 3 Hard

Topic: The Economic Crisis and the Corporate Person

Learning Objective: 26-03 List the four methods of protecting a corporation.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

42) Global Corp. is incorporated in Mexico and wants to do business in Ohio. Discuss the legal status of Global in relationship to Ohio and what Global must do to qualify to do business in Ohio.

Difficulty: 3 Hard

Topic: Types of Corporate Persons

Learning Objective: 26-04 Describe the differences among a private, a public, and a quasi-public corporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

43) Jon, a promoter, is concerned about being personally liable on preincorporation contracts he signs on behalf of corporations that have not yet been formed. Discuss what Jon may lawfully do to avoid this liability.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-05 Distinguish between a close and an S corporation.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

44) Clothe You Inc. was incorporated as a nonprofit organization that gave away secondhand clothes to homeless persons. In order to pay overhead and administration costs, Clothe You Inc. also sold the secondhand clothes to any interested individuals who did not qualify as homeless. One year after its formation, Clothe Me Inc. was incorporated in the same state. Clothe Me Inc. was a consignment shop that sold its secondhand clothes cheaply. Clothe Me Inc. ran an aggressive print advertising campaign, marketing its clothes "to everyone, for every reason, for practically no cost." After this campaign, Clothe You Inc. discovered that people, especially homeless individuals, were confusing the two organizations. What legal action, if any, can be taken by Clothe You Inc.?

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-06 List the typical elements within the articles of incorporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

45) A&B, a general partnership, wants to become "A&B, LLC." "A&B Co." is already in use by another business, and the state agency refuses to allow the new corporation to use the name "A&B." Discuss how A&B should proceed.

Difficulty: 3 Hard

Topic: Formation of the Corporate Person

Learning Objective: 26-07 Distinguish between the articles of organization and the operating agreement of a limited liability company.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

46) In creating ABZ Inc., Newman and Zimmer followed all the steps in the incorporation process as authorized in their state's incorporation statute except for the appointment of a statutory agent. They were never informed of the oversight and proceeded under the assumption that they were properly incorporated. Several years later, a customer was injured by one of their products. The customer's lawyer told Newman and Zimmer that they were individually liable because ABZ Inc. was not properly incorporated. Was the lawyer correct? Explain.

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-08 Distinguish between a de jure and a de facto corporation.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

47) Tom and Jim from JT Co. plan to engage in the building construction business. They obtain contracts in the name of JT Co., but fail to keep separate bank accounts for JT Co. funds, placing JT Co. money in their personal bank accounts. In addition, much of the JT Co. equipment is titled in the name of Tom and Jim. JT Co. breaches a construction contract with Titan Co. Discuss if Tom and Jim might have personal liability for this breach of contract.

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-09 Identify the goal of piercing the corporate veil.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

48) Big Co. creates a wholly owned subsidiary, Small Co. Small Co. sells poor quality merchandise on credit to consumers at unlawful rates of interest and violates the warranty agreements made with consumers. Discuss if Big Co. may be held liable for the actions of Small Co.

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-09 Identify the goal of piercing the corporate veil.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

49) Zeno Corp. has issued common stock and noncumulative preferred stock. The board of directors of Zeno has not paid a dividend in 10 years. Discuss the rights of shareholders to demand a dividend payment and the ability of the noncumulative preferred shareholders to collect back dividends for the years in which no dividend was paid.

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-10 Distinguish between common and preferred stock.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

50) Wong and Burton owned several hundred shares of preferred stock in Classic, Inc. For three years, neither were paid dividends. In the fourth year, Classic paid dividends to both shareholders. Wong also received payment for dividends from the preceding three years. Burton did not receive any dividends from those years. Identify the type of stock owned by each shareholder.

Difficulty: 3 Hard

Topic: Corporate Identity

Learning Objective: 26-10 Distinguish between common and preferred stock.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation