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Business Law Pretests Ch.20

A corporation is an artificial being.
True
State laws regarding corporations are uniform.
False
A corporation does not possess the same right of access to the courts as natural persons.
False
The day-to-day business of a corporation is managed by officers employed by the board of directors.
True
An alien corporation is a corporation formed in another country.
True
The U.S. Postal Service is a public corporation.
True
A corporation cannot be formed without a profit-making purpose.
False
A corporation whose shares are held by relatively few persons is a close corporation
True
A close corporation can operate as an S corporation.
True
Selecting the state in which to incorporate is an important step in the incorporation procedure
True
A corporate name must include the word Corporation, Incorporated, Company, or Limited, or abbreviations of these terms.
True
Bylaws are the internal rules of management for a corporation.
True
A de jure corporation is one that has substantially complied with all requirements for incorporation.
True
A state constitution may resolve a conflict among documents involving a corporation.
True
A corporation has an implied power to extend credit to those with whom it has a legal or contractual relationship.
True
A board of directors governs every corporation.
True
A corporation’s officers and other executive employees are hired by corporate shareholders
False
The minimum number of members of a body of officials that must be present before business can validly be transacted is known as a quorum.
True
Quorum requirements are the same in all jurisdictions.
False
A corporate officer cannot act as an agent of the corporation.
False
Corporate officers can usually be removed by the board of directors without cause.
True
A director is a fiduciary of a corporation.
True
Corporate directors and officers are insurers of business success.
False
Directors can use corporate funds and confidential information for personal advantage as long as they disclose that they are doing so.
False
A director does not need to disclose any conflict of interest before voting on a proposal.
False
The articles of corporation cannot exclude or limit shareholders’ voting rights.
False
Cumulative voting refers to the accumulation of proposals presented annually for a shareholders’ vote.
False
Shareholder voting agreements are usually held to be invalid and unenforceable.
False
In certain instances of fraud, a court may “pierce the corporate veil” to hold the shareholders individually liable.
True
A merger and a consolidation are not two legally distinct proceedings.
False
In a consolidation, the consolidating corporations become subsidiaries of the new corporation.
False
When a sale of assets amounts to what in fact is a consolidation, the acquiring corporation inherits the selling corporation’s liabilities.
True
Only a board of directors can initiate the dissolution of a corporation.
False
When dissolution takes place by voluntary action, the shareholders are responsible for winding up the affairs of the corporation.
False
A court can not dissolve a corporation for mismanagement.
False
Skyla and Terry want to form and do business as Unique Boutique Corporation. Its existence depends generally on
a.
city or county corporate codes.
b.
the Entrepreneur’s Corporate Handbook.
c.
the federal Administrative Procedure Act.
d.
state law.
d.
state law.
Inez and Jason are the shareholders and directors of Kleen Kustodial Corporation. Lily and Moe are Kleen’s officers. As in other corporations, the responsibility for the overall management of Kleen rests with
a.
the board of directors.
b.
the officers.
c.
the owners.
d.
the shareholders.
a.
the board of directors.
George is the founder of Excellent Exotics Corporation. Wilson is a shareholder and director and Bill is an officer. The daily business operations of Excellent Exotics are overseen by
a.
Bill.
b.
Wilson.
c.
George.
d.
George and Wilson.
a.
Bill.
Jean and Olivia want to form and do business as Cake Cups Corporation. A corporation is
a.
a natural person.
b.
a tangible thing.
c.
an artificial legal person.
d.
a visible radiance.
c.
an artificial legal person.
Ruby Red Corporation is incorporated in South Carolina. In that state, Ruby Red is
a.
a domestic corporation.
b.
a foreign corporation.
c.
an alien corporation.
d.
a non-entity.
a.
a domestic corporation.
Painless Dental Equipment Company is incorporated in Colorado. In Wyoming, Painless is
a.
a domestic corporation.
b.
a foreign corporation.
c.
an alien corporation.
d.
a non-entity.
b.
a foreign corporation.
Wiley incorporates his business as Wiley Wire Corporation in Texas. He and his group of shareholders intend to make a profit from their sales of fencing wire. Wiley Wire Corporation is
a.
a nonprofit corporation.
b.
not a corporation.
c.
an alien corporation.
d.
a private corporation.
d.
a private corporation.
Smalltown, Alabama is incorporated by the government. Smalltown is
a.
a foreign corporation.
b.
a public corporation.
c.
a private corporation.
d.
an alien corporation.
b.
a public corporation.
A firm named Scientific Discovery Corporation (SDC) makes an attempt to incorporate for a purpose other than making a profit. SDC is
a.
a foreign corporation.
b.
an alien corporation.
c.
a nonprofit corporation.
d.
not a corporation.
c.
a nonprofit corporation.
Yellowbox, a DVD rental company, would like to change its corporate status to that of an S corporation to avoid income taxes at the corporate level. To qualify, Yellowbox must
a.
be located in the United States.
b.
have more than one hundred shareholders.
c.
be a non-profit corporation.
d.
have more than one class of stock.
a.
be located in the United States.
Myron and Norah would like to form Originals, Inc., to do business in the art market. Generally, the articles of incorporation for a corporation do not include
a.
the corporate name.
b.
the nature and purpose of the corporation.
c.
the capital structure of the corporation.
d.
the minutes of the first organizational meeting.
d.
the minutes of the first organizational meeting.
Perfect Tone Phones, Inc., is a corporation. Perfect Tone’s implied powers enable it to
a.
amend the articles of incorporation.
b.
bring a derivative suit.
c.
declare dividends.
d.
borrow funds, lend funds, and extend credit.
d.
borrow funds, lend funds, and extend credit.
When a conflict arises among the documents that involve Express Flights Corporation, the first priority for resolving the conflict is given to
a.
resolutions of the board of directors.
b.
Express Flights’s bylaws.
c.
state statues.
d.
the U.S. Constitution.
d.
the U.S. Constitution.
Lyla is a common shareholder in Norman’s Nutty Nuts Corporation. As a common shareholder, Lyla is
a.
guaranteed regular payments of dividends.
b.
not guaranteed any payments of dividends.
c.
not given any voting rights.
d.
liable for all of Norman’s Nutty Nuts’s debts.
b.
not guaranteed any payments of dividends
Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which
a.
governs Spex.
b.
is governed by the Spex incorporators.
c.
is governed by the Spex officers.
d.
is governed by the Spex shareholders.
a.
governs Spex.
Great Gates, Inc. has a board of ten directors. Great Gates’ bylaws do not state any quorum requirements. In most states, a quorum for Great Gates will be defined as
a.
two directors.
b.
six directors.
c.
nine directors.
d.
ten directors.
b.
six directors.
RayAnn is a corporate officer for Timmy’s Trees, Inc. As a corporate officer, RayAnn is
a.
the head of the board of directors.
b.
involved in the day-to-day operations of Timmy’s Trees.
c.
not involved in the day-to-day operations of Timmy’s Trees.
d.
in charge of selecting members of the board of directors.
b.
involved in the day-to-day operations of Timmy’s Trees.
Nina is a director of Omega, Inc. Under the standard of due care owed by directors of a corporation, Nina’s decisions must be
a.
ambiguous and questionable.
b.
arguable and defensible.
c.
informed and reasonable.
d.
perfect and unassailable.
c.
informed and reasonable.
Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is
a.
a fiduciary.
b.
a forum.
c.
a proxy.
d.
a quorum.
a.
a fiduciary.
Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coast’s employees include its
a.
board of directors.
b.
incorporators.
c.
officers.
d.
shareholders.
c.
officers.
Rafi, a director of Super Service Station Corporation, does not attend a board meeting for three years. During that time, Twyla, Super’s president, makes improper loans that cost the company $100,000. Rafi is most likely
a.
liable for negligence or mismanagement.
b.
liable for violation of the business judgment rule.
c.
not liable because missing meetings is an honest mistake.
d.
not liable because missing meetings is only poor judgment.
a.
liable for negligence or mismanagement.
Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not
a.
authorize major corporate policy decisions.
b.
decide to issue stock and bonds, and declare dividends.
c.
select and remove corporate officers.
d.
subordinate the corporation’s welfare to their personal interests.
d.
subordinate the corporation’s welfare to their personal interests.
Josh is a director of Sippy Soups, Inc. Josh opposes a tender offer that is in Sippy’s best interest because its acceptance would cost him his position as a director. Josh is liable for a breach of duty of
a.
no duty or rule.
b.
the business judgment rule.
c.
the duty of care.
d.
the duty of loyalty.
d.
the duty of loyalty.
Etta is a director of Trendy Stuff Corporation. Without informing Trendy, Etta goes into business with GR8 Things, Inc., in competition with Trendy. Etta is liable for breach of
a.
no duty or rule
b.
the business judgment rule.
c.
the duty of care.
d.
the duty of loyalty.
d.
the duty of loyalty.
Louise is a director for Icy Ices, Inc. Louise is also a director for Creamy Creams, Inc. When Icy Ices enters into a contract with Creamy Creams, Louise
a.
must resign from one of the boards.
b.
must resign from both boards.
c.
must make a full disclosure of any conflicts of interest and abstain from voting on the proposed transaction.
d.
need not do anything.
c.
must make a full disclosure of any conflicts of interest and abstain from voting on the proposed transaction.
Rosa and Sean are directors of Tech, Inc. Rosa’s written authorization to Sean to vote Rosa’s shares at a Tech shareholders’ meeting is
a.
a violation of the duty of care.
b.
a preemptive right.
c.
a proxy.
d.
a quorum.
c.
a proxy.
DeFazio’s Italian Restaurants, Inc., holds a shareholders’ meeting. Corporate business matters are presented at the meeting in the form of
a.
resolutions.
b.
proxies.
c.
articles of incorporation.
d.
bylaws.
a.
resolutions.
Thor Power Products Corporation permits its directors to be elected by cumulative voting. This
a.
allows minority shareholders to be represented on the board.
b.
assures directors that they will be selected by their peers.
c.
guarantees Thor’s executive officers of the final choice.
d.
ensures against persons who may “cloud” the corporate direction.
a.
allows minority shareholders to be represented on the board.
Eagle Financial Corporation merges with First Bank Corporation, with Eagle Financial absorbing First Bank. After the merger
a.
a different, new corporation is the surviving corporation.
b.
Eagle Financial and First Bank are both surviving corporations.
c.
Eagle Financial is the surviving corporation.
d.
First Bank is the surviving corporation.
c.
Eagle Financial is the surviving corporation.
Eye Appliance Company and Fresh Views, Inc., wish to combine all of their assets, stock, and personnel into a new firm to be called Goggles Corporation. This is
a.
a consolidation.
b.
a merger.
c.
an exchange of assets.
d.
a takeover.
a.
a consolidation.
Jen files a suit against Kopper Kettle Company. While the suit is pending, Kopper Kettle merges with Luminous Pans, Inc., with Luminous absorbing Kopper Kettle. Now, liability in the suit, if any, rests with
a.
Jen.
b.
Kopper Kettle.
c.
Luminous.
d.
no one.
c.
Luminous.
Precise Device Corporation and Quality Instruments, Inc., decide to merge. This corporate combination does not require the approval of
a.
Precise and Quality’s directors.
b.
Precise and Quality’s officers and employees.
c.
Precise’s shareholders.
d.
Quality’s shareholders.
b.
Precise and Quality’s officers and employees.
Realty Credit Company and Second Mortgage Corporation plan to consolidate. Most likely, the articles of consolidation will be filed with
a.
the county recording office.
b.
the Securities and Exchange Commission.
c.
the state’s secretary of state.
d.
the U.S. Department of Justice.
c.
the state’s secretary of state.
Mall Stores Corporation owns 95 percent of the shares of Niche Retail Corporation. Mall Stores combines with Niche Retail, but only Mall Stores continues to exist. This transaction was
a.
a consolidation.
b.
a tender offer.
c.
a short-form merger.
d.
a termination.
c.
a short-form merger.
Giant Lift Corporation purchases all of the assets of Heavy Hydraulics Corporation. With respect to Heavy Hydraulics’s liabilities, Giant Lift is
a.
automatically responsible.
b.
not responsible under any circumstances.
c.
responsible if Heavy Hydraulics is a competitor of Giant Lift.
d.
responsible if the sale is in fact a merger or consolidation.
d.
responsible if the sale is in fact a merger or consolidation.

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