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CH15. MC

Skyla and Terry want to form and do business as Unique Boutique Corporation. The state statute governing the formation and operation of their corporation is most likely guided by

a. city or county corporate codes.
b. the Entrepreneur’s Corporate Handbook.
c. the federal Administrative Procedure Act.
d. the Revised Model Business Corporation Act.

D
Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is a legal entity created and recognized by

a. a central federal administrative agency.
b. a city or county clerk’s office.
c. an artificial legal person.
d. state law.

D
Pola and Quint want to form and do business as River Tours Corporation. A corporation can consist of

a. no natural persons.
b. one natural person but not more.
c. one or more natural persons.
d. only more than one natural person.

C
Inez and Jason are the shareholders and directors of Kleen Kustodial Corporation. Lily and Moe are Kleen’s officers. As with 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
Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan disposes of the mine’s waste illegally. Liability for this crime most likely rests with

a. neither Raw Resources nor Stefan.
b. Raw Resources and Stefan.
c. Raw Resources but not Stefan.
d. Stefan but not Raw Resources.

B
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
Ruby Red Corporation has six shareholders, four of whom are members of the same family. All of Ruby’s shareholders agree in writing to operate without shareholders’ meetings. Under the Revised Model Business Corporation Act, this most likely warrants

a. no penalties or sanctions.
b. the imposition of a fine on Ruby.
c. the imprisonment of Ruby’s shareholders.
d. the piercing of Ruby’s corporate veil.

A
Dependable Appliances, Inc., is a private, for-profit corporation that (1) was formed for the purpose of manufactur¬ing and distributing a newly pat¬ented kitchen appliance, (2) is owned by five share¬holders, (3) is subject to double taxation, and (4) has made no public offering of its shares. Dependable is

a. an S corporation.
b. a close corporation.
c. a nonprofit corporation.
d. a professional corporation.

B
Farley and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form

a. a C corporation.
b. a close corporation.
c. an S corporation.
d. a private corporation.

C
To qualify as a professional corporation, Medical Clinic, P.C.,

a. must be a corporation formed by professionals.
b. must grant all shareholders voting rights.
c. must have at least thirty-five shareholders.
d. all of the above.

A
Stan incorporates his scientific products business as Tech Supply, Inc. This firm could have perpetual existence in

a. a few states.
b. all states.
c. most states.
d. no states.

C
Caffeine Café, Inc., files its articles of incorporation with the appropriate government agency. Least likely to appear in the articles is the name of

a. each of the corporation’s incorporators.
b. each of the corporation’s shareholders.
c. the corporation.
d. the corporation’s initial registered agent.

B
Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is

a. adopting Java’s bylaws.
b. agreeing on Java’s purpose.
c. drafting Java’s articles.
d. obtaining a charter for Java.

A
Like the bylaws of other corporations, the bylaws of Retail Sales, Inc.,

a. establish the operating name of the corporation.
b. establish the value and classes of corporate stock.
c. were adopted at its first organizational meeting.
d. were submitted for approval to the public official in charge.

C
Stable Hydraulics Corporation’s articles list an incorrect address for its incorporator. Under this circumstance, Stable is most likely

a. a corporation by estoppel.
b. a de facto corporation.
c. a de jure corporation.
d. ultra vires.

C
Eager Beaver Corporation fails to hold its organizational meeting to adopt bylaws. Under this circumstance, Eager Beaver is most likely

a. a corporation by estoppel.
b. a de facto corporation.
c. a de jure corporation.
d. ultra vires.

B
Niki owns O.K. Oil Corporation. Niki uses O.K.’s funds to pay her personal expenses, creates Pure Fuel Corporation to engage in the same business as O.K., transfers O.K.’s assets to Pure Fuel, and petitions O.K. into bankruptcy. This most likely warrants

a. a bonus to Niki for financial maneuvers.
b. a discharge for O.K. in bankruptcy.
c. a pierce of O.K.’s corporate veil.
d. a review of Pure Fuel’s articles of incorporation.

C
Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for pol¬icy decisions necessary to the management of corporate affairs rests with Delite’s

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

A
Egan is a director of First Realty Corporation. As a director, Egan can act as an agent to bind First Realty

a. in all circumstances.
b. in no circumstances.
c. to any contract in which Egan does not have a conflict of interest.
d. to any contract that represents a corporate opportunity for First Realty.

B
Lon and Merry act as the incorporators for NuGame Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of NuGame’s

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

D
Rosa and Sean are directors of Telesite, Inc. The right of Rosa and Sam to be notified of special meetings of the board is the right to

a. compensation.
b. indemnification.
c. participation.
d. preemption.

C
The board of directors of Integral Components Corporation consists of Frida, Gayla, and Hart. A quorum is the minimum number of these directors

a. who must be at odds in a dispute to call for its resolution.
b. who must be present to validly transact business.
c. whom the shareholders may remove from office at any one time.
d. whose positions must be vacant to warrant an election.

B
Sol is chairman of the board of Tasty Foods Corporation. Uma, a con¬sumer, falls sick after eating a Tasty product. Uma sues Tasty, and Sol individu¬ally. Tasty may pay Sal’s legal fees

a. only if Sol wins the suit.
b. only if Tasty wins the suit.
c. only if Uma wins the suit.
d. regardless of the outcome.

D
Cara and Dru are officers of EZ Trucking Corporation. As cor¬porate officers, the rights of Cara and Dru are

a. determined by their employment contracts.
b. specified in state corporation statutes.
c. the same as those of the directors.
d. the same as those of the shareholders.

A
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
Frawsty Corporation distributes beverages in the greater Northwest. Frawsty’s board of directors can delegate some of its functions to

a. Frawsty’s incorporators.
b. Frawsty’s officers.
c. Frawsty’s shareholders.
d. no one.

B
Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what he believes is the firm’s best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule he is

a. immune from liability.
b. liable only to the extent that he gained as a result.
c. liable only to the extent that Motor Parts suffers as a result.
d. wholly liable.

A
Chip is a director of Diners Restaurants, Inc. Chip would breach his duty of loyalty if he

a. becomes a director of Fluffy Mattresses, Inc., a noncompeting firm.
b. buys a controlling interest in Gulpin’ Foods Corporation, a competing firm.
c. votes for Diners to buy a controlling interest in Eateries, Inc., which causes Diners to suffer a loss.
d. votes against Diners’ purchase of a controlling interest in Eateries, Inc., which causes Diners to suffer a loss.

B
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. support businesses that directly compete with Gallery.

D
Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can

a. authorize major corporate policy decisions.
b. decide to issue stock and bonds, and declare dividends.
c. select and remove corporate officers.
d. vote to amend the articles of incorporation or bylaws.

D
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. insures against persons who may “cloud” the corporate direction.

A
Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders’ meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be

a. invalid and unenforceable.
b. oppressive and irresponsible.
c. suspect and voidable.
d. valid and enforceable.

D
Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

a. buy a prorated share of a new issue of stock before other buyers.
b. choose to have Matchless act exclusively in a certain area.
c. “preempt” managerial decisions that affect shareholders.
d. sell a prorated share of a new issue of stock before other sellers.

A
In all states, Sports Clubb Company and other corporations can pay dividends from

a. gross profits.
b. net profits.
c. retained earnings.
d. surplus.

c
Rusty and Sylvia are shareholders of Triad Hotel Corporation. Triad’s directors fail to declare a dividend. Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend

a. if Triad has sufficient earnings available to pay a dividend.
b. if Triad has cash reserves, even if earmarked for a different purpose.
c. if withholding a dividend is an abuse of the directors’ discretion.
d. under no circumstances.

c

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