Question 1

Better Built Storage Buildings,Inc.wants to incorporate in Delaware but has no office there.It must:

Accepted Answer

When incorporating in a state where a business has no physical presence, it is common to hire a registered agent to serve as the business's official presence in that state. The registered agent is responsible for receiving legal documents and other important correspondence from the state. This allows the business to incorporate in the state without having to maintain an office or physical address there. Therefore, option B is the best choice for Better Built Storage Buildings, Inc.

Question 2

The shareholders decide how much directors will be paid since the Model Act prohibits directors from setting their own compensation.

Accepted Answer

The Model Business Corporation Act allows directors to set their own compensation unless the corporation's articles of incorporation or bylaws provide otherwise.

Question 3

Shyff decided to incorporate his business under the name of "Zamm." In addition to "Zamm," the Model Act requires that Shyff include one of the following words: "corporation," "incorporated," "limited," or "company" or an abbreviation thereof.

Accepted Answer

The Model Business Corporation Act requires that the name of a corporation include a word or abbreviation indicating its corporate status, such as "corporation," "incorporated," "limited," or "company."

Question 4

When establishing takeover defenses,shareholder welfare must be the board's primary concern.

Accepted Answer

According to corporate governance principles, the board of directors' primary duty is to act in the best interest of the shareholders. Therefore, when establishing takeover defenses, they must prioritize the shareholders' welfare.

Question 5

Under corporate law,a corporation's official statement of purpose as "to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Idaho" is too broad.A corporation's purpose must be more narrowly defined.

Accepted Answer

Under corporate law, particularly in many U.S. states including Idaho, it is common and acceptable for a corporation's purpose to be broadly stated as engaging in any lawful activity allowed by the state's corporation law.

Question 6

Sara decided to incorporate her business under the name Loro,Inc.Before Loro was incorporated,Sara signed a contract in the name of Loro,Inc.to lease a storefront.Sara did not tell the other party that Loro was not yet formed.Sara is personally liable on the lease.

Accepted Answer

Since Loro, Inc. was not yet incorporated at the time the lease was signed, Sara signed the contract in her personal capacity. Therefore, she is personally liable for the lease, not the newly formed corporation. It is important to wait until the business is legally incorporated before entering into contracts or agreements in the business's name to avoid personal liability.

Question 7

A business corporation can only be incorporated under state law.

Accepted Answer

This is true. Business corporations are incorporated under state law and must follow state laws for their formation, management, and operations. Each state has different requirements and regulations for corporations.

Question 8

Defining a corporation with such information as the corporate name,the number and type of authorized shares of stock,identification of the purpose and the agent,is done through the:

Accepted Answer

The answer of Defining a corporation with such information as...

Question 9

Laurie is incorporating her business.The business's home state is Wisconsin.Business will be conducted in California,Michigan,Pennsylvania,and Virginia.Laurie:

Accepted Answer

Laurie can choose to incorporate her business in any state, regardless of where the business is conducted or where it is based. Many businesses choose states like Delaware for incorporation due to favorable business laws.

Question 10

Owners of preferred stock typically have a preference in liquidation.

Accepted Answer

This is true. Preferred stockholders have a higher claim on the assets of the company in the event of liquidation, meaning they are paid out before common stockholders.

Question 11

After a new corporation adopts a contract that was signed by the promoter before the corporation was actually formed,the corporation is liable on the contract and the promoter no longer has any liability on the contract.

Accepted Answer

The promoter remains liable on the contract unless there is a novation, where the third party agrees to release the promoter from liability and hold only the corporation liable.

Question 12

Shareholders have the authority to manage the corporate business.

Accepted Answer

Shareholders elect a board of directors who then has the authority to manage the corporate business. Shareholders may have voting rights to make major decisions such as electing board members or approving mergers, but they do not have direct authority over day-to-day operations.

Question 13

Terminating a corporation is a three-step process: dissolution,winding up,and termination.

Accepted Answer

Terminating a corporation typically involves a two-step process: dissolution and winding up. Termination is not a separate step but rather the end result of the winding-up process.

Question 14

Foster,Asher,and Jefferies are the incorporators of Moreland,Inc.They will elect the first set of directors.

Accepted Answer

As incorporators, Foster, Asher, and Jefferies are responsible for filing the necessary documents to form Moreland, Inc. and will have the authority to elect the first set of directors.

Question 15

A corporate charter is filed with:

Accepted Answer

A corporate charter is a legal document created during the incorporation process and is filed with a state's Secretary of State office. It outlines the purpose, structure, and regulations of the corporation. It is not typically filed with a state's Treasury or Revenue Division or the United States Department of Commerce.

Question 16

The "business judgment rule" has been abandoned in most states.

Accepted Answer

The business judgment rule is still followed in most states. It provides protection to directors and officers of a corporation for their business decisions made in good faith and with reasonable care.

Question 17

Larry has owned $5,000 of stock in E-prise,Inc.for the past 18 months.Under SEC rules,Larry can require that one proposal be placed in the company's proxy statement to be voted on at the shareholder meeting.

Accepted Answer

According to SEC rules, shareholders who have owned at least $2,000 of stock in a company for at least one year are eligible to propose a resolution to be included in the company's proxy statement. Since Larry has owned $5,000 of stock in E-prise, Inc. for 18 months, he meets this requirement and can require that one proposal be placed in the company's proxy statement.

Question 18

Casey decided to incorporate her business under the name yStar Inc.Before yStar was incorporated,Casey signed a contract in the name of yStar,Inc.to have some office space remodeled.Which statement is correct?

Accepted Answer

When a corporation is incorporated, it becomes a separate legal entity from its owners. Until the corporation adopts a contract signed before incorporation, the corporation would not be liable. Therefore, the correct answer is D.

Question 19

The Williams Act regulates tender offers only if the target company's stock is publicly traded.

Accepted Answer

The Williams Act, also known as the Securities Exchange Act of 1968, applies only to publicly traded stocks. It requires certain disclosures and procedures for firms making a tender offer in an attempt to acquire 5% or more of a company's outstanding shares.

Question 20

A derivative lawsuit is filed by the directors on behalf of the corporation against third parties who have committed wrongful acts and/or breaches of contract.

Accepted Answer

A derivative lawsuit is actually filed by shareholders on behalf of the corporation against third parties who have committed wrongful acts and/or breaches of contract. Directors may also initiate such a lawsuit if the shareholders do not take action.

Quiz 19: Corporations