Helix BBQ: Corp and LLC- Corporations - Financing the Corporation with Explanations

All the following are rights typically granted to equity investors in a business, except which?

D.The right to be paid in full if the entity is dissolved before other investors are repaid.

Solution: The correct answer is D.

Answer option D is correct. Those who own equity in a business are typically granted three rights: (1) the right to vote on certain matters relating to the business, (2) the right to receive dividends and distributions when declared, and (3) the right to a proportional share of the company’s assets if the entity is dissolved.

Which of the following accurately describes the issuance of shares of stock by a corporation?

A.The board of directors must authorize the issuance of stock.

Solution: The correct answer is A.

Answer option A is correct. The issuance of stock must be authorized by the board of directors.

Shares of stock that are authorized and issued remain outstanding shares until any of the following occur, except which?

B.Devaluation.

Solution: The correct answer is B.

Answer option B is correct. Shares of stock authorized and issued by the corporation remain outstanding until they are reacquired, redeemed, converted, or canceled.

Which of the following statements regarding dividends and distributions is accurate?

A.A director who assents to a distribution in excess of what is lawful may be personally liable to the corporation.

Solution: The correct answer is A.

Answer option A is correct. A director who votes for or assents to a distribution in excess of what may be lawfully made may be personally liable to the corporation for the amount of the distribution exceeding what could have been lawfully distributed.

Which of the following scenarios creates redemption rights?

C.The corporation enters a contract requiring it to repurchase shares owned by a stockholder in the future.

Solution: The correct answer is C.

Answer option C is correct. A stockholder may enter into a contract with the corporation that requires the corporation to repurchase, in the future, shares owned by the stockholder. These contractual rights are generally known as “redemption rights.”