Law of business orgs Exam 4

Astate - PJ

Close corporation shares are seldom intended to be sold to the public at large.

a. true

b. false

a. true

Generally, promoters are liable for contracts they make on behalf of corporations that are not yet formed.

a. true

b. false

a. true

Under the Model Business Corporation Act, which of the following is not part of the mandatory contents of the articles of incorporation?

a. the address of the initial registered office of the corporation and the name of its registered agent

b. the name of the corporation

c. the duration of the corporation

d. the number of shares of capital stock that the corporation shall have authority to issue

c. the duration of the corporation

Jill, as a promoter, entered into contracts with third parties as part of her duties in bringing ABC Corporation into existence. Her liability to third parties on preincorporation contracts ends:

a. if, and when, the corporation, the promoter, and the third party all agree that the corporation will be substituted for the promoter

b. if, and when, the corporation officially ratifies her acts

c. when the articles of incorporation for the corporation are filed with the secretary of state

d. if, and when, amended articles of incorporation are filed with the secretary of state

a. if, and when, the corporation, the promoter, and the third party all agree that the corporation will be substituted for the promoter

The traditional judicial rule is that the court will pierce the corporate veil when the corporation has been dominated by one or more of its shareholders and the domination has resulted in an improper purpose.

a. true

b. false

a. true

The current trend in law is to permit the corporation to issue shares in return for the promoters' preincorporation services.

a. true

b. false

a. true

Maurice, a creditor of ABC Corporation, believes that the corporation, has defrauded him. It appears that the corporation is undercapitalized; that money is being funneled to the three shareholders of the corporation who actively manage the corporation; and that the shareholders intend to defraud suppliers. Which of the following is true regarding options, if any, that Maurice has in this situation?

a. Maurice should get a judgment against the corporation and demand payment because after 30 days from the demand for payment, individual shareholders in corporations with fewer than five shareholders are individually liable for judgments against the corporation

b. so long as the corporation is validly incorporated, Maurice has no rights against individual shareholders and may proceed only against the corporation

c. Maurice is entitled under these facts to engage in self-help measures and repossess any good delivered to the corporation

d. Maurice should seek to reach assets of the individual shareholders through piercing the corporate veil

d. Maurice should seek to reach assets of the individual shareholders through piercing the corporate veil

According to the Model Business Corporation Act (MBCA), the number of shares of capital stock the corporation is authorized to issue must be included in the articles of incorporation.

a. true

b. false

a. true

The articles of incorporation serve the same function as a charter.

a. true

b. false

a. true

Generally, corporations are not required to compensate promoters for the services they render during the preincorporation process.

a. true

b. false

a. true

Most incorporated businesses are close corporations.

a. true

b. false

a. true

A promoter's liability on a preincorporation contract does not terminate when a novation is signed.

a. true

b. false

b. false

The bylaws of a corporation:

a. are established by the Secretary of State

b. do not involve financial matters, such as declaring an paying dividends

c. are part of the articles of incorporation

d. establish rules for the conduct of internal affairs

d. establish rules for the conduct of internal affairs

Marilyn entered into a contract and sold equipment to Sam who claimed to be acting on behalf of ABC Corporation. Marilyn was not paid, and upon investigation, she learned that while the articles of incorporation were filed for ABC Corporation, they were never issued. Which of the following is the applicable law in regard to her position in a majority of states?

a. the majority of states follow the old MBCA which follows the approach that only promoters who assume to act as a corporation when the certificate of incorporation has not been issued are jointly and severally liable for the business debts

b. the majority of states follow the old MBCA which follows the approach that all persons who assume to act as a corporation when the certificate of incorporation has not been issued are jointly and severally liable for the business debts

c. the majority of states follow the revised MBCA under which the filling of the articles of incorporation, regardless of whether there is a return copy stamped by the secretary of state, is conclusive proof of incorporation; and the corporation itself is liable for business debts form that point forward.

d. the majority of states follow the revised MBCA under which the filling of the articles of incorporation, evidenced by the return of the copy stamped by the secretary of state, is conclusive proof of incorporation; and the corporation itself is liable for business debts from that point forward

b. the majority of states follow the old MBCA which follows the approach that all persons who assume to act as a corporation when the certificate of incorporation has not been issued are jointly and severally liable for the business debts

A court may pierce the corporate veil if the corporation is undercapitalized.

a. true

b. false

a. true

Courts have begun to recognize a fiduciary duty in corporate officers and majority shareholders to treat minority shareholders fairly.

a. true

b. false

a. true

A corporation is liable for all torts committed by its employees while acting in the course of and within the scope of their employment. This rule is a simple application of the ________ concept of ________.

a. agency; respondeat superior

b. agency; res ipsa loquitur

c. equitable; detrimental reliance

d. equitable; promissory estoppel

a. agency; respondeat superior

The board of directors of Meckes Corporation, at a regular meeting of the board, entered a contract with Peter, one of the directors. The agreement called for the sale of a retail store the corporation operated to Peter. There were 12 board members, 10 of whom were present at the meeting. Nine directors, including Peter, voted in favor of the contract and one voted against it. In view of these facts, which of the following is correct?

a. the contract between Peter and the corporation is illegal

b. the contract is valid because Peter’s vote was not necessary for approval of the contract

c. a director cannot enter a contract with a corporation of which they are a director

d. if the contract is unfair to the corporation, it is voidable at the option of the corporation

d. if the contract is unfair to the corporation, it is voidable at the option of the corporation

When a corporate manager makes an honest error in judgment, the business judgment rule directs that the manager will ________.

a. not be liable and a court will intervene to remedy the manager’s mistake

b. not be liable if they acted with care and in good faith

c. be strictly liable for all losses resulting from the error

d. be liable for all consequential corporate losses

b. not be liable if they acted with care and in good faith

Distanet Corporation (Distanet) and Telenex Corporation (Telenex) are competitors in the gaming accessories market. Telenex has been the market leader for over five years. After examining the price and sales data of products from both companies and consulting an economist and an accountant, Distanet's directors vote for a reduction in price of Distanet's products. They believe that reducing prices would make the company more competitive. The decision to reduce prices does not improve sales significantly. In fact, Distanet's revenues decrease because of the decision. Aileen, a stockholder of Distanet, seeks to hold Distanet's directors liable for the failure of the plan to improve Distanet's position in the computer market and for the losses experienced by the corporation because of the implementation of the plan. Will she succeed in her suit?

a. no, because the directors are the mangers of the corporation

b. yes, because shareholders are permitted to sue to allow a court to determine whether the directors have acted in the best interests of the corporation

c. yes, because the directors are liable for any business-related financial losses sustained

d. no, because the directors’ decision is subject to the business judgment rule

d. no, because the directors’ decision is subject to the business judgment rule

The ________ binds the corporation on receipts, checks, and endorsements.

a. treasurer

b. vice president

c. chairman

d. corporate secretary

a. treasurer

Which of the following is true regarding liability for torts and crimes in corporations?

a. if the employee commits a crime or tort while acting outside the scope of employment, the corporation is liable

b. when a corporate officer knew (or should have known) of the illegal conduct and could have prevented an employee’s tort but did not, the officer may be liable

c. if an employee commits a tort within the scope of employment but outside the office space, the corporation is not liable

d. when a corporate officer did not know of the employee’s crime or tort, the officer is still liable

b. when a corporate officer knew (or should have known) of the illegal conduct and could have prevented an employee’s tort but did not, the officer may be liable

Lawsuits claiming unfair treatment by directors typically involve ________ shareholders in ________ corporations.

a. minority; publicly traded

b. majority; close

c. majority; publicly traded

d. minority; close

d. minority; close

A ________ is a majority of the number of directors fixed by the articles or bylaws.

a. standing committee

b. novation

c. quorum

d. referendum

c. quorum

Scott was a member of the board of directors of Buffalo Corporation (Buffalo). Officers of Buffalo were considering the purchase of new equipment to produce a new product. The board of directors had not been consulted about the new venture, but Scott found out about the plan and objected to its implementation. He sought to inspect the corporate books and records to gain information supportive of his position. The officers refused his inspection request, asserting that Scott had no management function or power. Under these circumstances, Scott ________.

a. has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties

b. has the right to inspect corporate books, but only if he is also a majority shareholder

c. is barred from examination of the books and records of the corporation under the doctrine of respondeat superior

d. is barred from examination of the books and records of the corporation under the business judgment rule

a. has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties

A(n) ________ is generally required for fundamental changes in the corporation.

a. board initiative

b. novation

c. referendum

d. accord and satisfaction

a. board initiative

Randall is a route delivery salesperson for Chucky's Chips, Incorporated (Chucky's). Randall's primary job responsibility involves going to grocery and convenience stores to stock their shelves with Chucky's snack foods. One day, Randall visited the local Patriot Pump-n-Pay, Incorporated (Patriot) convenience store. Upon examining his records, Randall realized that Patriot's store manager, Samuel, had canceled the store contract with Chucky's and would no longer be offering Chucky's Chips to customers. Randall went in to retrieve the Chucky's snack rack (Chucky's property which was used to display its variety of snacks) and a verbal argument ensued between Randall and Samuel as to who owned the rack (Samuel believed that Patriot's owned the rack). Randall finished the argument with a punch to Samuel's face, seriously injuring him, and Randall left the store with the rack. Chucky's has a company policy clearly prohibiting employee violence and other acts of aggression against others while in the course and scope of employment. Which of the following is true regarding Chucky's liability for Samuel's injuries?

a. even though Chucky’s had a company policy clearly prohibiting employee violence and other acts of aggression, it may still be liable under the doctrine of respondeat superior

b. Chucky’s is not liable, as Samuel experienced a work-related injury, and his sole remedy is to receive worker’s compensation benefits from Patriot, his employer

c. Chucky’s is strictly liable for Samuel’s injuries, as they occurred in the course and scope of Randall’s employment with the company

d. Chucky’s is under no circumstances liable for Samuel’s injuries, since it had a company policy clearly prohibiting employee violence and other acts of aggression

a. even though Chucky’s had a company policy clearly prohibiting employee violence and other acts of aggression, it may still be liable under the doctrine of respondeat superior

Under the Model Business Corporation Act (MBCA), a director ________.

a. will have dissented if they give a written notice of dissent immediately following the meeting

b. will have dissented if they wait for three months after the meeting to bring up dissent

c. will not have dissented if they refuse to vote for the proposed course of action

d. will not have dissented even if they make their dissent clear to the other board members by having it appear in the minutes

a. will have dissented if they give a written notice of dissent immediately following the meeting

Which of the following is true regarding whether directors and/or officers may enter transactions with the corporation?

a. directors and officers may enter only non-commercial transactions with the corporation

b. officers, but not directors, are prohibited from entering transactions with the corporation

c. directors, but no officers, are prohibited from entering transactions with the corporation

d. directors and officers are not prohibited from entering transactions with the corporation

d. directors and officers are not prohibited from entering transactions with the corporation

Who are the owners of the corporation?

a. the members of the board of directors

b. the executive officers

c. the shareholders

d. the stakeholders

c. the shareholders

A director ________.

a. cannot be removed from office by shareholders without cause

b. can be removed from office if they voluntarily failed to attend directors’ meetings

c. can be removed from office only through a supermajority vote of corporate stakeholders favoring the dismissal

d. cannot be removed from office because they have acted contrary to the interests of the corporation

b. can be removed from office if they voluntarily failed to attend directors’ meetings

In cases where an officer or director has been found guilty of a crime, they may be indemnified under voluntary indemnification if the officer or director ________.

a. acted outside the course and scope of their employment and they acted in a manner they believed to be opposed to the corporation’s best interests

b. prevail on the merits of the corresponding civil suit against them

c. acted in a manner they believed not to be opposed to the corporation’s best interests and they had no reasonable cause to believe their conduct was unlawful

d. had no reason to believe their conduct was unlawful and they acted outside the course and scope of their employment

c. acted in a manner they believed not to be opposed to the corporation’s best interests and they had no reasonable cause to believe their conduct was unlawful