Business Law, Chapter 39: "Corporate Formation and Financing" flash cards

Corporation

(39-1) A firm that is authorized by statute to act as legal entity separate and distinct from its owners (shareholders).

Dividend

(39-1c) A distribution of corporate profits to the corporation’s shareholders in proportion to the number of shares held.

Retained Earnings

(39-1c) The portion of a corporation’s profits that have not been paid out as dividends to shareholders.

Holding Company

(39-1c) A company whose business activity is holding shares in another company.

Domestic Corporation

(39-1f) A corporation that is under the law of a given state.

Foreign Corporation

(39-1f) A corporation that does business in a state it is not incorporated in.

Alien Corporation

(39-1f) A corporation that is formed in another country but is still doing business in the United States.

Articles of Incorporation

(39-2b) The document that is filed with the appropriate state official, usually the secretary of state, when a business is incorporated and that contains basic information about the corporation.

Bylaws

(39-2c) The internal rules of management adopted by a corporation at its first organizational meeting.

Ultra Vires

(39-2e) Acts of a corporation that are beyond its express and implied powers to undertake (in Latin, this phrase means “beyond the powers”).

Piercing the Corporate Veil

(39-3) The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.

Commingled

(39-3a) To put funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities.

Security

(39-4) Generally, a stock, bond, or other item that represents an ownership interest in a corporation or a promise of repayment of debt by a corporation.

Bond

(39-4a) A security that evidences a corporate (or government) debt.

Stock

(39-4b) An ownership (or equity) interest in a corporation, measured in units of shares.

Common Stock

(39-4b) A security that evidences ownership in a corporation. A share of this stock gives the owner a proportionate interest in the corporation with regard to control, earnings, and net assets. Additionally, this kind of stock is the lowest in priority with respect to payment of dividends and distribution of the corporation’s assets on dissolution.

Preferred Stock

(39-4b) A security that entitles the holder to payment of the fixed dividends and that has priority over common stock in the distribution of assets on the corporation’s dissolution.

Venture Capital

(39-4c) Financing provided to new business ventures by professional, outside investors (e.g., venture capitalists) who are usually groups of wealthy investors and securities firms.

Private Equity Capital

(39-4c) Capital funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it.

Crowdfunding

(39-4d) A cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause (ex., disaster relief) or invest in a business venture (ex., a startup).

C) Board of directors.

4) The responsibility for the overall management of a corporation belongs to the:
A) Shareholders.
B) Chief financial officer.
C) Board of directors.
D) Chief executive officer.

B) Raw Resources and Stefan.

10) Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan commits a tort. Liability for this tort 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.

A) The same as many of those held by citizens.

11) The constitutional rights enjoyed by corporations are:
A) The same as many of those held by citizens.
B) Greater than those held by citizens.
C) Nonexistent. Only individuals working for corporations have constitutional rights.
D) Identical to those held by natural persons.

A) There must be a state statute under which the corporation can be validly incorporated.

13) For de facto status to be obtained:

A) There must be a state statute under which the corporation can be validly incorporated.
B) It must be proven that the parties did not make a good-faith attempt to comply with the statute.
C) The enterprise must not yet have opened for business as a corporation.
D) None of these choices.

D) Have no shareholder who is a nonresident alien and have shareholders who are individuals, estates, or certain trusts.

15) S Corporations are required to:
A) Have no more than fifty stakeholders.
B) Have more than one class of stock.
C) Be a member of an affiliated group of corporations.
D) Have no shareholder who is a nonresident alien and have shareholders who are individuals, estates, or certain trusts.

D) Sell substantial corporate assets.

16) John Provenza is President and CEO of Abalthus, Inc., but there is a limit to what he can do. For example, he does not have the authority to:
A) Enter into a contract with a government agency.
B) Extend the corporation’s credit.
C) Lend corporate funds.

D) Sell substantial corporate assets.

D) The names and addresses of the shareholders involved in the incorporation.

24) Which of the following is not typically required to be included in the Articles of Incorporation for a corporation?
A) The name of the corporation and the address of the initial registered office.
B) The value of shares the corporation is authorized to issue and the par value of each share.
C) The name of each corporation’s initial registered agent and registered office.
D) The names and addresses of the shareholders involved in the incorporation.

C) A de jure corporation.

26) Stable Foundation Construction Corporation’s articles lists an incorrect address for its incorporator. Under these circumstances, Stable is most likely:

A) Ultra vires.
B) A corporation by estoppel.
C) A de jure corporation.
D) A de facto corporation.

A) Receives legal documents on behalf of Transport.

27) Stan is a registered agent for Transport, Inc., which is incorporated in Utah. As a registered agent, Stan:
A) Receives legal documents on behalf of Transport.
B) Agreed to buy stock in Transport because it existed.
C) Does business for Transport in Utah.
D) Applied to Utah on behalf of Transport to obtain its corporate charter.