Q&A Hero

Q: Why might a U.S. investor choose to incorporate its business in the country where it is conducting its overseas operations? What special constraints might exist?

Q: Under the Delaware General Corporation Law, e-mail is not a legally-recognized official form of business communication.

Q: All corporate actions can be taken only through board initiative.

Q: Directors are agents for the corporation by virtue of that office.

Q: Explain the promoters' liability to third parties before the corporation is formed.

Q: What must be included in the articles of incorporation according to the MBCA?

Q: If articles of incorporation provide for a limited life: A. the corporation automatically terminates at the end of the designated time. B. the corporation must appeal to the Secretary of State for dissolution. C. the corporation dissolves only by amendment to the contract. D. the corporation terminates at the end of the designated time only with the written consent of all shareholders.

Q: Which of the following statements is true for the dissolution of a corporation by agreement? A. It doesn't require the state's consent to dissolve. B. A corporation can be dissolved by oral consent of all shareholders. C. If two corporations consolidate into a new corporation, only the old one with major shareholders is dissolved. D. A corporation that merges into another is dissolved.

Q: Under the Model Business Corporation Act, a shareholder may ask a court to dissolve a corporation when: A. a corporation uses assets for public welfare. B. directors are in conflict, their deadlock cannot be broken by shareholders, and the corporation faces ruin. C. directors are maintaining registered agents without the approval of the shareholders. D. creditors are acting unfairly or illegally.

Q: Which of the following would be a justification for involuntary dissolution of a corporation by a creditor? A. Misapplication or waste of corporate assets. B. Directors are in conflict, deadlock cannot be broken by shareholders, and the corporation faces ruin. C. Corporation is insolvent and not paying its debts. D. Directors are acting illegally or unfairly.

Q: Which of the following is true for a close corporation? A. The shareholders are large in number. B. Shareholders usually live in different geographic areas. C. Only few of the shareholders are active in the business. D. There is no established market for the stock.

Q: One of the basic principles of corporation law is that: A. shareholders are not free to dispose of their shares by gift. B. shareholders are given the authority to manage the business. C. majority rule applies to both shareholder and director action. D. majority rule applies only to director action.

Q: Which of the following is a useful way of preventing unwanted persons from entering a corporation? A. Novation B. Consent restraint C. Piercing the veil D. Estoppel

Q: ______ is a basic restriction governing the transferability of shares in a close corporation. A. Piercing the veil B. Quo warranto C. Right of first refusal D. Ultra vires

Q: In a de jure corporation: A. the promoters have substantially complied with all mandatory provisions. B. the promoters have only complied with directory provisions. C. the business intends to be treated as a corporation. D. the omission of directory provisions will destroy the enterprise's corporate identity.

Q: Under the revised MBCA, if there are business debts following a defective incorporation, liability for the debts will be imposed upon: A. all purported shareholders who acted as if a corporation had been formed. B. promoters, managers, or purported shareholders who only participated in management and policy decisions in the business. C. all shareholders and directors who participated actively or inactively. D. promoters, managers, and shareholders who participated in management and policy decisions, and also knew of the defective incorporation.

Q: In a ____, the promoters substantially complied with all mandatory provisions. A. de jure corporation B. de facto corporation C. corporation by estoppel D. close corporation

Q: A de facto corporation exists where: A. the promoters had substantially complied with all mandatory provisions. B. an honest attempt was made to comply with the mandatory provisions of the corporate statue, yet the attempt still failed in some material respect. C. a person holds himself out to be a representative of a corporation, yet no real attempt to incorporate has been made. D. the corporation can be challenged by a third party.

Q: According to the traditional judicial rule, under which of the following situation can courts pierce the corporate veil? A. When there is undercapitalization coupled with strict adherence to corporate formalities. B. When there is strict adherence to corporate formalities such as holding shareholders' but not directors' meetings. C. When there is undercapitalization. D. When shareholders mixed their personal dealings and corporate transactions as if all were professional.

Q: The bylaws of a corporation: A. usually set up procedures for the holding of shares. B. do not involve financial matters such as declaring and paying dividends. C. establish rules for the conduct of internal affairs. D. need not be consistent with state laws or the articles of incorporation.

Q: Which of the following statements is true about the ultra vires doctrine? A. It is the only stringent limitation on the enforceability of contracts entered into by corporations. B. It permits corporate directors to freely prevent enforcement of unattractive contracts. C. It permits the state attorney general to prevent enforcement of corporate contracts that extend beyond the corporation's authorized powers. D. It does not permit the corporation to bring a suit for damages to the corporation against the officers of the corporation who have entered into an ultra vires contract.

Q: Under the revised MBCA's liability rules for defective incorporation: A. the filing of the articles of incorporation, evidenced by a return of the copy stamped by secretary of state, is conclusive proof of incorporation. B. liability will never be imposed on promoters who participated in management and policy decisions. C. the issuance of the certificate of incorporation is conclusive proof of incorporation to the corporate status, except a quo warranto action brought by the secretary of state. D. managers will be released from any liability in excess of their initial investment.

Q: Which of the following steps governing the incorporation process is included in the MBCA? A. Preparation, signing, and authenticating the articles of incorporation. B. Filing the articles with the attorney general. C. Filing the articles with the secretary of state and paying part of the required fees. D. Contributing a minimum of $5,000 to receive a certificate of incorporation.

Q: According to the MBCA, which of the following may be included in the articles of incorporation? A. The name of the corporation. B. The name and address of each incorporator. C. The number of shares of capital stock that the corporation shall have authority to issue. D. The duration of the corporation.

Q: Helen is a promoter who, prior to forming Tile Co., contracted to purchase tile-manufacturing machinery from Owen Machinery Co. The contract was negotiated and entered into in the name of Tile Co. Subsequently, a certificate of incorporation was issued to Tile Co. In view of the facts stated which of the following statements is true? A. When Tile received its certificate of incorporation, it became liable for the contract with Owen. B. Helen is liable for the contract with Owen Machinery Co. C. If Tile's board of directors issue a suitable resolution, Helen will be relieved from all liability for the contract with Owen. D. Since Tile was not in existence at the time the contract was negotiated, the contract is void.

Q: Massachusetts courts require that the parties expressly create a(n) _____ before a corporation can be held liable for preincorporation contracts. A. adoption agreement B. novation C. incorporation regulation D. operating agreement

Q: Before a corporation comes into existence: A. it can be liable as principal. B. it cannot ratify a contract made by the promoter. C. it is illegal to pay promoters for their services. D. it is liable if the board acts to adopt the contract.

Q: Under general incorporation laws: A. incorporation is a legislative privilege, not a right. B. the secretary of state has to issue a certificate of incorporation. C. incorporation is decided by shareholders. D. incorporation is a legislative privilege and a right.

Q: All business corporations derive their existence from: A. the Commerce Clause of the U.S. Constitution. B. the common law. C. the state in which they are incorporated. D. the federal government.

Q: Which of the following states has traditionally been considered attractive for incorporation? A. Delaware B. New York C. California D. Iowa

Q: Alex and his partners have started a corporation in North Dakota. They can get it incorporated in Illinois if: A. incorporation fees are lower than taxes. B. shareholders can actively participate in the management. C. fees and taxes are lower, and there is minimal shareholder interference. D. promoters and shareholders are barred from interfering.

Q: Nonprofit corporations: A. are similar to nontaxing governmental corporations. B. are formed and operated by public persons. C. do not permit officers and employees to receive salaries. D. have the power to tax.

Q: A municipal corporation: A. is formed and operated by private persons. B. does not seek to make a profit. C. does not have the power to tax. D. is incorporated under special statute.

Q: Which of the following types of corporations sells shares to people who often have little interest in it except as investors? A. Nonprofit B. Closely held C. Publicly held D. Municipal

Q: Pam and Sam are promoters for Kale Corporation. Prior to its incorporation, Pam negotiated several preincorporation contracts with Ian, an investor. She signed each contract in the name of Kale Corporation. Kale subsequently was incorporated, but the Kale Board of Directors refused to adopt the contracts. Ian later sues Kale, Pam, and Sam on the contracts. Who is liable? A. Kale and Pam B. Pam only C. Kale, Pam, and Sam D. Pam and Sam

Q: Jones & Co. is a business concern in the process of being set up. Its promoters have entered into preincorporation contracts. After the corporation comes into existence, the promoters can be released from liability through: A. an agreement with the corporation wherein the corporation agrees that it will be substituted for the promoter. B. an agreement with the third party before adoption of the preincorporation agreement. C. an agreement with the corporation and third party wherein all three agree that the corporation will be substituted for the promoter. D. the preincorporation contract with the third party.

Q: A corporation that merges into another is dissolved.

Q: Failure to appoint a registered agent in the state of incorporation is grounds for an involuntary dissolution.

Q: A court may pierce the corporate veil if a corporation defrauds its creditors by not having sufficient assets available to meet expected claims.

Q: Generally, businesses start out as publicly traded corporations.

Q: Under the right of first refusal, either the corporation or its shareholders are given the right to buy shares offered for sale to an outsider willing to purchase them.

Q: Minority shareholders in close corporations cannot be outvoted on salary and employment decisions.

Q: Foreign corporations doing business in the U.S. are protected against discriminatory treatment by bilateral investment treaties.

Q: The promoter's liability on pre-incorporation contracts terminates when a novation is signed.

Q: Under the MBCA, the corporation can issue shares in return for the promoters' preincorporation service.

Q: An enterprise that conducts its affairs in interstate commerce cannot be incorporated in a state other than the state in which the principal offices are located.

Q: The function of bylaws is to establish rules for the conduct of the internal affairs of the corporation.

Q: In a de facto corporation, the promoters substantially complied with all mandatory provisions.

Q: The corporation is viewed as the alter ego of the shareholder-manager when shareholders mix their personal dealings and corporate transactions as if all were personal.

Q: Paul and Betty were partners doing business as Granite Stone Co. The firm became indebted to Monster Equipment Co. The partnership later was dissolved, with Betty leaving the partnership and Paul continuing to operate the business. Monster Equipment sued the former partnership, Paul and Betty, to recover the price of equipment supplied to the firm before Betty withdrew. Betty claims that she is not liable on the debt because at the time she withdrew, the partnership had sufficient assets to pay all firm debts in full. Is Betty liable? State the reasons for your answer.

Q: Describe limited partnerships.

Q: What is the difference between a limited partnership and a limited liability limited partnership?

Q: A governmental corporation seeks to make a profit.

Q: Both nonprofit corporations and nontaxing governmental corporations are similar in that they are formed and operated by private persons.

Q: Under the RUPA, when a partnership that has suffered losses winds up, which party is paid first? A. All the partners B. All partnership creditors C. Major share holder in the partnership business D. Both partners and creditors have equal rights to be paid first

Q: Which of the following is true of limited partnerships? A. Limited partners are liable for the debts of the partnership. B. The partnership must file a certificate with the secretary of state. C. Limited partners are fiduciaries. D. Limited partnerships can be created only under federal statutes.

Q: Define "partnership" and explain its key elements.

Q: Describe the rights and general duties of partners.

Q: A partner who wrongfully dissociates: A. loses the right to demand a dissolution. B. can participate in the winding up process. C. must not be paid the value of his interest for the breach, if the firm continues. D. can ask the court to appoint a receiver on his behalf.

Q: If a partnership has been dissolved in violation of the partnership agreement: A. the court, by itself, liquidates the assets of the business. B. the court appoints a representative as receiver to wind up the business. C. the remaining partners forfeit the right to wind up the business. D. the innocent partners have the right to liquidate the partnership assets.

Q: MNO was a partnership which contracted for and performed all types of painting jobs. Before the partnership was dissolved, MNO had entered into a contract under which MNO was to paint every room in the state capitol building. At the time of the partnership dissolution, MNO had not yet performed the work called for by such contract. If the partners involved in the winding up elect to perform the contract, they: A. have the authority to enter into new contracts with subcontractors, material suppliers, and workers. B. have no authority to enter into new contracts. C. cannot assign long-term contracts to other contractors. D. have the authority to enter into new contracts with subcontractors, material suppliers, and workers, but cannot borrow money in order to complete these contracts.

Q: What right does a partner have to continue a partnership beyond the originally agreed-on term? A. The partner has an unconditional right. B. The partner has no right to continue. C. The partner has a right to continue until the firm is liquidated or a new partner joins the firm. D. The partner has no right to continue until it is agreed upon by the majority of partners.

Q: When continuing partners agree to relieve the withdrawing partners of liability on the debts of the old partnership, the act of novation can take place which involves: A. an agreement by the creditor with both the withdrawing partners and the continuing partners. B. an agreement by the creditor with the withdrawing partners themselves and not their representatives. C. an agreement by the creditor only with the continuing partners. D. an agreement by the creditor with the new partners replacing the withdrawing partners to hold them liable for the debts.

Q: Which of the following is true of the liability to creditors in the process of continuation of partnership beyond an agreed-on-term? A. Withdrawing partners are liable for new obligations though they have given a notice of withdrawal. B. New partners are liable for prior obligations only to extent of contribution unless they agree to greater liability. C. Continuing partners are the only people liable for prior obligations. D. Withdrawing partners are liable for prior obligations even though they are released by novation.

Q: Fillmore, Willis, and Polk form a partnership. Fillmore's capital contribution to the firm is $10,000. Willis and Polk contribute $5,000 each. The parties make no express agreement concerning how profits are to be divided, but they agree to share losses as follows: Fillmore, 40%, Willis and Polk, 30% each. During the partnership's first year, the business has a profit of $30,000. What is Fillmore's share of the profit? A. $7,500 B. $9,000 C. $10,000 D. $12,000

Q: If Acme Chemical Partnership discharges a pollutant prohibited by the EPA: A. the firm is liable for the resulting fines. B. only the general partners are liable if the firm has inadequate assets. C. only the partner who ordered the discharge is liable. D. all the partners will be imprisoned as discharging pollutants is a crime.

Q: The partnership is liable for torts committed by any partner of the firm while engaged in partnership business under the doctrine of: A. estoppel. B. respondeat superior. C. caveat emptor. D. ultra vires.

Q: The liability of partners for torts committed by the partnership: A. is on the partner who committed the tort. B. is joint and several, permitting the injured person to sue any partner individually or all of them together. C. depends on whether a partner or an employee commits the tort and if it is a partner the injured person has to sue all of the partners together. D. is nonexistent since a partnership cannot commit a tort.

Q: If a partner retires before the completion of the partnership, it is called a: A. termination. B. dissolution. C. dissociation. D. winding up.

Q: In terms of a partnership at will, the partnership can be dissolved: A. at any time by the major share holder even without the consent of the other partners. B. at a specific time by any partner. C. at any time by any partner by the notification to other partners. D. at a specific time with the consent of both partners.

Q: The RUPA holds that property belongs to the partnership if it was transferred to: A. the partners in their individual capacities. B. general partners only by a transfer document that specifically names the partnership indicating that partnership exists. C. any partner by transfer document indicating the partner's status as a partner or otherwise indicating that a partnership exists. D. any partner by transfer document under the charging order.

Q: The partners' rights in partnership property, as tenants in partnership, entitle them to: A. sell any item of property if its value does not exceed their share of the assets of the partnership. B. take possession of any item of partnership property for partnership purposes only. C. take possession of any item of partnership property for personal purposes if its value does not exceed their share of the assets of the partnership. D. devise to an heir any individual item of the firm's property.

Q: Which of the following is true of a partner's right to compensation? A. A partner is entitled to salary or wages. B. The partners may agree that one or more of them is to be paid a salary which will not be deducted at the end of the year from his profits. C. Compensation is never presumed to be the partner's share of the profits. D. The partners may agree that one or more of them is to be paid a salary in addition to sharing in profits.

Q: In terms of the RUPA, when a partner dies, the surviving partners: A. cannot continue the business. B. are entitled to compensation for winding up the partnership business. C. must accept the deceased partner's heir as a full partner. D. are relieved from personal liability on partnership debts.

Q: Charlene, Derwood, and Elwyn form a partnership. They make no express agreement concerning how profits are to be divided. Of the $30,000 initial capital of the firm, Charlene and Derwood each contributed $12,000. Elwyn contributed $6,000. The partnership had a profit of $15,000 during the first year of operation of the business. What is Derwood's share of the profit? A. $5,000 B. $6,000 C. $10,000 D. $12,000

Q: Jo & Co. Dresses is a partnership firm dealing in the manufacture of casual clothes. One of the partners of Jo & Co. thinks that they should clear the old stock during Thanksgiving. For this purpose: A. he requires unanimous agreement of all the partners. B. he requires unanimous agreement of the general partners only. C. he has the express authority to act. D. he requires his decision to be ratified by any two general partners.

Q: Which of the following is true of partnership property? A. The fact that property is used in the business makes it partnership property though it does not show in the account books. B. Payment by the partnership of taxes or insurance on property is conclusive evidence that the property is owned by the partnership. C. Any property acquired with partnership funds is partnership property though a contrary intent is clearly shown. D. It includes all property that originally was contributed to the partnership as well as anything purchased then or later for the partnership.

Q: _____ releases the partner from liability for having exceeded his/her authority and binds the partnership to the contract as if it had been authorized all along. A. Devolution B. Emancipation C. Rescission D. Ratification

Q: If a partner assigns his/her partnership interest to a creditor, the creditor is entitled to: A. receive that partner's share of the profits. B. any information about partnership interests. C. look at the partnership's books. D. obtain a charging order against the other partners.

Q: A partnership agreement: A. in written form is highly mandatory. B. in written form is needed if it creates a partnership in excess of one year. C. can be modified only after the limited partners have consented to the modification, unless the agreement states otherwise. D. normally does not state the salary or drawing accounts.