Unit 3

Question 1

A _____ of a corporation incorporates a business, organizes it’s initial management, and raises its initial capital.

Answer 1

promoter 1090

Question 2

The only way a corporation may become bound on the promoters preincorporation contracts is by the corporations ________ of the promoters contracts

Answer 2

adoption 1091

Question 3

A promoter and her copromoters are _____ and _____ liable on preincorporation contracts the promoter negotiates in the name of the nonexistent Corporation

Answer 3

jointly, severally 1091

Question 4

______ occurs when the corporation and the third-party agreed to release the promoter from liability and to substitute the corporation for the promoter is the party liable on the contract

Answer 4

novation 1091

Question 5

A promoter ______ liable until novation occurs

Answer 5

is 1091

Question 6

the Corporation _____ relieve the promoter of liability to the third-party; the third-party must also agree to release the promoter from liability; either expressly or _____

Answer 6

can not, impliedly 1091

Question 7

“the promoter’s liability on this contract shall terminate upon the corporation’s adoption of this contract” is an example of a ________

Answer 7

Automatic novation clause 1092

Question 8

under the terms of a preincorporation ________ a prospective shareholder offers to buy a specific number of the corporations shares at a stated price.

Answer 8

share subscription 1092

Question 9

under the MBCA, a share holder may not revoke a preincorporation share subscription for _______ .

Answer 9

6 months 1092

Question 10

Although not an agent of the proposed Corporation or its investors, a promoter owes a _______ to the corporation and to it’s prospective investors

Answer 10

fiduciary duty 1093

Question 11

A corporation is generally ____ required to compensate a promoter for their promotional services unless expressly agreed upon.

Answer 11

not 1093

Question 12

The basic governing documents of the corporation is the ______ sometimes called the ______

Answer 12

Articles of incorporation, charter 1094

Question 13

To retain its status as a corporation in good standing, a corporation must file an ______ with the Secretary of State and pay an ___________.

Answer 13

annual report, annual franchise fee or tax 1096

Question 14

a _________ is formed when the promoters substantially complied with each of the mandatory conditions precedent to the incorporation of the business.

Answer 14

de jure corporation 1096

Question 15

A __________ corporation exists when the incorporators fail in some material respect to comply with all of the mandatory provisions of the incorporation statutes yet comply with most mandatory provisions.

Answer 15

De Facto 1097

Question 16

Ordinarily, the owners of _________ have the exclusive right to elect the directors, who manage the corporation and exclusive right to corporate earnings and assets.

Answer 16

common shares/common stock 1100

Question 17

________ are customarily given liquidation and dividend preferences over common shareholders.

Answer 17

preferred shareholders 1100

Question 18

_______ shares have voting rights unless the articles provide otherwise.

Answer 18

preferred 1100

Question 19

_______ shares are shares that a corporation is permitted to issue by its articles of incorporation

Answer 19

authorized 1101

Question 20

______ shares are shares that have ever actually been traded to include shares the company currently has within its treasury.

Answer 20

issued 1101

Question 21

________ shares are shares currently held by shareholders.

Answer 21

outstanding 1101

Question 22

When a corporation purchases its shares and and prevents their repurchase, they are ______ shares.

Answer 22

canceled 1101

Question 23

_______ are options evidenced by certificates. They are sometimes part of a package of securities sold as a unit.

Answer 23

warrants 1101

Question 24

______ are short-term certificate options that are usually transferrable. They are used to present security holders an option to subscribe to a proportional quantity of the same or different security of the corporation.

Answer 24

rights 1101

Question 25

_____ are long term, unsecured debt securities with a typical term of 10 to 30 years.

Answer 25

debentures 1101

Question 26

an _______ is a contract that states the rights of the debenture holders.

Answer 26

indenture 1101

Question 27

______ are Long term, secured debt securities that usually have been dentures and are secured by collateral.

Answer 27

Bonds 1101

Question 28

Generally, _____ have a shorter duration then debentures or bonds and be secured or unsecured.

Answer 28

notes 1101

Question 29

______ is an arbitrary dollar amount that maybe assigned to the shares by the articles of incorporation and is the minimum amount of consideration for which the shares maybe issued

Answer 29

par value 1102

Question 30

Shares issued for less than the par value are called______ . Share holder who purchase these are liable to the corporation for the difference between the _____ and the _____

Answer 30

discount shares, par value, amount paid 1102

Question 31

When the board impermissibly overvalues the consideration for shares, the shareholders receive _______ shares

Answer 31

watered 1103

Question 32

_____ for shares could include services rendered, promotors work, real property, and personal property.

Answer 32

consideration 1103

Question 33

Under the terms of a ________ , a prospective shareholder promises to buy a specific number of shares of the corporation at a stated price

Answer 33

share subscription 1104

Question 34

a ______ is an agreement between the corporation and a subscriber to sell additional shares to the subscriber.

Answer 34

postincorporation subscriptions 1105

Question 35

the _____ regulates the issuance of securities

Answer 35

UCC Article 8 1105

Question 36

The directors may incur liability, including criminal liability, for an ________ of shares

Answer 36

Over issuance 1105

Question 37

A ______ is evidence that a person has been issued shares, owns the shares, and is a shareholder.

Answer 37

share certificate 1105

Question 38

_______ restrictions are common for _____ corporations because it prevents other shareholders from obtaining said shares and becoming a majority, and restricts those who may be a shareholder.

Answer 38

transfer, close 1109

Question 39

____________ permit or require directors to take into account the interest of parties other than shareholders, including employees, suppliers, and customers.

Answer 39

Corporate constituency statutes 1114

Question 40

under the ________ doctrine, any act not permitted by the corporation statute or by the corporation's articles of incorporation was avoid due to lack of capacity.

Answer 40

ultra vires 1115

Question 41

ultra vires is latin for _______

Answer 41

"beyond the powers" 1115

Question 42

The MBCA permits a corporation to be managed under the direction of the ________

Answer 42

board of directors 1115

Question 43

The ________ has authority to delegate management powers of day to day working of the company to other officers such as the CEO and other management officers.

Answer 43

board of directors 1115

Question 44

Only _____ can serve on smaller board committees that conduct management decisions for the company.

Answer 44

directors 1116

Question 45

The most common board committee is the ___________ which is given authority to act for the board on most matters when the board is not in session

Answer 45

Executive committee 1116

Question 46

The Sarbanes-Oxley act requires that all publicly held firms have _________ comprising independent directors to provide oversight for independent public accountants for the company.

Answer 46

audit committees 1116

Question 47

_________ choose managements slate of directors that is to be submitted to the shareholders at the annual election of directors and plan for management succession.

Answer 47

Nominating committees 1116

Question 48

______ review and approve the salaries, bonuses, stock options, and other benefits of high-level corporate executives.

Answer 48

Compensation committees 1116

Question 49

A ________ committee is given the task of determining whether a corporation should sue someone who has allegedly harms the corporation

Answer 49

Shareholder litigation 1116

Question 50

The _________ or ______ Will state the number of directors of the corporation.

Answer 50

Articles of incorporation, bylaws 1117

Question 51

Directors are elected by the _______ at the annual shareholder meeting.

Answer 51

Shareholders 1117

Question 52

under _____ voting, a shareholder make cast as many votes for each nominee as he has shares.

Answer 52

straight 1117

Question 53

Under _____ voting, shareholder can multiply the number of their shares by the number of directors to be elected and cast the resulting number of votes on one or more directors of their choosing. This allows them a chance to elect board representation.

Answer 53

Cumulative 1117

Question 54

Passive shareholder will have _____ who vote for the shareholder at shareholder meetings when public ownership of the corporation's shares exceeds _____ percent.

Answer 54

proxies, 50

Question 55

Typically, proxie votes are cast by another officer who was elected by the _____, the president, or the chairman of the board of directors.

Answer 55

CEO 1118

Question 56

for the directors to act, a _____ of the directors must be present. This is usually a majority.

Answer 56

quorum 1120

Question 57

Although the ______ has no authority to make contracts for the corporation by virtue of that office, the corporation is bound by the documents certified by the_______ .

Answer 57

Secretary, secretary 1121

Question 58

The ______ binds the corporation by his receipts, checks, and indorsements, but he does not by virtue of that office alone have authority to borrow money, to issue negotiable instruments, or to make other contracts on behalf of the corporation.

Answer 58

treasurer 1121

Question 59

The Statutory Close Corporation Supplements grants _____ unlimited power to restrict the discretion of the board of Directors.

Answer 59

Shareholders 1122

Question 60

A nonprofit corporation must have at least _____ directors.

Answer 60

three 1122

Question 61

The directors and officers duty of care is sometimes expressed as the ________ . Under this rule, if the officer or manager acted in _______ and conduct a _______ , they are shielded from liability.

Answer 61

Business judgment rule, good faith, reasonable investigation 1123

Question 62

Under the ____________, a transaction mad by a director or officer is fair if reasonable persons in an arm's-length bargain would have bound the corporation to it.

Answer 62

intrinsic fairness standard 1134

Question 63

Directors and officers may steal opportunities that their corporations could have exploited by ___________ .

Answer 63

usurping corporate opportunities 1135

Question 64

a ______ is usually accomplished by merging a close corporation with a newly formed a corporation under terms by which the minority shareholders do not receive shares but instead receive only cash or other securities.

Answer 64

freeze-out 1137

Question 65

_______ is a special term for a freeze-out of shareholders of publicly owned corporations.

Answer 65

going private 1137

Question 66

under the MBCA, a director is entitled to _______ of their reasonable litigation expenses when they are sued and completely win.

Answer 66

mandatory idemnification 1145

Question 67

unde the MBCA, a director who loses a lawsuit _______ indemnified by the Corporation under the concept of _____

Answer 67

maybe, permissible indemnification 1145

Question 68

with a ______, shareholders transfer their shares to one or more voting trustees and receive voting trust certificates in exchange. This allows minority shareholders to combine votes under one.

Answer 68

Voting trust 1152

Question 69

A _____ is different than a merger because the both corporations dissolve and and a new one takes the assets of both.

Answer 69

consolidation 1155

Question 70

A sale of all or substantially all of the assets of the business other than in the regular course of business must be approved by the shareholders of the selling corporation. A corporation who retains _____ of its business activity and income or revenue does not fit this.

Answer 70

25% 1155

Question 71

It's written into the articles of incorporation, a shareholders ________ is an option to subscribe to any new issuances of shares in proportion to the shareholders current interest in the corporation to maintain their interest.

Answer 71

Preemptive right 1164

Question 72

cash or property dividends must be paid to _______ shareholders before being paid to any ______ shareholders.

Answer 72

preferred, common 1165

Question 73

Corporations sometimes distribute a specified percentage of outstanding shares to their shareholders called _______ instead of cash dividend so that the cash to be retained in reinvested in the business.

Answer 73

Share dividends 1167

Question 74

A _______ results in shareholders receiving a specified number of shares in exchange for each share that they currently own.

Answer 74

Share split 1167

Question 75

Share dividends and share splits can be distributed by mere action of the ______ because the number of authorized shares does not change, they are just "split"

Answer 75

directors 1167

Question 76

A ________ is a decrease in the number of shares of a class such that, for example, two shares becomes one share. This in effect _____ the market price of the shares.

Answer 76

Reverse share split, increases 1167

Question 77

The right of _______ (or a call) is usually the rights of the corporation to force involuntary sale by shareholder at a fixed price. The shareholder must sell the shares to the corporation.

Answer 77

redemption 1167

Question 78

a ________ allows a shareholder to bring action against someone such as a CEO who has harmed the corporation on behalf of the corporation because normally the CEO could prevent the corporation from suing her.

Answer 78

Derivative action 1168

Question 79

_______ suits are wrongful lawsuits brought to get out of court settlements for the complaining shareholders personally or to earn large attorneys fees, rather than to obtain a recovery for the corporation.

Answer 79

strike suits 1168

Question 80

Since a corporation's decision to sue someone is ordinarily made by its managers, a shareholder must first _____ that the Board of Directors bring the suit. If the directors bring the suit, a _______ suit can not be sought by the shareholders.

Answer 80

demand, derivative 1169

Question 81

voting agreements expire after _____

Answer 81

ten years 1176

Question 82

Members have the same rights as shareholders to inspect records and meetings minutes, however, a ________ corporation may limit the right of a member to inspect any record.

Answer 82

Religious 1176

Question 83

an _______ dissolution by the secretary of state occurs when the corporation fails to pay taxes, file its annual report, or not adhere to other laws.

Answer 83

Administrative 1177

Question 84

The Corporation must make the correction or demonstrate the default does not exist within _______ to avoid an administrative dissolution

Answer 84

60 days 1177

Question 85

_______ may request dissolution of the corporation if it is insolvent

Answer 85

creditors 1177

Question 86

________ (also called ______) is the orderly collection and disposal of the corporation's assess and the distribution of the proceeds of the sale of assets.

Answer 86

winding up, liquidation 1177

Question 87

Liquidation to parties will occur in this order (3)

Answer 87

1. creditors 2. preferred shareholders 3. Common shareholders 1177

Question 88

______ dissolution is by order of the courts, usually in response to law suit by shareholders because directors are deadlocked, directors are acting illegally, or the shareholders are deadlocked.

Answer 88

judicial