BLTE-10E PRACTICE QUIZ
CHAPTER 20: CORPORATIONS
1. One of the key advantages of the corporate form of business is:
a.
b.
c.
d.
The limited liability of shareholders.
The unlimited liability of shareholders.
The “double taxation” of the corporate form.
That no formalities are required to create a corporation.
ANS:
a. Correct. This is a key advantage of the corporate form of business.
b. Incorrect. Shareholders have limited liability.
c. Incorrect. This is usually regarded as a disadvantage of the corporate
form.
d. Incorrect. Certain formalities, such as filing articles of incorporation with
the state government, are required to create a corporation.
2. Articles of incorporation contain:
a. A set of governing rules adopted by a corporation.
b. Resolutions of the board of directors.
c. Information about the corporation, including its purpose, organization, and
functions.
d. The minutes of meetings of the board of directors.
ANS:
a. Incorrect. This describes corporate bylaws.
b. Incorrect. These resolutions are not the same thing as articles of
incorporation.
c. Correct. Articles of incorporation contain this kind of information.
d. Incorrect. Board meeting minutes are not articles of incorporation.
a.
3. Stock may be described as:
a.
b.
c.
d.
ANS:
A debt owed by the government to the shareholder.
A debt owed by the corporation to the shareholder.
An ownership interest in the corporation.
A document describing the ownership and management structure of the
corporation.
a. Incorrect. This would be a government bond.
b. Incorrect. This would be a corporate bond.
c. Correct. When you buy stock, you buy an ownership interest in the
corporation.
d. Incorrect. This does not describe stock.
4. The best definition of a quorum is which of the following?
a. A quorum is 51 percent of all shareholders.
b. A quorum is 66 percent of all directors.
c. A quorum is the minimum number of members of a decision-making body
that must be present before business may be transacted.
d. A quorum is the number of voters who must agree to a revision before
corporate bylaws may be changed or otherwise amended.
ANS:
a. Incorrect. A quorum is the minimum number of members of a decisionmaking body that must be present before business may be transacted.
b. Incorrect. A quorum is the minimum number of members of a decisionmaking body that must be present before business may be transacted.
c. Correct. This is the best definition of a quorum among those listed here.
d. Incorrect. Because of the restrictions in this definition, it is not the best
definition. A quorum is the number of decision makers needed to transact
business generally, not just when bylaws are amended or changed.
5. The duty of loyalty that directors and officers owe to the corporation involves:
a. The duty of directors and officers to act in their own best interests.
b. The duty of directors and officers to subordinate their personal interests to
the welfare of the corporation.
c. The duty of directors and officers to use available funds to pay themselves
before paying the corporation’s debts.
d. Overseeing the activities of employees during their daily work.
ANS:
a. Incorrect. Directors and officers must not put their personal interests
ahead of the interests of the corporations or they violate their duty of
loyalty.
b. Correct. Directors and officers must subordinate their personal interests to
the welfare of the corporation.
c. Incorrect. The duty of loyalty requires directors and officers to subordinate
their personal interests to the welfare of the corporation. Thus, when cash
becomes available to pay a corporation’s debts, directors or officers who
uses this cash to pay themselves before paying the corporation have
usurped a corporate opportunity.
d. Incorrect. This is a duty owed by officers, but it is part of the duty of care,
not the duty of loyalty.
6. Lysco, Inc., gives to all 15,000 of its shareholders the right to purchase newly
issued shares of Lysco stock in proportion to the percentage of shares they
currently own and before anyone else is offered the shares. This right is known
as:
a.
b.
c.
d.
A preemptive right.
A proxy right.
A warrant agreement.
An attachment right.
ANS:
a. Correct. This describes a preemptive right--the right of current shareholder
to buy newly issued shares before anyone else.
b. Incorrect. A proxy right is associated with voting rights of shareholders.
c. Incorrect. There is no "warrant agreement."
d. Incorrect. An attachment refers to the ability of a court to seize persons or
property; it is a term used in debtor-creditor relations.
7. When a corporation suffers a wrong and the corporate directors fail to take
action to redress that wrong, one effective and appropriate way to obtain redress
is through:
a.
b.
c.
d.
The issuance of preemptive rights.
The use of stock warrants.
A shareholder's derivative suit.
Shareholders voting in new officers.
ANS:
a. Incorrect. This would not be an effective way to address such harms.
b. Incorrect. This would also not be an effective way to address such harms.
c. Correct. A suit brought by a shareholder to enforce a cause of action the
corporation has against a third person, such as an officer or directors,
would be an appropriate and effective way to address such harms.
d. Incorrect. Shareholders may not vote in new officers.
8. Rothman Corporation and Zenco, Inc., combine and form a new company that
retains the name, Rothman Corporation. When combining their firms, Rothman
purchases all of the assets and assumes all of the liabilities of Zenco. This is an
example of:
a. An appraisal.
b. A merger.
c. A consolidation.
d. A reincorporation.
ANS:
a. Incorrect. This is not an appraisal; it is a merger.
b. Correct. Rothman purchased the assets and assumed the liabilities of
Zenco, which means that Zenco folded into Rothman. This kind of
transaction is a merger.
c. Incorrect. The two companies did not form a new third entity because
Rothman Corporation continued its existence.
d. Incorrect. This is not a reincorporation.
9. If Company F and Company G join and become Company H, what legal
process has taken place?
a.
b.
c.
d.
A merger.
An acquisition.
A consolidation.
An appraisal.
ANS:
a. Incorrect. This joining of F and G to become H is not a merger, but a
consolidation.
b. Incorrect. This joining of F and G to become H is not an acquisition, but a
consolidation.
c. Correct. F and G combine to make an entirely new legal entity known as
G. This describes a consolidation.
d. Incorrect. This is not an appraisal; it is a consolidation.
10. Dissolution is best defined as:
a.
b.
c.
d.
ANS:
a.
b.
c.
d.
The conversion of corporate assets into cash.
The distribution of corporate assets among creditors.
The reorganization of a corporation.
The legal death the corporation.
Incorrect. This describes liquidation.
Incorrect. This also describes liquidation.
Incorrect. This describes a Chapter 11 bankruptcy.
Correct. This is a definition of dissolution.