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Exam 38: Corporations: Formation and Financing

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Question 1

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"Horse Tracks." Martha, Greg, and Prudence decided to form a corporation called Horse Tracks to raise horses. They all began the corporate creation process by arranging for necessary capital and financing. They raised capital from their friends by making deals whereby their friends would purchase stock in the new corporation. After the corporation was formed, a problem arose with a contract for feed that Martha, Greg, and Prudence had entered into while organizing the corporation. Belinda, the seller of the feed claimed that she had not been fully paid and threatened to sue the corporation. The contract Martha, Greg, and Prudence had with Belinda did not reference liability after the new corporation came into legal existence. Martha, Greg, and Prudence asked for a novation, but were uncertain as to whether that would occur. -What were Martha, Greg, and Prudence seeking by requesting a novation in regards to the lawsuit threatened by Belinda?

A) An agreement by which the corporation would be substituted as the debtor instead of Martha, Greg, and Prudence so long as the corporation made a profit in its first year of existence.
B) An agreement by which Martha, Greg, and Prudence would be discharged from the debt so long as the new corporation agreed to do an agreed upon amount of business with Belinda for a certain period.
C) An agreement by which Martha, Greg, Prudence, Belinda, and the corporation would agree that the corporation would be liable to Belinda, and that Martha, Greg, and Prudence would be released.
D) An agreement by which Martha, Greg, Prudence, Belinda, and the corporation would agree that the company would be liable to Belinda for one half the debt and that Martha, Greg, and Prudence would be liable for only one half of the debt.
E) An agreement by which Belinda agreed to delay her claim for one year in order to give the corporation a chance to make a profit.

F) A) and B)
G) C) and D)

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Question 2

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Which of the following is false regarding corporations?

A) Corporations are legal entities.
B) Corporations exist separately from their shareholders.
C) Corporations can sue or be sued by others.
D) Courts consider corporations to be "legal persons."
E) Corporations cannot claim rights under the U.S. Constitution.

F) A) and B)
G) A) and E)

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Question 3

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A court may hold that a defective corporation is a[n] ______ in order to prevent it from claiming it is not a corporate entity in order to escape liability to a third party.

Which of the following adopts corporate bylaws?

A ______ corporation is a corporation created by the government to help administer law.

A corporation is a[n] ______ corporation in the state in which it is incorporated.

In what two ways do courts interpret subscription agreements?

A corporation must be dissolved if over 50% of the shareholders die.

If the incorporator or promoters make an error or omission during the incorporation process, courts may rule that the organization is not a corporation, in which case the organization may be ruled a[n] ______ corporation.

Corporations have implied powers.

Corporations have only those powers that states grant them.

"Horse Tracks." Martha, Greg, and Prudence decided to form a corporation called Horse Tracks to raise horses. They all began the corporate creation process by arranging for necessary capital and financing. They raised capital from their friends by making deals whereby their friends would purchase stock in the new corporation. After the corporation was formed, a problem arose with a contract for feed that Martha, Greg, and Prudence had entered into while organizing the corporation. Belinda, the seller of the feed claimed that she had not been fully paid and threatened to sue the corporation. The contract Martha, Greg, and Prudence had with Belinda did not reference liability after the new corporation came into legal existence. Martha, Greg, and Prudence asked for a novation, but were uncertain as to whether that would occur. -Which of the following is a term used to identify Martha, Greg, and Prudence in their arranging for necessary capital and financing for the corporation?

"Horse Tracks." Martha, Greg, and Prudence decided to form a corporation called Horse Tracks to raise horses. They all began the corporate creation process by arranging for necessary capital and financing. They raised capital from their friends by making deals whereby their friends would purchase stock in the new corporation. After the corporation was formed, a problem arose with a contract for feed that Martha, Greg, and Prudence had entered into while organizing the corporation. Belinda, the seller of the feed claimed that she had not been fully paid and threatened to sue the corporation. The contract Martha, Greg, and Prudence had with Belinda did not reference liability after the new corporation came into legal existence. Martha, Greg, and Prudence asked for a novation, but were uncertain as to whether that would occur. -Which of the following describes the friends who agreed to buy stock?

Which of the following is not required in a corporation's articles of incorporation under the Revised Model Business Corporation Act?

Which of the following is a term for profits kept by a corporation for reinvestment?

Which of the following is false regarding requirements needed for a business to qualify as an S corporation?

Corporate ______ are rules and regulations that govern the corporation's internal management.

List the six express corporate powers set forth in the text.

Convertible bonds allow shareholders to exchange their bonds for shares of company stock.

A corporation is a[n] ______ corporation in states in which it conducts business but is not incorporated.