1.Jewel's Fine Jewelry, Inc. (Jewel's) is incorporated in the state of Oklahoma but does business in Michigan, Illinois, and Tennessee. In Michigan, Illinois and Tennessee, Jewel's would be considered a _____ corporation.

Multiple Choice

• hostile
• foreign
• domestic
• multistate
• non-taxable

2.Nails. Mona and her friends Jack and Bobby, all United States citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Would the proposed business qualify as an S corporation if it were incorporated in Delaware?

Multiple Choice

• No, because there must be at least 100 shareholders involved.
• No, because a business must operate as a partnership for at least two years before converting to an S corporation and because it must be incorporated under the state law of the location of the principal place of business.
• No, because a business must operate as a regular corporation for at least two years before converting to an S corporation.
• Yes, if more than one class of shares is issued.
• Yes, if only one class of shares is issued.

3.Nails. Mona and her friends Jack and Bobby, all United States citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Are Jack and Bobby correct that tax liability will likely be greater with a corporate form of business (not an S corporate form) and why?

Multiple Choice

• No, they are incorrect because with only three (3) shareholders, the tax liability of a corporation would likely be less than the tax liability of a partnership.
• No, they are incorrect because with only three (3) shareholders, the tax liability of a corporation would be exactly the same as the tax liability of a partnership if the net income of the corporation is not over $250,000.
• No, they are incorrect because with only three (3) shareholders, the tax liability of a corporation would be exactly the same as the tax liability of a partnership if the gross income of the corporation is not over $150,000.
• No, they are incorrect because with only three (3) shareholders, the tax liability of a corporation would be exactly the same as the tax liability of a partnership if the gross income of the corporation is not over $100,000.
• Yes, they are correct because the corporate form of business would result in double taxation, with the corporation being taxed on income and its shareholders being taxed again on dividends they receive.

4.How, if at all, does a closely held corporation offer stock to the public?

Multiple Choice

• Through private stock sales
• Through qualified investment options
• Through public stock sales
• Through a combination of private and public stock sales
• A closely held corporation generally does not offer stock to the general public.

5.Which of the following types of securities represent ownership in a corporation?

Multiple Choice

• Debt
• Equity
• Finance
• Leveraged
• Certified

6.Who has the lowest priority when a corporation distributes dividends?

Multiple Choice

• Members of the board of directors
• Officers
• Common stock owners
• Partners
• Investors

7.In which of the following situations would a court likely pierce the corporate veil?

Multiple Choice

• Shareholders attempt to commit fraud through a corporation
• A corporation followed statutory mandates regarding corporate business
• Shareholders' personal interests and corporate interests are separate
• A corporation had adequate capital when it initially formed
• None of the above; because a corporation is a legal entity separate from its owners (i.e., its shareholders), a court cannot pierce the corporate veil in order to impose personal liability on shareholders

8.Michael is assisting Michelle and Johnathan in their formation of a corporation by helping them arrange for the necessary capital, financing, and licenses. In this case, Michael is a corporate _____.

Multiple Choice

• underwriter
• incorporator
• stakeholder
• promoter
• director

9.One voting process required in most states, called _____ voting, ensures that minority shareholders have a voice in electing the board of directors.

Multiple Choice

• non-cumulative
• minority
• proportional
• cumulative
• at-large

10.When does an individual become an owner of a particular corporation?

Multiple Choice

• As soon as the directors vote in favor of his ownership
• As soon as she purchases stock
• When a super-majority of shareholders approve of his ownership at a quarterly shareholder meeting
• Upon a simple majority vote in favor of her ownership at the annual shareholders' meeting
• As soon as the organizer, promoter, or officer gives him stock options

11.Generally, a quorum of shareholders exists when shareholders representing more than _____ percent of the outstanding shares are present at a shareholder meeting.

Multiple Choice

• eighty (80)
• seventy (70)
• sixty (60)
• fifty (50)
• twenty-five (25)

12.The Securities and Exchange Commission (SEC) has established that any shareholder who owns more than _____ worth of stock in the corporation can submit proposals to be included in proxy materials.

Multiple Choice

• $4,000
• $3,000
• $2,000
• $1,000
• $500

13.More than one-half of all publicly traded corporations in the United States are incorporated in _____.

Multiple Choice

• Illinois
• California
• Michigan
• Delaware
• Texas

14.Self-Centered President. Tina is the new president of "We Manage You," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares while majority shareholders own 8,000 shares. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the officer'sduties. She explains to him that only the corporation can be charged with liability in such cases. Is Tina accurate that she owes no duties to shareholders?

Multiple Choice

• Yes, she is accurate because it is the directors who owe a duty to shareholders.
• No, she is inaccurate because she owes a duty of care to shareholders although she owes no other duties.
• No, she is inaccurate because she owes a duty of loyalty to shareholders although she owes no other duties.
• No, she is inaccurate and owes both a duty of care and a duty of loyalty to shareholders.
• She is partially accurate. She owes both a duty of care and a duty of loyalty to minority shareholders, but no duties to majority shareholders because the law assumes that they have the power to protect their own interests.

15.Although shareholders may want to hold directors and officers liable for their decisions that inadvertently harm the corporation, the _____ rule does not allow them to do so.

Multiple Choice

• hold harmless
• sovereign immunity
• business judgment
• blanket immunity
• arm's length transaction

16.Self-Centered President. Tina is the new president of "We Manage You," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares while majority shareholders own 8,000 shares. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the officer'sduties. She explains to him that only the corporation can be charged with liability in such cases. Is Tina correct in that officers cannot be held criminally responsible for their actions on behalf of a corporation?

Multiple Choice

• Yes, she is correct.
• She is correct, but only if the corporation is solvent.
• She is correct, but only if the board of directors has accepted all liability for the actions of corporate officers.
• She is correct, but only if environmental or employment matters are involved.
• She is incorrect.

17.Which of the following was the result on appeal inCampbell, Kesser, and Williams v. Pothas Corporation, the case in the textbook in which the defendant alleged that golden parachute agreements were not enforceable because they violated public policy?

Multiple Choice

• That based on significant case law ruling such agreements in violation of public policy, the agreements would be declared void under principles ofstare decisis
• That based on a congressional committee report, the contracts would be declared void
• That the defendant did not receive its benefit with regard to the contracts and that the golden parachute agreements were, therefore, voidable by the defendant
• That the agreements were valid and did not violate public policy
• That the agreements were valid, but only because a merger was involved

18.Which of the following rights give preference to shareholders to purchase shares of a new issue of stock?

Multiple Choice

• Class-based
• Presumptive
• Preemptive
• Selective
• Subscription

19.In a hostile takeover, what does the term "going private" reference?

Multiple Choice

• A leveraged buyout
• An initial public offering
• A poison pill
• A confiscatory taking
• The non-disclosure of information related to the corporate takeover

20.Which of the following may be issued to shareholders as proof of ownership in the corporation?

Multiple Choice

• Stock subscriptions
• Stock acknowledgements
• Articles of incorporation
• Stock certificates
• Articles of organization