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Exam 15: Corporations

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Question 21

True/False

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Subchapter S corporations are not subject to double taxation.

A) True
B) False

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Question 22

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Mark and Riley live in Orlando and decide to open a souvenir shop.They incorporate their shop,Sunshine Gifts,Inc.,in the state of Florida.In Florida,Sunshine Gifts would best be characterized as

A) a domestic corporation.
B) a foreign corporation.
C) an alien corporation.
D) a native corporation.

E) A) and B)
F) B) and D)

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Question 23

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Which of the following is an incorrect statement regarding Subchapter S corporations?

Which of the following statements is incorrect?

In H.Carl McCall,Trustee of the New York Common Retirement Fund,et al.,Derivatively on Behalf of Columbia/HCA Healthcare Corporation v.Scott,the plaintiffs sued the board,alleging that the officers and directors breached their fiduciary duties.The court addressed the corporate charter,which limited the liability of directors for breach-of-duty claims.The court determined that

CJ and Danny have incorporated and obtained a $100,000 loan in their corporate name.The loan is payable with interest over five years.After paying on the loan regularly for two years,the business falters due to the economy,and CJ and Danny default on the loan.Their business has no assets.Which of the following statements best describes CJ and Danny's liability in this case?

A person who performs pre-incorporation duties on behalf of the forming corporation is called a _______.

Carla has just passed the bar exam,and is ready to start practicing law.She draws up articles of incorporation and puts them into the mail to the appropriate state office.After leaving the post office,she immediately drives to an office building and rents an office,signing on behalf of Carla's Law Services Inc.A week later she discovers that her uncle,who was going to lend her money to start her business,has filed for bankruptcy and is unable to provide her with the promised funds.She realizes that she cannot open her solo firm and accepts a position working for a local firm.Discuss Carla's liability for the lease she signed for the office.

Not all publicly held corporations are classified as public corporations.

Kate owns 1,000 shares of stock in a corporation,making her part-owner of the corporation.As an owner,if Kate enters into a contract on behalf of the corporation,the company will be bound by her actions.

A corporation comes into existence when

Artisan Tools,Inc.,manufactures and sells quality hand tools to commercial and consumer users.Due to an excellent marketing campaign,the business grew quickly.After careful consideration,the board decided that a new factory needed to be built to accommodate current and future business.The factory is a multi-million dollar project.To fund it,the board decided to issue and sell bonds and debentures.What is the difference between a bond and a debenture? Explain why choosing bonds and debentures over a traditional commercial bank loan might be more advantageous in financing the factory construction.

The Suds Corporation has just suffered significant losses of revenue for three quarters in a row,and the shareholders are furious.Much of the loss can be attributed to the board's decision to change from their traditional lager beer to a lighter and smoother brew.Unfortunately,the new recipe alienated current customers and failed to bring in new customers.Although Suds has announced that it will return to its original product,the shareholders are claiming the board violated its fiduciary duty of care,and they are suing the directors personally for their significant losses.What must the shareholders prove to win their lawsuit? What defense is available to the directors,and what must they prove to prevail?

Privately held corporations are more common than are publicly held corporations.

To qualify for Subchapter S status,a supermajority of the shareholders must consent to the Subchapter S designation.

A corporation's officers are appointed by-and may be removed by-the _______.

Which of the following is a primary disadvantage of choosing to form corporations as opposed to other forms of business?

Many corporations choose to incorporate in Delaware.Which of the following is NOT an advantage to incorporating in Delaware?

The Revised Model Business Corporation Act provides that a self-dealing transaction is not a breach of the duty of loyalty if a majority of disinterested parties approve the transaction after disclosure of the conflict.

Shareholders are the owners of the corporation,and part of their responsibility as such is to elect and remove corporate officers.