Question 1

[Nail Salon] Thea and her friends Josef and Danny, all U.S. citizens, want to open a nail salon. They would all like to avoid personal liability for debts of the business and/or wrongful acts of each other. They would also like to minimize taxation. Thea is in favor of a corporation and asks if there is any problem with that form of business. Josef and Danny say that they are concerned about double taxation with a corporation and that they are in favor of a partnership, even if personal liability is a concern. Thea said that she was concerned about the deductibility of losses if the corporate form was chosen. She did some research and suggested an S corporation to Josef and Danny which she claimed would avoid the problem of double taxation.
-In regard to losses, what type of tax treatment would an S corporation provide?

Accepted Answer

A)   Shareholders may deduct corporate losses from their personal income.
B)   Losses may only be deducted from the S corporation's taxes, not the shareholders' personal income.
C)   Losses may only be deducted from shareholders' personal income when the S corporation has shown a profit for at least two years.
D)   Losses may only be deducted from shareholders' personal income when the S corporation has shown a profit for at least three straight years.
E)   Losses may only be deducted from shareholders' personal income when the shareholder's gains from other endeavors exceed losses from the S corporation.F) C) and D)
G) A) and D)

Question 2

What type of corporation is created by the government to help administer law?

Accepted Answer

A)   Public
B)   Private
C)   Closely held
D)   Domestic
E)   Publicly heldF) C) and E)
G) None of the above

Question 3

If Callie sues Min-ji, Marcus, and Penelope for unpaid amounts without a novation in place, what would be the most likely result?

Accepted Answer

A)   Callie would likely win because courts generally hold promoters liable and rule that preincorporation contracts do not bind the new corporation.
B)   Callie would likely win unless it can be established that the new corporation is making a profit and is able to pay her.
C)   Callie would likely win unless it can be established that the new corporation was capitalized with at least $100,000 and is able to pay her.
D)   Min-ji, Marcus, and Penelope will win so long as they can prove that Callie knew that the feed was purchased for a new corporation and not for their personal farm use.
E)   Min-ji, Marcus, and Penelope will win unless they have already paid partial amounts leading Callie to expect that they, not the corporation, had accepted liability.F) A) and D)
G) C) and E)

Question 4

The only authority possessed by corporations is the powers granted to them in their articles of incorporation and through state incorporation statutes.

Accepted Answer

A) True 
 B)False

Question 5

When a corporation is incorporated, the ________ usually issues a certificate of incorporation, a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

Accepted Answer

A)   Office of the Governor
B)   state's highest court
C)   Incorporation commissioner
D)   secretary of state
E)   state treasurerF) None of the above
G) B) and E)

Question 6

Tony and Tim are shareholders of a closely held corporation that engages in illegal activity. They mixed business and corporate assets regularly. Do Tony and Tim have limited liability?

Accepted Answer

A)   Yes, because limited liability is absolute.
B)   Yes, because their corporation was closely held.
C)   Yes, because of corporation by estoppel.
D)   No, because closely held corporations never benefit from liability protection.
E)   No, because they used the corporation to engage in illegal and wrongful acts and because they comingled personal and corporate interests.F) A) and C)
G) C) and E)

Question 7

Debt securities, or bonds, represent loans to a corporation from another party.

Accepted Answer

A) True 
 B)False

Question 8

Owners of which of the following types of stock own a portion of a corporation but do not enjoy any preferences?

Accepted Answer

A)   Acknowledged
B)   Complex
C)   Common
D)   Preferred
E)   SimpleF) B) and E)
G) B) and C)

Question 9

Under the Revised Model Business Corporation Act, which of the following must be part of the articles of incorporation?

Accepted Answer

A)   The purpose of the corporation.
B)   The bank used in funding the corporation.
C)   The attorney for the corporation.
D)   Information concerning where the corporation plans to transact business.
E)   The address of the registered office.F) C) and D)
G) A) and E)

Question 10

Which of the following is another name for debt securities?

Accepted Answer

A)   Stocks
B)   Bonds
C)   Certificates of deposit
D)   Equity securities
E)   Preferred debtF) B) and D)
G) B) and C)

Exam 38: Corporations: Formation and Financing

Which of the following is another name for debt securities?

Correct Answer
verified

Tony and Tim are shareholders of a closely held corporation that engages in illegal activity. They mixed business and corporate assets regularly. Do Tony and Tim have limited liability?

Correct Answer
verified

If Callie sues Min-ji, Marcus, and Penelope for unpaid amounts without a novation in place, what would be the most likely result?

Correct Answer
verified

Owners of which of the following types of stock own a portion of a corporation but do not enjoy any preferences?

Correct Answer
verified

Debt securities, or bonds, represent loans to a corporation from another party.

Correct Answer
verified

When a corporation is incorporated, the ________ usually issues a certificate of incorporation, a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

Correct Answer
verified

The only authority possessed by corporations is the powers granted to them in their articles of incorporation and through state incorporation statutes.

Correct Answer
verified

Correct Answer
verified

What type of corporation is created by the government to help administer law?

Correct Answer
verified

Under the Revised Model Business Corporation Act, which of the following must be part of the articles of incorporation?

Correct Answer
verified

Exam 38: Corporations: Formation and Financing

Which of the following is another name for debt securities?

Correct AnswerverifiedShow Answer

Tony and Tim are shareholders of a closely held corporation that engages in illegal activity. They mixed business and corporate assets regularly. Do Tony and Tim have limited liability?

Correct AnswerverifiedShow Answer

If Callie sues Min-ji, Marcus, and Penelope for unpaid amounts without a novation in place, what would be the most likely result?

Correct AnswerverifiedShow Answer

Owners of which of the following types of stock own a portion of a corporation but do not enjoy any preferences?

Correct AnswerverifiedShow Answer

Debt securities, or bonds, represent loans to a corporation from another party.

Correct AnswerverifiedShow Answer

When a corporation is incorporated, the ________ usually issues a certificate of incorporation, a document certifying that the corporation is incorporated in the state and is authorized to conduct business.

Correct AnswerverifiedShow Answer

The only authority possessed by corporations is the powers granted to them in their articles of incorporation and through state incorporation statutes.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What type of corporation is created by the government to help administer law?

Correct AnswerverifiedShow Answer

Under the Revised Model Business Corporation Act, which of the following must be part of the articles of incorporation?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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