QUESTION 1

Incorporated companies developed because of the need to finance large commercial ventures without the limitations associated with sole proprietorships and partnerships (such as unlimited personal liability).
a. True
b. False

QUESTION 2

Lifting the corporate veil
a. is frequently done when the corporation's assets are insufficient to discharge the corporation's obligations to creditors.
b. is not based on the fairness of an outcome.
c. negates the limited liability advantage of incorporation.
d. is only permissible if the shareholders have executed a personal guarantee dealing with the debts of the corporation.
e. is only permissible if the corporation's incorporation documents allow the remedy.

QUESTION 3

Corporations can be characterized as broadly held or closely held. Which of the following is characteristic of a closely held corporation?
a. There are restrictions on the sale of shares.
b. Closely held corporations are usually referred to as public companies.
c. Closely held corporations are subject to the same level of government control and regulation as broadly held corporations.
d. Securities legislation only applies to public distributions of shares by broadly held corporations.
e. The shares generally trade on a small-cap stock exchange.

QUESTION 4
Directors are legally responsible for the management of the corporation. Which of the following is false regarding the management of the corporation?

a. Although directors and officers may have the same type of general obligations to the corporation, officers may be held to a higher standard than the directors.
b. Officers of the corporation may include the treasurer, the president, and the secretary.
c. A director may avoid liability flowing from his or her responsibility to the corporation by appointing a CEO to run the corporation.
d. Generally the officers are in a fiduciary relationship with the corporation.
e. A CEO may assign the day-to-day operation of the corporation to the officers of the corporation.

QUESTION 5
Advantages of selecting incorporation as a method of doing business do not include which of the following?
a. The corporation's separate legal personality.
b. Greater government regulation and control.
c. Potential perpetual existence.
d. Greater access to capital.
e. Limitations on owner liability.

QUESTION 6
Smith decided to wind up his corporation. If Smith decides to sell the corporation's shares to Taylor, which of the following is true?
a. Any previous contractual obligations of the corporation do not survive the sale and continue to bind Taylor.
b. Because of the new ownership, Taylor may make any contractual changes that he desires regarding corporation's employees and suppliers.
c. The corporation's debts and other obligations survive the sale and may bind Taylor.
d. There is no difference between Taylor purchasing the assets of the corporation or the shares of the corporation, in terms of Taylor's exposure to liability, as the shares represent the assets.
e. Taylor should be concerned with the manner in which Smith intends to wind up the corporation.

QUESTION 7
Which one of the following is not a disadvantage of incorporation?
a. It is difficult to make major changes without changing incorporation documents.
b. Shareholders owe fiduciary duty to the corporation.
c. Minority shareholders are in a weak position.
d. There are more reporting requirements.
e. It is costly.

QUESTION 8
In the instance where a minority shareholder has been treated unfairly, a court may order that the corporation be dissolved.
a. True
b. False

QUESTION 9
A corporation may be dissolved for failure to file annual returns.
a. True
b. False

QUESTION 10
Smith decided to wind up his corporation. If Smith decides to sell the corporation's shares to Taylor, which of the following is true?
a. The corporation's debts and other obligations survive the sale and may bind Taylor.
b. There is no difference between Taylor purchasing the assets of the corporation or the shares of the corporation, in terms of Taylor's exposure to liability, as the shares represent the assets.
c. Because of the new ownership, Taylor may make any contractual changes that he desires regarding corporation's employees and suppliers.
d. Taylor should be concerned with the manner in which Smith intends to wind up the corporation.
e. Any previous contractual obligations of the corporation do not survive the sale and continue to bind Taylor.