Entity Formation & Corporate Governance Flashcards
7 cards from real ACP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Entity Formation & Corporate Governance flashcards as text
Which of the following best describes a 'professional corporation' (PC)?
Answer: A special corporate form available to licensed professionals such as doctors, lawyers, and accountants
Professional corporations allow licensed professionals to incorporate while maintaining personal liability for their own professional malpractice.
In corporate law, what does 'piercing the corporate veil' mean?
Answer: Holding shareholders personally liable for corporate obligations by disregarding the entity's separate legal status
Courts pierce the corporate veil when the corporation is used as an alter ego or to perpetrate fraud, making shareholders personally liable.
What is the role of the incorporator in forming a corporation?
Answer: To sign and file the articles of incorporation with the state
The incorporator's primary function is to execute and file the articles of incorporation; their role typically ends once the initial organizational meeting is held.
A 'supermajority voting requirement' in a corporation's charter serves what purpose?
Answer: To protect minority shareholders by requiring more than a simple majority for significant transactions
Supermajority provisions (e.g., 66⅔% or 80%) require heightened approval for fundamental changes, giving minority shareholders greater influence.
Under the Revised Model Business Corporation Act (RMBCA), what is 'authorized shares'?
Answer: The maximum number of shares a corporation is legally permitted to issue as specified in its articles
Authorized shares represent the ceiling on share issuance set in the articles of incorporation; the corporation may issue up to but not exceed this number.
Which clause in articles of incorporation allows the corporation to conduct any lawful business activity?
Answer: General purpose clause
A general purpose clause (e.g., 'to engage in any lawful act or activity') removes the need to list specific business purposes and provides maximum operational flexibility.
What distinguishes a 'close corporation' from a standard corporation under most state statutes?
Answer: It has a small number of shareholders and is exempt from many formalities required of public corporations
Close corporations typically have few shareholders (often capped by statute), restrictions on share transfer, and reduced governance formalities like board meetings.