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
Under the Internal Revenue Code, an S corporation election requires all of the following EXCEPT:
Answer: The corporation may have multiple classes of stock with different voting and economic rights
S corporations are permitted to have only one class of stock, although differences in voting rights are allowed; multiple economic classes (like preferred stock) disqualify S status.
What is the legal significance of a corporation's 'good standing' status with the state?
Answer: It confirms the corporation has met its filing and fee obligations and is authorized to conduct business in that state
Good standing certificates confirm compliance with state annual report and fee requirements, which is typically required for financing, mergers, and foreign qualification.
A 'de facto corporation' doctrine provides that:
Answer: Courts will treat an entity as a properly formed corporation even though technical formation requirements were not fully met, if good faith efforts were made
The de facto corporation doctrine protects parties who made a good-faith attempt to incorporate and operated under the belief they were incorporated, limiting personal liability.
Which of the following best describes 'cumulative voting' for director elections?
Answer: Shareholders may allocate all of their votes (shares × seats) to one or more candidates, enabling minority shareholders to elect directors
Cumulative voting multiplies each shareholder's shares by the number of director seats and allows concentration of all votes on fewer candidates, enhancing minority representation.
What is the purpose of a 'poison pill' (shareholder rights plan) in corporate governance?
Answer: To deter hostile takeovers by diluting the acquirer's stake when a triggering ownership threshold is crossed
A poison pill allows existing shareholders (other than the acquirer) to purchase additional shares at a discount, diluting the hostile bidder's ownership and making the takeover prohibitively expensive.
When a corporation formally dissolves under state law, which of the following correctly describes the order of priority for distributing assets?
Answer: Secured creditors, then unsecured creditors, then preferred shareholders, then common shareholders
Upon dissolution, secured creditors are paid first, followed by unsecured creditors, then preferred shareholders receive their liquidation preference, and finally common shareholders receive any remaining assets.
Which statement correctly distinguishes a 'member-managed' LLC from a 'manager-managed' LLC?
Answer: In a member-managed LLC, all members have actual authority to act for the LLC; in a manager-managed LLC, only designated managers have that authority
The management structure determines who has actual and apparent authority to bind the LLC: all members in a member-managed LLC, or only designated managers in a manager-managed LLC.