The Law of Corporations and Other Business Organizations

Chapter Review Questions

1. The owners of A & S Marketing, Inc.
need financing to expand their business.
A & S has only three shareholders and
few assets. However, the company does
have a marketing plan for substantial,
sustained growth in revenue. What type
of financing may be most beneficial to
the owners of A & S Marketing, Inc.?

Why?

2. Assume that G&A Corporation, an established
manufacturing business, is owned
by six shareholders who all actively participate
in the business. G&A Corporation
has an opportunity to enter into a
very lucrative new contract, but the corporation
needs $500,000 in capital to hire
extra personnel and design and build the
new equipment it will need to fulfill the
contract. Why might current shareholders
want to issue preferred stock to raise the
funds it will need?

3. Assume the same circumstances as in
Question 2. Why might the current
shareholders want to use debt capital to
fund their expansion?

4. The articles of incorporation of the Jerry
Corporation authorize “10,000 shares of
stock, no par value.” No further information
is given in the articles. Are these
shares of common stock or preferred
stock?

5. What two widely accepted requirements
must be granted to shareholders under the
MBCA?

6. Are all common stockholders always
granted voting rights?

7. What are redemption rights?

8. What are conversion rights?

9. What are some possible drawbacks to issuing
stock with a par value?

10. What information is typically required to
be included on stock certificates?

11. The authorized stock of Rob’s Boatworks,
Inc. is 10,000 shares of common
stock, $1.00 par value. If Rob’s Boatworks
issues 1,000 shares to Bud Peterson
for $800, what term is used to describe
Mr. Peterson’s shares?

What are the possible consequences to
Mr. Peterson?