The Law of Corporations and Other Business Organizations

Chapter Review Answers

1. What are some of the factors that must be
taken into account when determining if a
corporation is the best type of business
organization for a particular business?
The importance of the following factors
must be considered when deciding
which type of business organization to
form:
• Income tax implications
• Capital requirements
• Applicable statutory requirements
• Desired management structure
• The importance of limited liability
• Transferability of ownership
• Ease of forming and dissolving the
business entity
• Business continuity

2. Discuss some of the factors that should
be considered when determining where to
incorporate a business. Why are those
factors important?
When deciding where to incorporate a
business, the incorporators can choose
from the states that best suits the needs
of the corporation and its owners. Incorporators
should consider:
• Does the law of the state being considered
allow the corporation to be
operated in the manner desired?
• What costs are associated with incorporating
in the proposed state?
• What is the state’s judicial policy
toward corporations?
• Is the proposed corporate name
available in the state being considered?
• May shareholder meetings be held
out of state?
• What is the statutory treatment of
shareholder and director liability?
• Must any corporate records be
kept in the proposed state?
• What are the annual reporting requirements
in the proposed state?

3. Under what circumstances are corporations
bound to contracts made by the
promoter prior to incorporation?
Corporations are bound to preincorporation
contracts only if they are ratified
after incorporation. A corporation does
not exist prior to incorporation, and
therefore cannot be bound by contract.

4. Can two individuals from New York
form a Florida corporation?
Yes

5. If two residents of Texas file articles of
incorporation in New York and transact
the majority of their business in Florida,
what is their state of domicile?
New York

6. In addition to filing articles of incorporation,
what incorporation formalities are
imposed by some states before the incorporation
process is complete?
Some states require that notice of incorporation
be published and/or that a
copy of the articles of incorporation be
filed at the county level in the county
of the corporation’s principal place of
business.

7. Can the incorporator also be a director of
a corporation?
Yes, but it is generally not required.

8. What required provisions must be included
in the articles of incorporation in a
state following the Model Business Corporation
Act?
• The name of the corporation
• A description of the authorized
stock of the corporation
• The name of the registered agent
and the address of the registered
office
• The name and address of the incorporators

9. Why might it be preferable to put information
in the bylaws, as opposed to the
articles of incorporation, when the statute
provides that the information could be in
either document?
Information included in articles and
bylaws is often subject to change. It is
generally easier to amend the bylaws
of the corporation because they are not
filed with the state. Shareholder approval
is required to amend the articles
of incorporation, but not
necessarily the bylaws. In addition, information
contained in the bylaws can
be kept relatively confidential as opposed
to information in the publicly
filed articles of incorporation.

10. Would the name “Johnson Brothers Furniture
Store” be a valid corporate name in
a state following the Model Business
Corporation Act?
No

Why or why not?
The name of a corporation in a state
following the Model Business
Corporation Act must include the
word corporation, incorporated,
company, or limited, or the
abbreviation corp., inc., co., or ltd., or
words or abbreviations of like import
in another language.