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Test Number Two

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PostPosted: Mon May 01, 2017 7:25 pm    Post subject: Test Number Two Reply with quote

To: Law 2 Students Spring 2017 From: S.Waterstone Re: Test Number Two

Procedures to follow for turning in your answers.

1. Next Thursday, 5/4/17 is the absolute deadline for turning in your answers. You may use one of two methods to do so:

a. You may e-mail me your answer sheet using this, and only this e-mail address:

If you use this method you must provide me your e-mail by Wednesday,5/3/17, by 9:00 A.M. There is a 5 point bonus for this early submission.

If you e-mail me you will receive an acknowledgement that I received your completed exam. If you don’t receive this you must assume that I DID NOT receive it.

b. You may print up an answer sheet and turn it in next class session.



The Test Itself:

Each T/F and multiple choice question is worth two points; each fill in is worth 2 points unless a different value is listed.
There is a bonus essay question following the objective portion of the test.

GOOD LUCK!!!!!!!


1. T. F. A Corporation is a legal entity distinct from its owners.

2. T. F. Under corporate law, a shareholder's liability for the debts and obligations of a corporation is limited to his or her capital contribution.

3. T. F. A non profit corporation is one where the corporation financial records show that it produces no income to be used for any purpose.

9. T. F. Despite the failure to incorporation correctly, an entity can become a "corporation" by either the de facto doctrine or by estoppel.

10. T. F. If a corporation is the "alter ego,""agent," or "instrumentality" of a sole proprietor or of another corporation, its separate corporate identity may be disregarded.

11. T. F. The number of shares provided for in the Articles are called authorized shares.

12. T. F. Money is the only type of consideration the corporation can accept as payment for shares of stock.

13. T. F. A stock option gives a recipient/holder the right to purchase shares of the corporation from the corporation at a stated price.

14. T. F. Shareholders do not have the right to elect and/or remove directors.

16. T. F. After the record date of a Shareholder meeting is set, the corporation must prepare an alphabetical list of all shareholders entitled to notice.

17. T. F. Once a quorum has been established for a shareholder's meeting any shareholder can prevent a vote by leaving before the vote is taken, i.e. breaking the quorum.

18. T. F. Once a quorum has been established for a director's meeting a director can prevent a vote by leaving before the vote is taken, i.e. breaking the quorum.

21. T. F. The term "preemptive right" describes the situation when the corporation proposes to issue additional shares of stock and current shareholders want to purchase new shares to maintain their proportional voting strength.

22. T. F. Big is incorporated in Texas and doing business in Maine. Maine considers Big a foreign corporation.

25. T. F. A prospective franchisee usually makes an application to the franchisor to start the possible franchise process.

28. T. F. T. F Trade Dress has been primarily used in the fashion industry.

Multiple Choice: CIRCLE the letter of your answer

31. Corporations: a. may exist perpetually b. will change when new ownership takes control c. is automatically dissolved when a new President is elected c. all of the above d. none of the above.

32. The term "closely held corporation" means that a. the shares are owned by only a few shareholders b. the shareholders are usually family members, relatives, or friends of each other c. the stock certificates are "closely held" in the possession of the owners. d. (a and b)
e. (a and c) f. all of the above g. none of the above.

33. Flavor corporation's articles of incorporation state that they are formed to manufacture pens. After two years they start to manufacture fans. The corporation is said to be performing: a. dual vira acts b. ultra vires acts c. ultra virus acts d. dula vire acts e. all of the above f. none of the above.

35. Smith, Inc., submits its Articles of Incorporation with the State of its incorporation. State finds the articles comply with all requirements of law and all required fees are paid, State then files the articles. This filing of the articles by State is: a. Tentative proof of the corporate existence b. Reputable proof of the corporate existence c. Conclusive proof of the beginning of the corporate existence. d. Is no proof at all.

36. Equity securities are another word for a. debentures b. bonds c. stocks d. notes e. indenture agreements f. all of the above g. none of the above

39. Widget Incorporated has issued Debt Securities. This means that the holders of these securities are a. creditors of the corporation b. debtors of the corporation c. owners of 100 shares of the corporation d. all of the above e. none of the above

40. At the dissolving of a corporation this is the order of distribution of funds: a. preferred shareholders, common shareholders, creditors b. common stock holders, creditors, preferred shareholders c. preferred shareholders, creditors, common shareholders d. all of the above e. none of the above

41. The first governmental entity that protected franchisees was: a. The U.S. Government b. The state of New York c. The state of Florida d. The state of California e. all of the above f. none of the above.

42. If a person is injured by a franchisee's negligence, in every case the: a. franchisor will be directly liable to the plaintiffs b. franchisee will never be directly liable c. both the franchisee and the franchisor are always directly liable d. all of the above e. none of the above.

45. If a trademark owner puts the trademark name in print, s/he must use this symbol to indicate it is trademarked: a. TM b. an “r’ with a circle around it c. SM d. TMD e. all of the above f. none of the above

46 (B). A franchisee is usually: a. an independent contractor b. an employee of the franchisor c. an agent of the franchisor d. all of the above e. none of the above.

Fill-In questions: Put your answer in the blanks provided. All are worth 2 points each unless a different value is listed.

47. (3 points) Generally the right to manage a corporation is not spread out among the

shareholders, but rather is centralized in a __________________________ of


48. Flavor, Corporation is classified as a dejure corporation, this means:

49. (3 points) In some circumstances, even though a corporation has been validly formed, Courts will hold the shareholders, officers, or directors personally liable for corporate obligations because the corporation is abusing the legislative privilege of conducting business in the corporate form. This is called

_________________________ the ________________ __________________.

50. The notice of a shareholder meeting must contain several items. List any two (one point each):

51. (3 points) A corporation allows cumulative voting for directors. There are nine board vacancies. Jones owns 300 voting shares of Stock. How many votes may Jones cast?

52. The person or group that form corporations by procuring commitments for capital and other instrumentalities that will be used by the corporation after formation is/are called


53. (3 points) Joe Stockholder wants to take action against his own corporation in a

representative capacity. His lawsuit is called a_____________________suit.

54. (One Point) In #53 the corporation will become the a. Plaintiff b. Defendant. (circle either a or b

55. A director not properly elected, because of a failure to properly call a shareholder's meeting; an error in balloting; or a failure to satisfy bylaw

qualifications is called a _______________________, with power to
bind the corporation in the performance of normal director's activities.

56. What is the name that KFC started using in the utensil that is a combination of a fork and spoon?

57. A director is bound by The Corporate Opportunity Doctrine this means that the director must

58. (3 points) The main duty of a Corporate Vice President is to

59. (3 points) The main duty of a Corporate Secretary is to

60. In order to prevent the franchisee from competition from another franchisee the franchisor

will sign a ______________________ not to _________________.

61. (1 point each) List one benefit for the franchisor and one benefit for the franchisee in a franchise agreement

62. Give one essential term that is usually placed in a franchise agreement by the franchisor to protect its franchise.

63. Most disputes concerning franchises do not go to civil trial, because usually the parties agree that if there is a dispute it will be settled by


64. A franchisee usually pays several ____________________ to the franchisor.

65. Newly granted franchisee personnel are likely going to be required to attend

_________________________________________________ sessions.

66. To protect the investment in franchises the law requires Franchisors to insert a

____________________ __________________in the agreement.

67. A person who uses another trademark without permission is said to have

__________________________________________ upon the rightful owner’s trademark.

68. Franchise outlets in the U.S. account for over ___________% of retail sales in the U.S.A.

69. Unless it is stated elsewhere in the Articles or Bylaws an owner of each share of stock is entitled to how many votes at a shareholders meeting?

70. What/why does the law try to prevent corporation “A” from using an identical name as corporation “B”?


A complete answer to this hypothetical will earn you a 20 point bonus to your final test score. If you choose to just give your conclusions without any legal reasoning you will not earn any points. I'm looking for you to convince me that you understand the applicable franchise law and principles in your analysis and response. For full credit you need to identify all the legal issues and then combine the law with the facts in your answer.

Billie Gates, a multimillionaire Californian, is a successfully computer developer. Inside his garage he has developed a teleportation application that he believes will revolutionize the world. He decides to try to form a new corporation. It will be called “Instant Travel, Inc.” He solicits money from the general public and finds investors. His efforts produce a sum, minus all expenses, of $100K. One of the investors is Stevie Jobs who will eventually become the Vice President in charge of marketing. While the solicitation process is going on he needs parts for the teleportation device. He purchases many expensive parts. His last source of additionally needed parts is Markie Zuckerberg. The parts obtained from Zuckerberg amount to a price of $950K. Gates signs the contract for these parts on behalf of Instant Travel, Inc., as

“Billie Gates, President, and Founder of soon to be Corporation, Instant Travel, Inc.“

By its terms the money is due to be paid to Zuckerberg within one month of the corporation’s being incorporated. Three months later Instant Travel, Inc., files all the proper papers with the Ca. Secretary of State. At its organizational meeting “Instant Travel” adopts, among others, these bylaws: 1. Authorization of 20,000 shares at a par value of $10/share. 2. Election of a nine member board including Gates and Jobs. 3. Adoption of all contracts entered into during the formation stage of the corporation. During the first month following the IPO the sale of stocks amounts to $135K. The amount in the treasury does not amount to a sufficient sum to pay off all the pre-incorporation debts. Additionally, some tests of Teleportation seem to indicate that it has dangerous glitches. Zuckerberg decides to consult an attorney, as he wants his money that is due. He has made a demand for payment in full and the Board of Instant Travel has asked him to extend them a few months. He decides not to wait and instead to sue based on the terms of his contract.

You have just passed the Ca. Bar Exam (Congratulations) and are selected to represent Zuckerberg. Your job is to choose the BEST defendant(s) for Zuckerberg to sue. What is your advice as to who to name as defendant(s)? Make sure you discuss not only your choice, but why you made your choice, and what you tell Zuckerberg his chances for recovery are.
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