Part 1

Required information





Read the overview below and complete the activities that follow.


Before beginning this activity, be sure to review LO 22-1 in Chapter 22 of your text. These learning objectives examine corporations’ characteristics and powers.




This chapter explains the steps necessary to establish a corporate entity. Although state law generally governs corporations, and each state has its own corporate regulatory statutes, the Revised Model Business Corporation Act (RMBCA) is the basis of most state statutes. More than 25 states have adopted at least part of RMBCA. This chapter refers to specific RMBCA guidelines, but remember that not all states follow them.




Read the hypothetical case and answer the accompanying questions.


Mike Jones had been living at the same address in Springfield, California, for more than 30 years when he discovered that his water was emitting a strong odor. When he brought this observation to the attention of many of his neighbors, they complained of a similar odor. After some investigating, Mike discovered that a large corporation, the hypothetical Springfield Gas & Electric, had been dumping chromium 6, a possible carcinogen, into the water supply for decades. Mike then went to a lawyer with this discovery. The lawyer then filed suit against Springfield Gas & Electric in the name of the nearly 1,000 residents in Springfield with contaminated water.

Suppose that Springfield G&E Corporation is incorporated within the state of California. What type of corporation is discussed in the case example?

Multiple Choice

  • Nonprofit corporation


  • S corporation
  • Foreign corporation
  • Domestic corporation





Suppose the federal government charters a corporation to help regulate financial matters across state borders. This corporation would be a(n) ________________.


  • closely held corporation
  • private corporation
  • alien corporation
  • public corporation
  • nonprofit corporation


Which of the following is not an express power of corporations?


  • The power to make charitable donations.
  • The power to sue and be sued under the corporation name.
  • Perpetual existence.
  • The power to lend money.
  • The power given in the statement of corporate purpose in the articles of incorporation.

Who typically prepares the corporation’s incorporation papers?


  • Stockholders
  • CEOs
  • Corporate managers
  • Promoters
  • Subscriberse

In which of the following scenarios could the courts pierce the corporate veil?


  • If a corporation followed statutory mandates regarding corporate business.
  • If the corporation has been legally incorporated.
  • If a corporation did not follow statutory mandates regarding corporate business.
  • If the shareholders resisted.
  • All of these are correct.

State incorporation grants corporations the following express powers except
Multiple Choice

  • the power to acquire property.
  • the power to make contracts and borrow money.
  • the power given in the statement of corporate purpose in the articles of incorporation.
  • the power to lend money.
  • the power to make charitable donations.




When can shareholders inspect the records and bookkeeping of the corporation?


  • Shareholders can inspect records as long as they ask in advance.
  • A shareholder who feels his right of inspection has been wrongly denied by the court can inspect the books.
  • Shareholders can inspect records and books only if they ask in advance and have a proper purpose.
  • Shareholders can inspect records at any time.
  • Shareholders can never inspect the books and records of the company.

The ________________ allows directors to be reimbursed for any legal fees incurred in lawsuits against them.


  • preemptive suit
  • right to inspect
  • right of first refusal
  • right to indemnification
  • preemptive right

An authorization for someone else to vote your shares is called ________________.


  • a shareholder voting agreement
  • a buy-sell agreement
  • a stock warrant
  • a preemption agreement
  • a proxy

In this type of takeover, the aggressor offers to exchange the target corporation’s current stock for stock in the aggressor’s corporation.


  • Exchange tender offer
  • Beachhead acquisition
  • Hostile takeover
  • Cash tender offer
  • Tender offer


When a company employee or executive uses material inside information to make a profit, she or he is engaging in insider trading. Which of the following contains the legal definition of insider trading?


  • Two of these
  • The U.S. Constitution
  • The 1934 Securities and Exchange Act
  • The Securities Act of 1933
  • None of these


Why is insider trading illegal?


  • It takes money away from the government.
  • It gives the violator an advantage over the general public.
  • It is essentially stealing money from the corporate directors.
  • It takes money away from the company.
  • None of these.

Sally overhears a phone conversation in an elevator of her office building in N.Y.C. discussing top secret financial matters regarding a corporation. After hearing the conversation, she believes she has a strong basis to make a lot of money, so she buys a ton of the company’s stock after hearing this inside information. Can Sally be held liable for insider trading?


  • Yes, under the misappropriation theory.
  • No, she is not an insider.
  • Yes, she is a tipper.
  • Yes, but only if she is in some way affiliated with the company.
  • No, she is a statutory insider.

How does the law prevent statutory insiders from using inside information for personal gain?


  • The law requires bounty payments.
  • The law requires them to return all short-swing profits.
  • The law requires them to have a proxy.
  • All of these.
  • None of these.

Jan is an attorney at a law firm and she knows information about change in the status of litigation against one of the corporate clients of her firm. She knows that the company is in huge legal trouble and is going to settle for billions of dollars, and this will subsequently probably reduce stock prices. So she sells all her stock immediately and tells all her friends with stock in the company to sell as quickly as possible. In this situation, __________________.


  • Jan used inside material information to make a profit
  • Jan did not engage in insider trading
  • Jan did not use inside material information because the information she had was not important
  • Jan did not use inside material information
  • Jan has the legal right to use this private information for her personal gain in a capitalist society

A _______ is a writing signed by a shareholder that authorizes the individual named in the writing to exercise the shareholder’s votes (corresponding to his shares of stock) at a shareholders’ meeting.


  • statutory insider
  • tippee
  • proxy
  • tipper
  • short-swing

Which of the following contains the rules concerning the issuance of securities and their registration?


  • Securities Act of 1933
  • The SEC Prospectus
  • Two of these
  • Securities Act of 1934
  • None of these

Which of the following is not a function of the SEC?


  • Regulating the activities of securities brokers, dealers, and advisers.
  • Passing securities transaction regulations that have the force of law.
  • The SEC does all of these things.
  • Interpreting securities acts.
  • Enforcing securities law.

Which act allows the SEC to suspend securities trading if prices vary excessively in a short time period?


  • Securities Act of 1934
  • Market Reform Act of 1990
  • National Securities Markets Improvement Act of 1996
  • Securities Act of 1933
  • Sarbanes-Oxley Act of 2002

Which of the following is not an example of exempted securities?


  • Securities issued by Fortune 500 companies.
  • Securities issued from a federally regulated railway.
  • Securities issued by state governments.
  • Insurance contracts.
  • Stock dividends.


______________ require(s) that a defendant demonstrate that she investigated the registration statement and had reasonable grounds to believe that the registration statement was accurate and had no omission of material facts.


  • The Securities Act of 1933
  • Restricted securities
  • The Securities Act of 1934
  • The due diligence defense
  • A red-herring prospectus







Which of the following is not an exempt transaction?


  • Intrastate issues.
  • All of these are exempt transactions.
  • Resales of securities.
  • Limited offers.
  • Red-herring prospectus.


Each of the following has been defined as a security except

Multiple Choice

Top of Form

  • interests in oil rights.
  • lottery tickets.

Bottom of Form


The following are unregistered unrestricted securities except

Multiple Choice

Top of Form

  • long-term notes with a maturity date that does not exceed nine months.
  • securities issued by nonprofit issuers.
  • securities issued by financial institutions supervised by banking associations.
  • securities issued as a result of corporation reorganization in which one security is exchanged for another security.
  • stock dividends and stock splits.

Bottom of Form


Which of the following establishes that an individual who acquires material inside information as a result of an insider’s breach of duty is liable for insider trading?

Multiple Choice

Top of Form

  • Tipper/Tippee Theory.
  • Misappropriation Theory.
  • The Securities Litigation Uniform Standards Act.
  • Proxy Solicitation.
  • Blue Sky Laws.

Bottom of Form

This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.

Part 3

__________ is the organization that enforces the Occupational Safety and Health Act (OSHA).


  • The Justice Department
  • The Securities and Exchange Commission
  • The Securities Exchange Commission
  • The Occupational Safety and Health Administration
  • The Food and Drug Administration

Who is covered under the provision of the FLSA that mandates employees working more than 40 hours a week earn time and a half pay?


  • Regular salespersons
  • Administrative employees
  • Outside salespersons
  • Executives
  • Professional employee

Madison was injured in a car accident on the way to the airport. She was heading to Chicago on a business trip. Which of the following statements is true regarding Madison’s right to receive workers’ compensation?

Multiple Choice

  • Workers’ compensation is purely state law.
  • Madison will probably be covered by workers’ compensation because she was headed to the airport for a business trip.
  • Madison will probably have to sue her employer to collect workers’ compensation.
  • Both workers’ compensation is purely state law and Madison will probably be covered by workers’ compensation because she was headed to the airport for a business trip






Which class is protected under the Age Discrimination in Employment Act (ADEA)?


  • Ages 20-60.
  • Ages 40-60.
  • Ages 40 and up.
  • Children under the age of 12.
  • All American workers.

When determining whether men and women do equal work and deserve the same pay under the EPA, what factor do courts not consider?


  • Skill.
  • Effort.
  • Responsibility.
  • Working conditions.
  • All of these factors help the court determine whether the work was equal.

What is the first thing a plaintiff should establish to prove a case based on disparate impact?


  • There were unwelcome sexual advances in the workplace.
  • The “necessity” was promulgated as a pretext for discrimination.
  • The rule disproportionately restricts employment opportunities for a protected class.
  • The practice or policy in question is a business necessity.
  • None of these.

_________ occurs when an employee is treated differently on the basis of being a member of a protected class.


  • Disparate treatment
  • Quid pro quo
  • Hostile environment
  • Nothing
  • Disparate impact





Denise and Donna legally married each other in the state of New York. Later, when Donna got a job promotion and transfer, they moved to Georgia. Under DOMA, after the recent Supreme Court ruling, which of the following is/are true?

Multiple Choice

  • Georgia is not required to legally recognize the marriage of Denise and Donna in New York.
  • Georgia is required to legally recognize the marriage of Denise and Donna in New York.
  • The marriage of Denise and Donna must be legally recognized by all the states in the U.S.
  • Georgia is legally required to recognize the marriage of Denise and Donna in New York, and the marriage of Denise and Donna must be legally recognized by all the states in the U.S.

Brett sued his employer for race discrimination under Title VII. He works at a large company that has several hundred employees. What is true of the damages Brett may receive if he proves his claim?

Multiple Choice

  • Brett may receive attorney’s fees.
  • Brett’s punitive damages are limited to $300,000.
  • Brett may receive back pay.
  • Brett may receive both attorney’s fees and back pay.

Part 4

Claire purchases a $125 suit on her credit card from a local clothing store in her hometown. When she takes it home, she realizes it is damaged. She tries to take the product back for a full refund or store credit, but the store refuses. In this situation, ____________________.


  • Claire is protected under the Fair Credit Reporting Act
  • she cannot receive a refund unless the transaction was a lease
  • the credit card company can bill Claire because it is not their fault she bought damaged goods
  • the credit card company cannot bill Claire for the damaged item
  • the store violated TILA




Punjab is a 20-year-old student who emigrated here from India but now is a U.S. citizen. When he tries to get a credit card, the worker on the phone tells him that they will not give him a credit card because he was born in India and he is too young. In this situation, _________________.


  • the credit card company did nothing that is illegal
  • the credit card company is violating TILA
  • the credit card company is violating the Fair Credit Reporting Act
  • the credit card company is violating the Fair Debt Collection Practices Act
  • the credit card company is violating the ECOA


The purpose of the _______________ is to require that sellers disclose the terms of the credit or loan to help consumers compare a variety of credit lines or loans.


  • Truth in Lending Act
  • Equal Credit Opportunity Act
  • Fair Credit Reporting Act
  • Consumer Leasing Act
  • Limited Liability Corporations

Jose loses his credit card at a crowded city park. He notifies his credit card company immediately. Five days later, $4,507 is charged on the card. How much of those charges is Jose liable for?


  • $25.00.
  • $50.
  • 50% of the charges incurred.
  • The entire amount.
  • Nothing.

A(n) ______________ is a statement in which the company agrees to stop the disputed behavior but does not admit that it broke the law.


  • consent order
  • multiple-product order
  • ad substantiation
  • cease-and-desist order
  • corrective advertising

A salesman says, “This house has the most efficient floor plan of any home in the world.” This statement is a generality or exaggeration that cannot be proven. In this situation, what can we accurately say about this statement?


  • Ad substantiation is required.
  • This statement is prohibited, as it is puffing.
  • This statement is allowed, as it is puffing.
  • This statement is prohibited, as it is a half-truth.
  • This statement is prohibited, as it is deceptive advertising.


When a seller advertises a low price for an item generally unavailable to the consumer and then pushes the consumer to buy a more expensive item, they are engaging in __________________.


  • cease-and-desist order
  • corrective advertising
  • puffing
  • multiple-product orders
  • bait-and-switch advertising

Which of the following is not an element that must be proven to show an advertisement has a deceptive claim?


  • The statement was said with the intention of misleading.
  • The person viewing the statement was a reasonable consumer.
  • The statement is likely to mislead.
  • A material misrepresentation or omission occurred.
  • All of these elements must be proven.

____________ prohibits radio and television cigarette advertisements.


  • Two of these
  • Section 5 of the Federal Trade Commission Act
  • The FTC
  • The Public Health Cigarette Smoking Act
  • The Smokeless Tobacco Act

An advertisement for a fast-food burger restaurant that states “World’s Best Burgers” is an example of which of the following according to U.S. standards?

Multiple Choice

  • Deceptive advertising.
  • An untruth.
  • Ad substantiation.
  • Bait-and-switch advertising.




Which of the following laws requires that sellers disclose the terms of the credit or loan so that consumers can better compare a variety of credit lines or loans?

Multiple Choice

  • Truth in Lending Act.
  • Fair Credit Reporting Act.
  • Fair Debt Collection Practices Act.
  • Fair Credit Billing Act.
  • Federal Trade Commission Act.


Last Updated on March 27, 2019

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