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Question 1
A promoter is personally liable for pre-incorporation contracts until the corporation:
Correct
Incorrect!
Correct
Incorrect!
Correct This is a bit of a tricky question. Answer A may look correct, as may answer B. However, answer C is the correct answer because it combines answer A and B into what is known as a novation. If a company ratifies a contract by adopting its benefits and thereby taking on the rights and responsibilities of the contract, the corporation becomes liable along with the promoter. Ratification alone does not release the promoter. Answer B, by itself, is also not sufficient, as a release alone will still hold the promoter liable. Ultimately, the best answer is answer C as a novation combines the ratification of the contract with the release in order to get the promoter out of personal liability for the pre-incorporation contract.
Incorrect! This is a bit of a tricky question. Answer A may look correct, as may answer B. However, answer C is the correct answer because it combines answer A and B into what is known as a novation. If a company ratifies a contract by adopting its benefits and thereby taking on the rights and responsibilities of the contract, the corporation becomes liable along with the promoter. Ratification alone does not release the promoter. Answer B, by itself, is also not sufficient, as a release alone will still hold the promoter liable. Ultimately, the best answer is answer C as a novation combines the ratification of the contract with the release in order to get the promoter out of personal liability for the pre-incorporation contract.
Correct
Incorrect!
Question 2
Which of the following would not be done by a promoter?
Correct
Incorrect!
Correct
Incorrect!
Correct
Incorrect!
Correct A promoter can do just about anything the corporation tells him or her to do. However, it is the company's board and no one else that is empowered to issue the company's stock.
Incorrect! A promoter can do just about anything the corporation tells him or her to do. However, it is the company's board and no one else that is empowered to issue the company's stock.
Question 3
Which of the following factors might cause a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations?
Correct
Incorrect!
Correct
Incorrect!
Correct In a situation where a corporation and its owners are mingling, rather than segregating, their assets, a court might pierce the corporate veil and hold the shareholders personally liable for the corporation's obligations. The court will view the corporation as the shareholder's alter ego, and view the corporation as a fiction the individual is using to shield himself from personal liability while still operating the company as an entity that is not distinct - financially and managerially - from himself.
Incorrect! In a situation where a corporation and its owners are mingling, rather than segregating, their assets, a court might pierce the corporate veil and hold the shareholders personally liable for the corporation's obligations. The court will view the corporation as the shareholder's alter ego, and view the corporation as a fiction the individual is using to shield himself from personal liability while still operating the company as an entity that is not distinct - financially and managerially - from himself.
Correct
Incorrect!