Deck 27: Managing the Corporate Entity

Question 1

Under the business judgment rule,the shareholders will not interfere with most business decisions.

Answer 1

False

Question 2

The conduct of self-dealing managers is judged by the business judgment rule.

Answer 2

False

Question 3

If Benjamin,who is a corporate manager at OfficeMojo.com,is offered two season tickets and offers them to his colleague Jasper who is the CEO,Benjamin has a safe harbor under the "corporate opportunity" doctrine.

Answer 3

False

Question 4

If a corporate insider who "tips" an outsider about material,nonpublic,factual data,both the "tipper" and the "tippee" who uses that data in a securities trade may be liable for illegal insider trading.

Question 5

The shareholders establish broad policies,and the officers and other employees implement those policies.The directors are the owners of the corporation.

Question 6

The Opening Case,Unocal v.Mesa Petroleum,involved a question as to whether the Unocal's board was protected by the business judgment rule.

Question 7

Stakeholders and shareholders refer to the same group of people.

Question 8

If Hannah owns 10% of the stock of Modern Co. ,a private company,she has the right under Sarbanes-Oxley to purchase a proportionate share of Modern Co when it goes public.

Question 9

Some states allow small corporations with fewer than 100 shareholders to eliminate the board of directors,as long as someone is assigned the duties that the board would have performed.

Question 10

A shareholder's preemptive right gives her the right to purchase up to a ten percent (10%)share of every new offering of stock by the corporation.

Question 11

Jacy wants to submit a shareholder proposal and should submit the proposal to management at least 120 days before the shareholders' meeting.

Question 12

Managers are not ethically allowed to profit from business decisions and if they do,the decision is suspect because of the duty of loyalty to the corporation.

Question 13

The "Unocal Rule" says that under the business judgment rule,board members have the right and the duty to work to block a takeover bid when that bid will damage the corporation and legitimate corporate plans.

Question 14

Officers have the authority of general agents for the operation of the normal business of the corporation.

Question 15

A derivative suit is based on a direct injury to a shareholder.

Question 16

The quorum-or minimum number of directors necessary to conduct business-is usually one more than half (51%)of the total number of directors and does not apply to special meetings.

Question 17

Inside information is material,nonpublic,speculative data that can be used to buy or sell securities at a profit.

Question 18

The business judgment rule emerges from the duty of due diligence that a manager owes to the corporation.

Question 19

Once a corporation's board of directors declares a dividend,it becomes a corporate debt and is enforceable by law.

Question 20

If managers choose to run an LLC on their own,then management rights are apportioned among the members,according to the capital contributions made by each member to the LLC.

Question 21

In the case United States v.Todd Newman and Anthony Chiasson,the Second Circuit Court of Appeals held that for a ________ to be ________,she must have the requisite ________ to receive a personal benefit in exchange for that information.

A)defendant-tippee;criminally liable;mens rea
B)defendant-tipper;civilly liable;mens rea
C)defendant-tippee;civilly liable;mens rea
D)defendant-tippee;criminally liable;actual authority

Question 22

________ is based on the belief that because corporate decision making influences more individuals and groups than just the shareholders and the managers,corporate decisions should be made by an impartial group of corporate outsiders.

A)Corporate democracy
B)Governmental control
C)Shareholder democratic control
D)Independent director control

Question 23

Pogisa is a director at Trendz Corp.After studying and consulting with experts,Pogisa votes to have Trendz sell a tract of land for $500 per acre.Within a year,the land is worth $2,000 per acre,and Trendz shareholders want to sue Pogisa for her vote to sell the land.Under the ________,Pogisa may be entitled to legal protection.

A)Fairness Rule
B)Business Judgment Rule
C)Insider Trading Rule
D)Actual Authority Rule

Question 24

Alan,a corporate manager at DollarShopper Corp. ,decides he would like to pursue a business opportunity he knows DollarShopper would also be interested in.Under the corporate opportunity rule,Alan may:

A)pursue the business opportunity only if he offers it to other corporate managers and also allows them to pursue it.
B)never pursue the business opportunity as long as he is employed by DollarShopper.
C)pursue the business opportunity only if he first offers it to DollarShopper,and the corporation rejects it.
D)pursue the business opportunity without informing DollarShopper of it.

Question 25

In order to bring a derivative suit,a shareholder must own stock:

A)at the time of the injury only.
B)at the time of the suit only.
C)both at the time of the injury and at the time of the suit.
D)at the time of the injury,suit,and trial.

Question 26

Koto,a successful accountant,has been invited to join the board of directors of Big Corp.Koto is concerned that she will face personal liability for her decisions while on the board of Big.Big Corp.can limit Koto's liability at this point in time by including:

A)protective measures in its corporate charter.
B)voluntary protective measures in its bylaws.
C)voluntary protective measures in its articles of organization.
D)protective measures in the members' agreement.

Question 27

When shareholders join together in a temporary arrangement,it is called a:

A)voting trust.
B)cumulative voting arrangement.
C)shareholder proposal.
D)pooling agreement.

Question 28

________ give(s)shareholders more voting control,because this voting method states that each share of stock has as many votes as there are directors to be elected.

A)Voting trusts
B)Proxy voting
C)Pooling agreements
D)Cumulative voting

Question 29

________ elect the ________,who take whatever actions are appropriate and in the best interests of the corporation.

A)Shareholders;officers
B)Officers;board of directors
C)Stakeholders;board of directors
D)Shareholders;board of directors

Question 30

Michelson was chairman of the board and chief executive officer of a computer manufacturing firm.When considering whether to purchase CompuPrint,the manufacturer of computer printers,Michelson examined CompuPrint's financial records,consulted with legal and financial experts,and conducted an in-depth study of the marketplace and decided that it would be profitable for his corporation to purchase CompuPrint.If CompuPrint turns out to be a poor investment,and a court hears a case challenging Michelson's decision,the court will most likely analyze his conduct based on the ________ rule.

A)business judgment
B)insider trading
C)fairness
D)shareholder protection

Question 31

Aqua,LLC is a member-managed LLC.Andrew,a member,agrees to resolve a dispute with a customer by submitting the claim to binding arbitration.This action by Andrew is:

A)legally binding on Aqua.
B)not legally binding on Aqua.
C)legally binding on Aqua if the claim is under $1,000.
D)not legally binding on Aqua until approved by a court.

Question 32

The right to cast another shareholder's vote is called:

A)cumulative voting.
B)proxy voting.
C)a pooling agreement.
D)a shareholder proposal.

Question 33

Some jurisdictions consider managers liable only if they exceed their authority and the violation results in negligent or intentional conduct.This duty is referred to as the duty of:

A)diligence.
B)loyalty.
C)care.
D)obedience.

Question 34

Some suggest that the insistence that all disputes involving U.S.corporations be fashioned under ________ law,a trend known as ________,makes listing in the U.S.unpopular.

A)American;special interest group control
B)American;corporate governance
C)American;legal imperialism
D)Sarbanes-Oxley;legal imperialism

Question 35

Linda,a manager and a currency trader for United Traders,has specific instructions from the CEO not to take a position on any currency in excess of $1 million.Linda sees what she believes to be a sure thing and takes a $20 million position.Unfortunately,the transaction goes bad and costs United $60 million.Does Linda have any liability to United?

A)Yes,because Linda violated specific instructions and is,therefore,liable for the company's loss.
B)No,Linda's actions are a normal market practice.
C)Yes,because Linda engaged in insider trading.
D)No,Linda is protected by the business judgment rule.

Question 36

For most business decisions,the quorum,or minimum number of directors necessary to conduct business,is usually ________ of the total number of directors.

A)three-quarters
B)two-thirds
C)one-half
D)a majority

Question 37

A ________ is defined as a coalition of individual outsiders who do not necessarily own stock,but can be affected by corporate decision making.

A)corporate director
B)special interest group
C)stakeholder
D)shareholder

Question 38

To submit a shareholder proposal,a shareholder must have owned (for the past year)________ percent or ________ in market value of the voting stock of the corporation.

A)5;$5,000
B)3;$1,000
C)1;$2,000
D)1;$5,000

Question 39

If Drake,a shareholder of Sweet Corp. ,feels that he has been deprived of the right to purchase some of the corporation's newly issued stock,he:

A)may bring a derivative suit against Sweet's corporate management.
B)may bring a direct suit against Sweet's corporate management.
C)may bring both a derivative suit and a direct suit against Sweet's corporate management.
D)has no legal recourse against Sweet's corporate management.

Question 40

A ________ refers to the actual document that is used to request the right to vote the other shareholders' votes.

A)proxy solicitation
B)pooling agreement
C)cumulative voting agreement
D)voting trust agreement

Question 41

To encourage individuals to serve on boards of directors,legislatures have enacted a variety of measures to protect the good faith and due diligent activities of directors.Discuss the types of measures enacted by state legislation.

Question 42

Shareholders of Mitas Corp.are concerned that the directors are not performing their tasks properly for the benefit of the corporation.Discuss what must be done by the shareholders before bringing a derivative suit.

Question 43

Tye,a director at Big Co. ,suspects wrongdoing within Big Co.and after investigation,uncovers legal violations.Discuss the steps that must be taken under current law in light of this discovery.

Question 44

Chris,Miller,and Kacy created a limited liability company by filing the articles of organization,appointing a statutory agent,and paying the appropriate filing fee.They also agreed to run the LLC themselves,making it a member-managed LLC.Chris entered an agreement whereby he purchased 1,000 barrels of oil.Neither Miller nor Kacy believe that Chris paid a good price for the oil.Nevertheless,Chris argues that the LLC is bound by the contract he entered.Is Chris correct? Explain.

Question 45

Jalenos owned voting stock in Altech,Inc.He submitted a 700-word shareholder proposal to management one week before the next shareholders' meeting.The proposal called for the firing of Carter,who was the president of Altech.Management rejected Jalenos' proposal.Point out the problems with Jalenos' proposal.

Question 46

Mannix owned 200 shares of Leo Deliveries,Inc.Leo had 600 shares total.Leo decided to increase its capital stock to 1,200.Assuming that Mannix elected to exercise his preemptive rights,how many shares would he be entitled to?

Question 47

Dave,a manager for Small Co. ,has authority to contract for credit sales of up to $100,000.Dave decides to extend $300,000 of credit for Christmas merchandise to a new customer with solid financial statements.Discuss if Small Co.is bound by this transaction and how Small Co.might choose to be bound if not already bound.

Question 48

Joe sells his stock in Big Co.to Mary.Discuss what Mary must do to be recognized as a shareholder in Big Co.

Question 49

Sam,a manager at Small Co. ,is confronted with a difficult business decision.Discuss what Sam must do to meet the duty of due diligence in making his decision.

Question 50

Seventy shareholders of a large chemical plant entered into a pooling agreement to vote against the corporation's plan to acquire a smaller chemical manufacturing company.On the day of the vote,25 of the shareholders in the pooling agreement broke the agreement and voted for the acquisition.Brian,one of the shareholders in the pooling agreement who voted against the acquisition,said he was going to bring a lawsuit for breach of contract against the shareholders who broke the agreement.Can Brian expect to win such a lawsuit? Why or why not?