Deck 35: Management Structure

Question 1

The board of directors generally manages the day-to-day affairs of the company.

Answer 1

False

Question 2

The officers determine the capital structure and financial policy of the corporation.

Answer 2

False

Question 3

In some states and under the RMBCA, cumulative voting is permissive, not mandatory.

Answer 3

True

Question 4

Members of the board of directors may not determine their own compensation.

Question 5

A shareholder may not vote without being at the shareholder meeting.

Question 6

A proxy is revocable to the same extent as an agency.

Question 7

Directors have the power to bind the corporation when acting individually rather than as a board.

Question 8

A voting trust does not permit a concentration of corporate control in one person.

Question 9

Directors are elected at the annual meeting of shareholders.

Question 10

Closely held corporations sometimes impose supermajority or unanimous quorum requirements even though this creates the possibility of deadlock at the director level.

Question 11

A proxy is effective until the shareholder revokes it.

Question 12

A quorum will consist of a majority of shares entitled to vote if there are no provisions for any other number in the articles of incorporation.

Question 13

The members of the board of directors are essentially trustees of the corporation.

Question 14

By law, a shareholder is always entitled to one vote for each share of stock that he owns.

Question 15

Notice of a shareholders' meeting may be waived in writing.

Question 16

Cumulative voting is permitted so the majority of shareholders can keep control of the board of directors.

Question 17

Under the RMBCA, if a quorum exists, a shareholder action such as the election of directors is approved if the votes cast for the action exceed the votes cast against it.

Question 18

Directors ordinarily serve until someone who wants the position calls for an election.

Question 19

Voting trusts generally are effective for only one year.

Question 20

Only the board of directors may approve fundamental changes in the corporation.

Question 21

An officer cannot be removed without the shareholders voting to do so.

Question 22

Directors usually may vote by proxy when they are not able to be present for a meeting.

Question 23

Currently, Julia is vice president of Speller Corporation. Under the Revised Act, Julia will not be permitted to also hold the office of treasurer.

Question 24

Jack has been on the board of his brother's company for three years but has never attended a board meeting. He may be liable for failing to act.

Question 25

Officers who trade on inside information must return their profits to the corporation.

Question 26

Ace Corporation requires a quorum of five directors. Under the RMBCA if Pam, a director, shows up at the
meeting for a vote on her favorite topic, dividends, and withdraws thereafter leaving only four directors, they may not act on any further business.

Question 27

Federal statutes prohibit officers and directors from purchasing or selling shares of their corporation's stock without adequately disclosing all material facts in their possession that may affect the stock's actual or potential value.

Question 28

In closely held corporations, stock transfer restrictions are used to achieve the corporate equivalent of delectus personae.

Question 29

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation may operate without a board of directors.

Question 30

The Sarbanes-Oxley Act was passed in 2002 to seek to prevent corporate scandals by increasing corporate responsibility, creating new financial disclosure requirements, creating new criminal offenses, and creating an Accounting Oversight Board.

Question 31

In most states, a corporation may, with shareholder approval, limit the liability of directors for some breaches of the duties which they owe to the corporation.

Question 32

Under the Sarbanes-Oxley Act, the audit committee of every publicly held corporation has direct responsibility for the appointment, compensation, and oversight of the work of the public accounting firm employed by the corporation to perform audit services.

Question 33

Under the statutes in most states, if Marilyn and George form a corporation with Marilyn as president and George as treasurer, Marilyn cannot also be corporate secretary.

Question 34

The officers and the directors are fiduciaries of the corporation, but the business judgment rule will not preclude liability on officers and directors for honest mistakes of judgment.

Question 35

George is a shareholder in the Muncy Kempf Corporation. He learns of insider trading by one of the directors and wants to sue the corporation on behalf of the corporation and its shareholders. A shareholder cannot sue the corporation to enforce a right belonging to the corporation.

Question 36

Management can be offered shares of the corporation at favorable prices if other shareholders are excluded from that offer.

Question 37

Directors, but not officers, may compete with the corporation in their own private business dealings.

Question 38

Determining the names of other shareholders in order to communicate with them about corporate affairs is a "proper purpose" for a shareholder to inspect the books and records of a corporation.

Question 39

The board of directors appoints the officers of the corporation, who are agents of the corporation.

Question 40

The shareholders elect the key corporate officers.

Question 41

A shareholder may bring a derivative suit on behalf of the corporation and any recovery usually goes to the corporation's treasury, or a shareholder may bring a direct suit to enforce a claim he has against the corporation based on his ownership of shares and any recovery goes to the shareholder plaintiff.

Question 42

If the board delegates to a committee its duty to select a new company president:

A) the members of that committee may be responsible individuals other than board members.
B) the committee must be approved by the shareholders.
C) the non-committee directors are relieved of liability for acts of the committee.
D) the committee must consist of board members.

Question 43

A significant change to U.S. financial regulation occurred with the 2010 Congressional enactment, the:

A) Sarbanes-Oxley Act.
B) Wall Street Reform and Consumer Protection Act.
C) RMBCA.
D) Statutory Close Corporation Supplement.

Question 44

Which of the following are directors in publicly held corporations?

A) Inside directors
B) Outside directors
C) Affiliated directors
D) Any of these.

Question 45

Assuming there are no provisions in the corporation's articles of incorporation or bylaws regarding quorum requirements, if there are 13 total directors of General Gonzo Corporation and the minimum number of directors are present to transact business, how many votes normally would be necessary for those present to act as a board?

A) 7
B) 4
C) 6
D) 11

Question 46

All of the following would constitute a "fundamental change" to the corporation EXCEPT:

A) an amendment to the articles of incorporation.
B) a merger.
C) a stock dividend.
D) selling off 60% of the business assets not in the regular course of business.

Question 47

Morales, president of Tradewind Industries, Inc., would have actual implied authority to:

A) issue corporate stock.
B) remove a vice-president of the company from office.
C) bind the company in a sale in the ordinary course of the company business.
D) set the amount for production bonuses of the other officers.

Question 48

Officers and directors of a corporation owe to the corporation the subordination of their self-interest to the interest of the corporation and owe constant loyalty to the corporation. This duty is the:

A) fiduciary duty.
B) business judgment duty.
C) duty of indemnification.
D) duty of diligence.

Question 49

The Revised Act requires that demand be made upon the board of directors to enforce the corporate right at issue in
all cases as a prerequisite to bringing a derivative suit.

Question 50

Theodore, as treasurer of Valleyview Corporation, had the duty to invest corporate earnings as he deemed best for the company. When Valleyview Corporation went public, the new board decided that a committee of the officers would make such investment decisions. If Theodore thereafter unilaterally contracted to purchase investment securities with corporate earnings as he had done many times before, such contract would be valid:

A) since Theodore would have express authority.
B) since Theodore had implied authority.
C) under apparent authority if the seller knew of Theodore's past transactions.
D) because of ratification if the board did not know of his actions.

Question 51

Assuming no special provision in the articles of incorporation, special shareholder meetings may be called by:

A) the president of the company.
B) any individual director.
C) any individual shareholder.
D) holders of at least 10% of shares.

Question 52

During the past twenty years or so, inside directors' number and influence in most large corporations have increased dramatically.

Question 53

The CFPA of 2010 requires that publicly held companies annually include a provision in their proxy statements for a binding shareholder vote on executive compensation.

Question 54

The Revised Act states that "all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of ":

A) the shareholders of the corporation.
B) the chief executive officer of the corporation.
C) the officers of the corporation.
D) the board of directors of the corporation.

Question 55

The Revised Act and the majority of states hold that the officers' and directors' test of the duty of diligence requires a director or officer to discharge her duties:

A) in good faith.
B) with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
C) in a manner she reasonably believes to be in the best interests of the corporation.
D) All of these.

Question 56

Which of the following is the effect of the business judgment rule regarding the liability of officers and directors?

A) Courts will not substitute their judgment for that of the board or an officer acting in good faith with due care.
B) Officers and directors will never have liability for their decisions relating to the corporation.
C) Officers and directors may have liability for bad faith decisions, but cannot be liable for failure to act.
D) Directors and officers will not be held liable for conduct that is only negligent.

Question 57

An officer who breaches the fiduciary duty to the corporation will be:

A) discharged, but not required to pay anything.
B) required to return to the corporation profits obtained through breach of a fiduciary duty and forfeit the right to compensation during the period of the breach
C) required to pay back all compensation received during the period of the breach.
D) None of these.

Question 58

An extension of a voting trust for an additional term binds only those shareholders that consent to the extension.

Question 59

The Statutory Close Corporation Supplement to the MBCA and RMBCA and special legislation in about twenty states accommodate the needs of closely held corporations by all but which of the following?

A) Permitting operation without a board of directors
B) Authorizing the use of shareholder agreements in place of bylaws
C) Requiring cumulative voting
D) Making annual meetings optional

Question 60

Under the Model Act and in a majority of the states, a quorum of shareholders at an annual meeting may be not less than percent of the shares entitled to vote.

A) 10
B) 33 1/3
C) 66 2/3
D) 50

Question 61

One of the fiduciary duties of directors is the duty not to compete with the corporation. They may pursue their own business interest, but they may not:

A) use corporate resources.
B) hire away personnel for their own business.
C) use corporate facilities.
D) All of these.

Question 62

Which of the following is correct regarding the removal of Mr. X from the board of XYZ?

A) The common law does not permit removal of a director for any reason.
B) The RMBCA permits the removal of a director without cause.
C) The articles of incorporation cannot provide for the removal of directors.
D) Under common law and statutory law, a director can never be removed without cause.

Question 63

OmegaByte Corp. has 1,000 shares of stock outstanding that are permitted to vote for directors. If OmegaByte Corp. permits cumulative voting, a minority shareholder would need to vote how many shares to elect one of three directors?

A) 251
B) 501
C) 751
D) 334

Question 64

Marjorie is a member of the board of directors of Techno Ko Corp. She would like to have the corporation lend her some money so that she can begin another business venture. Which of the following is correct regarding loans of a corporation to one of its directors?

A) The Model Act permits a corporation to lend money to its directors with a majority vote of the other directors.
B) The Sarbanes-Oxley Act prohibits any publicly held corporation from making personal loans to its directors or ^{executive officers, with certain limited exceptions.}
C) Both the Model Act and the Revised Act prohibit loans to directors in all cases.
D) The Sarbanes-Oxley Act permits a publicly held corporation to make personal loans to its directors or executive officers only with the consent of the shareholders.

Question 65

Gerhardt is the president of the Speedway Bicycle Company. He also serves as a director of the Flexible Tire Company. It occurs to Gerhardt that both companies could benefit from a contract in which Flexible agrees to supply Speedway with tires for its bicycles. If Gerhardt wishes to negotiate a contract between Speedway and Flexible, which of the following is correct?

A) The contract will be void as a conflict of interest.
B) In most states, the contract might be permitted if it is fair and reasonable to both corporations and if Gerhardt fully discloses all information relating to the transaction.
C) The contract is a clear conflict of interest and will be avoidable by either company even with disclosure.
D) None of these.

Question 66

Zeron Corporation stock may be summarized as follows: 100,000 authorized
90,000 issued
75,000 outstanding
15,000 treasury stock
How many shares or proxies will have to be present for a quorum (assuming no special provision and that the
Revised Act is not in effect)?

A) 45,001
B) 37,501
C) 30,001
D) 50,001

Question 67

The board of directors is delegated the power to manage the business of the corporation, which includes:

A) determining the capital structure and financial policy of the corporation.
B) declaring the amount and type of dividends.
C) formulating major management policy.
D) All of these.

Question 68

To whom does a large, publicly held corporation and its management have obligations?

A) The corporation's shareholders
B) Its employees, customers, and suppliers
C) Communities in which the corporation is located
D) All of these.

Question 69

Which of the following is not true about a corporation's ratification of an officer's act?

A) It applies to an authorized act of an officer.
B) It relates back to the original transaction.
C) It may be either express or implied from the corporation's acceptance of contractual benefits.
D) The corporation must have full knowledge of the facts in order to ratify the act.

Question 70

Arthur is a shareholder of Sigma Corp. He has evidence to suggest that its president/CEO has allowed the corporation to engage in acts that are ultra vires. Based upon this evidence, Arthur contacts an attorney and sues the corporation on behalf of the corporation. The lawsuit Arthur has filed is known as a(n):

A) direct suit.
B) derivative suit.
C) class action suit.
D) unauthorized suit.

Question 71

Which of the following is not an established right of a shareholder?

A) The right to vote
B) The right to inspect the books of the corporation
C) The right to participate directly in the management of the corporation
D) The right to bring lawsuits to enforce their rights

Question 72

Assume that 12,000 shares are represented at a shareholder meeting and a quorum exists. How many votes are normally necessary to carry a motion?

A) 4,001
B) 8,001
C) 6,001
D) 10,000

Question 73

Shares in a publicly held corporation typically are:

A) owned mostly by management of the corporation.
B) widely dispersed and about two-thirds are held by institutional investors.
C) owned by a few investors holding many shares each.
D) owned mostly by individual investors, and these investors usually exercise their right to vote by attending shareholder meetings.

Question 74

Which of the following would be likely to result in liability to a director of a textile company? The director:

A) sells stock in the textile company before a merger is announced.
B) buys stock in the textile company using the computer in the office of the company.
C) owns stock in an automobile company.
D) agrees to hire as president a man he has not personally investigated.

Question 75

The nominating committee of the board of directors actually determines the board's membership because:

A) they are the only ones who can vote on this matter.
B) virtually all shareholders who vote for directors do so through the use of a proxy, and the majority of shareholders who return their proxies vote as management advises.
C) very few institutional investors exercise their right to vote their shares, so the choice of the nominating committee usually prevails.
D) most individual investors exercise their right to vote their shares, and they tend to rely on the recommendation of the nominating committee.

Question 76

The right of a shareholder to examine the books and records of the corporation is a valuable right. However, it may be denied if the shareholder:

A) seeks information to determine the financial condition of the corporation.
B) desires to know the amount of executive salaries.
C) seeks information to embarrass or cause loss to the corporation.
D) desires the names and addresses of other shareholders.

Question 77

With respect to the board of directors of a corporation, which of the following is NOT correct?

A) They manage the business and affairs of the corporation.
B) They are the shareholders' elected representatives.
C) They must always obtain shareholder approval before deciding questions of operating policy.
D) They have the authority to delegate power to officers and agents.

Question 78

With respect to the voting rights of shareholders, a shareholder is entitled to vote:

A) only at annual shareholder meetings.
B) one vote for every two shares of stock owned.
C) only in person.
D) at annual and special shareholder meetings, ordinarily with one vote for each share owned.

Question 79

If shareholders agree to vote in a specified manner for the election or removal of directors, this is known as:

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

Question 80

The minimum number of board members necessary to be present at a meeting in order to transact business is known as:

A) a plurality.
B) the entire board of directors.
C) a quorum.
D) a minority.