Deck 16: Managing a Business: Companies and Corporate Governance

Question 1

Which of the following is not a type of right that generally comes with ordinary shares?

A)Voting rights
B)Management rights
C)Distribution rights
D)Information rights

Answer 1

B

Question 2

The secretary of a company:

A)is responsible for the management of the company.
B)is an assistant to the company's directors.
C)is primarily responsible for ensuring compliance with the administrative requirements of the Corporations Act.
D)has unlimited liability for the debts of the company.

Answer 2

C

Question 3

What is a share?

A)A legal claim against a company to which certain rights are attached.
B)A form of real property to which certain rights are attached.
C)A debt payable by a company with associated rights.
D)Secured transferable loan stock.

Answer 3

A

Question 4

Which of the following statements about proprietary companies is not true?

A)It can be distinguished from a public company based on the maximum number of shareholders.
B)It cannot undertake fundraising activities that require the issue of a prospectus.
C)It is not subject to as many obligations as a public company under the Corporations Act.
D)It must be either a 'major proprietary company' or a 'minor proprietary company'.

Question 5

What is the difference between a company and a corporation?

A)A company is a type of corporation - one registered under the Corporations Act 2001 (Cth).
B)A corporation, unlike a company, is an artificial entity separate from its members.
C)There is no difference, and the terms can be used interchangeably.
D)The term company is a more general term than 'corporation' and includes incorporated associations, body corporates and so on.

Question 6

A 'floating charge' is security for a loan to a company that takes the form of a charge over:

A)fixed, identified property.
B)property covered by personal guarantees.
C)a class of assets (or sometimes all) of the company.
D)fixtures only.

Question 7

The company is the most common form of business structure because it offers a number of advantages over the partnership.The most important advantage is:

A)the ease and low cost of its formation.
B)the privacy it offers in terms of low level of disclosure required to government and so on.
C)limited liability.
D)the opportunity it offers investors and creditors to choose from multiple borrowers.

Question 8

Which of the following is not a consequence of registering a company charge on the Personal Property Securities ('PPS') register?

A)The charge will become enforceable against a liquidator.
B)The charge will have priority over unregistered charges.
C)The charge will have priority over other charges granted later.
D)A charge will immediately 'crystallise'.

Question 9

Which of the following statements about companies is not correct?

A)A company is a separate legal entity from its owners.
B)A company can own property.
C)When a limited liability company is unable to pay its debts, the owners must pay them.
D)A company is established by registration.

Question 10

Which of the following statements about a prospectus is not correct?

A)It is used by proprietary companies when they seek to raise funds.
B)It must contain all relevant information that investors and their professional advisors would reasonably require to make an informed investment decision.
C)It must not be misleading or deceptive.
D)It is required for raising debt capital and equity capital.

Question 11

What is a 'company charge'?

A)A charge given by a company over some or all of its assets in favour of a creditor.
B)A mortgage entered into by a company with a creditor.
C)A debt owed by a company to a creditor.
D)A debt owed to a company by another individual or entity.

Question 12

A 'debenture' is:

A)a type of ordinary share.
B)a type of preference share.
C)a secured transferable loan stock.
D)a form of guarantee.

Question 13

The Australian Securities and Investment Commission, or ASIC, is the main regulator of companies in Australia.Its functions do not extend to:

A)promoting competition and fair play in the marketplace.
B)gathering and disseminating information about companies.
C)investigating breaches of the corporations law.
D)registering companies.

Question 14

One of the main attractions of the company as a business structure is the limited liability that it affords directors.Sometimes the Court will however 'lift the corporate veil', disregard the separate personality of the company, and hold directors personally liable for the actions of the company.In which of the following circumstances is the Court least likely to do this?

A)Where the corporate form is being used to avoid an existing duty.
B)Where the company is acting as the agent of the directors.
C)Where the company is unable to repay a business loan.
D)Where the insolvent trading provisions of the Corporations Act 2001 (Cth) apply.

Question 15

A proprietary company is similar to a public company in that:

A)it is privately owned.
B)it cannot have more than 50 non-employee shareholders.
C)it is prohibited from selling its shares to the public.
D)it must have a statutory minimum number of directors and members.

Question 16

Which of the following is not a step in the process of forming a company?

A)The lodgement of an application with ASIC.
B)The payment of the prescribed fee to ASIC.
C)The lodgement of a certificate of registration with ASIC.
D)Issue of the Australian Company Number by ASIC.

Question 17

A 'separate legal entity' is not necessarily able to:

A)own property.
B)enter into contracts.
C)get married.
D)be a party to litigation.

Question 18

Which of the following persons or entities is entitled to buy shares in XYZ Ltd?

A)XYZ Ltd
B)ABC Ltd, a subsidiary of XYZ Ltd
C)A director of XYZ Ltd
D)Any person or entity

Question 19

The essential difference between a fixed charge and a floating charge relates to:

A)whether or not the charge must be registered.
B)the length of time the charge exists.
C)the enforceability of the charge against third parties.
D)the time when the particular assets that will be subject to the charge become known.

Question 20

Which of the following is not a recognised form of company?

A)A company limited by shares
B)A company limited by guarantee
C)A company limited by debentures
D)A no liability company

Question 21

Which of the following best defines the meaning of a 'share issue'?

A)An offer of shares made privately or to the public.
B)A public offering of new shares in a company.
C)A private placement of new shares to investors.
D)An offer of rights, bonuses or dividends.

Question 22

Which of the following statements is not true regarding the usual role and function of various types of directors of a company?

A)A chief executive officer is the managing director of a company.
B)An executive director is involved in the full time management of a company and is an employee of the company.
C)A chief finance officer is a form of executive director who is part of the senior management of a company.
D)Non-executive directors are directors who are not involved in the full time management of the company but are employees of the company.

Question 23

The way in which a company is controlled and managed is known as:

A)corporal management.
B)corporate governance.
C)indoor management.
D)management paradigm.

Question 24

Which companies must always lodge a copy of their constitution with ASIC?

A)Proprietary companies.
B)Public companies.
C)Single director/shareholder companies.
D)Investment companies.

Question 25

Which of the following matters does a company's constitution not generally regulate?

A)The procedure for convening and conducting a board meeting.
B)The appointment and removal of directors.
C)The procedure for calling a general meeting of shareholders.
D)The wages paid to employees of the company.

Question 26

The shareholders of a company have the power to modify or repeal the company constitution by:

A)ordinary resolution.
B)a resolution passed by at least 75% of the voting shareholders present at general meeting.
C)a majority vote.
D)an application to the board of directors.

Question 27

Which of the following propositions is not true of preference shares?

A)They entitle holders to a pro rata share of any surplus assets on winding up.
B)They entitle holders to repayment on winding up in preference to ordinary shareholders.
C)They entitle holders to dividends at a fixed rate if and when dividends are declared.
D)They do not generally come with voting rights.

Question 28

Which of the following characteristics is not found in a proprietary company?

A)Private ownership
B)Fewer than 50 non-employee shareholders
C)Shares that are offered to the public
D)Taxation paid in its own name

Question 29

Which of the following persons cannot be a non-executive director of a company?

A)An independent advisor
B)A shareholder
C)A creditor
D)An employee

Question 30

A company cannot:

A)be a partner.
B)own property.
C)borrow money.
D)be a sole trader.

Question 31

Which of the following is not a ground that would warrant a Court order disqualifying a person from being a director?

A)being convicted of drug dealing.
B)involvement in the failure of two or more companies.
C)repeated breaches of the Corporations Act.
D)being the subject of an adverse report by a liquidator.

Question 32

A 'de facto director' is someone who is:

A)recognised to be a director but has not been properly appointed.
B)incompetent.
C)appointed at the request of a particular group in the company.
D)a non-executive director.

Question 33

The disclosure obligations of a company that proposes to issue shares to members of the public will usually require it to:

A)issue a prospectus.
B)complete a profile statement.
C)submit an offer information statement.
D)make available a copy of its constitution.

Question 34

Every public company must have at least three directors, and every proprietary company must have at least:

A)one director.
B)two directors.
C)three directors.
D)four directors.

Question 35

A director appointed to represent the interests of a particular group in the company, such as its employees, is called:

A)a silent director.
B)a nominee director.
C)a proxy director.
D)a shadow director.

Question 36

A 'board of directors' is:

A)the directors of a company acting collectively.
B)the directors of a company acting jointly and severally.
C)the place where the directors of a company hold their meetings.
D)the place where the directors call general meetings.

Question 37

Which of the following is not a step that is generally associated with listing a company?

A)Doing the things necessary to comply with the ASX Listing rules.
B)Becoming a public company.
C)Having one or more classes of shares granted Official Quotation for trading on the stock market.
D)Appointing an ASX receiver or liquidator.

Question 38

Which of the following statements is not true of the method of appointment and removal of directors?

A)The first directors of a public company are named in the application to register the company lodged with ASIC.
B)In a listed company new directors are appointed by shareholders.
C)Directors can appoint new directors if the constitution allows it.
D)Directors must step down after five years.

Question 39

The Australian Securities and Investments Commission regulates:

A)partnerships.
B)sole traders.
C)companies.
D)all businesses.

Question 40

A 'public company' is any:

A)company limited by shares.
B)company listed on the asx.
C)company with three or more directors.
D)company other than a proprietary company.

Question 41

A shareholder does not normally have the right to:

A)vote at general meetings.
B)receive dividends and a share of the company's proceeds on the company being wound up.
C)inspect the company's financial records.
D)attend board meetings.

Question 42

DDT Delights Ltd sells fertilisers and chemicals for use by farmers in protecting crops from pests.Its CEO, Johno Stone, tells his best mate Robbo one Friday night over a beer that he has done some deals that seem to have made his wife Katrina 'wild' and she will 'not stop nagging him' about them.He says that Katrina had the nerve to tell him that if he didn't tell the company all about these deals, she would tell the company.Johno informs Robbo that he simply explained to his wife very patiently that the business was not her business and not a family affair, but his business, and she ought to just 'hush up' and get back to her knitting.In fact Mrs Stone does have cause for concern over all but one of her husband's deals.Which of the following is the only one that is not likely to represent a breach of his duty as CEO?

A)Johno learned about an investment possibility for DDT in Vietnam and told his son Dillon, a high school drop-out, about it.Dillon has gone to Vietnam to take up this opportunity for his own company.
B)After Veronica, the Stone's daughter, wrote off her new car in a drink-driving accident, Johno paid to have the car repaired using DDT's money, and then arranged for DDT to buy it for use as a delivery vehicle.
C)When Mrs Stone was 20 she applied for the job of secretary of DDT and was voted into that role by the Board of Directors on the strength of her impressive business credentials.Through her job she met and married Johno Stone.
D)Johno paid Jackie, a struggling but talented graphic artist, to redesign the company logo and related artwork.He kept quiet about the fact that Jackie was his daughter when recommending that she be hired to do all the design work for DDT and he discouraged the other company directors from seeking tenders for the job.

Question 43

Under the Corporations Act 2001 (Cth), what kind of meeting must public companies hold once every calendar year?

A)A general meeting
B)An extraordinary meeting
C)A class meeting
D)A board meeting

Question 44

A director of a company will have breached their duty to prevent the company engaging in 'insolvent trading' if the company:

A)trades with a company that is insolvent.
B)continues to trade despite the fact that it is reasonable to assume that the company has become insolvent.
C)trades with a company that is on the verge of insolvency.
D)ceases trade due to the fact that it is in serious financial difficulty.

Question 45

What is the usual consequence of a director breaching a common law duty to the company?

A)The director will be required to pay damages to the company.
B)ASIC will take action against the director.
C)The director will be sent to jail.
D)The company will not be bound by any contracts they enter into in breach of their duties to the company.

Question 46

The requirement that a director act in good faith means that a director must act:

A)honestly.
B)reasonably.
C)competently.
D)correctly.

Question 47

The 'business judgement rule' is recognition of the fact that:

A)the Courts hold directors to an extraordinarily high standard of care.
B)not every decision that causes loss or harm to a company amounts to a breach of duty by a director.
C)when a director's act causes loss or harm to a company that director will generally be in breach of their duty to the company.
D)third parties can assume that directors acting on behalf of the company are acting in accordance with the rules of its constitution.

Question 48

Which of the following statements about corporate decision making is most accurate?

A)Decisions by directors must be approved by shareholders.
B)Decisions by directors or shareholders are decisions of the company itself.
C)Directors are the agents of the shareholders.
D)Directors have the power to override the decisions of shareholders.

Question 49

A director acting alone does not generally have implied authority to bind a company unless that director is:

A)an active director.
B)a CEO or governing director.
C)on the board of directors.
D)a partner in the company.

Question 50

Shareholders of a company in general meeting who are unhappy with the management decisions of the board of directors do not have the right to:

A)remove the directors and reappoint new directors.
B)amend the internal management rules to limit the director's discretion.
C)override or suspend the board's management authority and make management decisions in its place.
D)amend the Constitution to limit the director's authority.

Question 51

Which of the following methods is not one by which a company can execute a contract directly?

A)The two directors signing a contract without using a written seal.
B)The two directors cutting their skin with a pocket knife as they face the East, exchanging blood, and swearing on their mother's graves if this process is authorised by the company's constitution.
C)Affixing a common seal to a written contract and having two directors sign it.
D)Shaking hands.

Question 52

A person can become a shareholder in a company by acquiring already issued shares from another shareholder or by:

A)prescription.
B)subscription.
C)becoming a director.
D)attending and voting at a general meeting.

Question 53

Which of the following is not a possible consequence of a director breaching a statutory duty to the company?

A)The company will be deregistered
B)A penalty of up to $200 000
C)A jail term
D)An order disqualifying the director from being a director

Question 54

According to the 'indoor management rule' a person dealing with a company in good faith:

A)need never be concerned about whether or not the company is complying with its constitution.
B)should assume that persons acting on behalf of the company are not acting in accordance with the rules of its constitution unless the contrary is proven.
C)can generally assume that persons acting on behalf of the company are acting according to the rules of its constitution.
D)cannot legally contract with a person who does not have authority to contract with them under the rules of their company's constitution.

Question 55

Which of the following duties is not one of the duties owed by a director?

A)A duty of care
B)A duty to facilitate insolvent trading
C)A duty to act for proper purposes
D)A duty to disclose conflicts of interests

Question 56

Under common law, directors must not place themselves in a position where there is an actual or substantial possibility of a conflict of interest between their personal interest and their duty to act in the interests of the company without notifying the company.Which of the following phrases is not a description of what a 'conflict of interest' is?

A)Serving two masters
B)Self-dealing
C)Insolvent personal dealing
D)Related party transactions

Question 57

Directors of companies are not usually obliged to:

A)manage the business collectively.
B)manage the business in accordance with the company's internal governance rules.
C)exercise their functions as servants of the shareholders.
D)manage the business in accordance with the company's constitution.

Question 58

What is the role of a shareholder in a company?

A)A manager
B)A trader
C)An owner
D)An employee

Question 59

An 'ordinary resolution' is:

A)a resolution passed by 50% of all shareholders.
B)a resolution passed by at least 50% of the persons present at a meeting who are entitled to vote.
C)a resolution passed by at least 50% of the directors.
D)a resolution passed about matters concerning the everyday business of the company.

Question 60

A director will not be liable for allowing a company to trade whilst insolvent if at the time the insolvent trading occurred:

A)the director relied reasonably on the advice of others as to whether or not the company was solvent.
B)the director had a serious illness and did not participate in the management of the company.
C)the director had reasonable grounds to assume the company would remain solvent.
D)the director was optimistic about the company's chances of trading its way out of insolvency.

Question 61

Generally speaking it not true to say that:

A)shareholders in listed companies have more extensive voting rights than those in unlisted companies.
B)shareholders in public companies have more extensive rights than those in proprietary companies.
C)shareholders in proprietary companies have more extensive rights than those in listed companies.
D)shareholders in public companies always have the right to appoint and remove directors whereas those in proprietary companies may not always have that right.

Question 62

A 'proxy' is:

A)the minimum number of voting members required to attend a meeting for it to be constitutionally valid.
B)the forum for a meeting of shareholders of a particular class.
C)the exact number of voting members required to attend a meeting for it to be constitutionally valid.
D)a representative of someone unable to attend a meeting personally and entitled to vote on their behalf.

Question 63

Where a company is not being managed properly, shareholders can commence legal action against a company if they can establish that there has been 'oppressive conduct'.The meaning of oppressive conduct does not encompass conduct that is contrary to the interests of:

A)ordinary members.
B)shareholders.
C)a class of members.
D)the public.

Question 64

An 'extraordinary general meeting' is:

A)a general meeting that is held bi-annually.
B)a general meeting that is held annually.
C)a general meeting that is called to pass a particular resolution or resolutions.
D)a general meeting in which it is resolved that the company ought to be wound up.

Question 65

A 'quorum' is:

A)the minimum number of voting members required to attend a meeting for it to be constitutionally valid.
B)the forum for a meeting of shareholders of a particular class.
C)the exact number of voting members required to attend a meeting for it to be constitutionally valid.
D)a representative of someone unable to attend a meeting personally and entitled to vote on their behalf.

Question 66

A 'general meeting' is where decisions are made by:

A)shareholders.
B)directors.
C)creditors.
D)all stakeholders including employees and members of the public.