Deck 37: Corporate Governance and the Sarbanes Oxley Act

Question 1

A special shareholders' meeting may be called by any person authorized to do so by the articles of incorporation or bylaws.

Answer 1

True

Question 2

Under the straight voting method,a majority shareholder can elect the entire board of directors.

Answer 2

True

Question 3

A special shareholders' meeting agenda is limited to items stated in the notice of the meeting.

Answer 3

True

Question 4

When action is taken at a special shareholders' meeting where the notice was defective,the action is valid,but any shareholder can call another special meeting to reconsider the item.

Question 5

Corporations are required to hold annual shareholders' meetings.

Question 6

A shareholder's right to inspect the shareholders' list,articles of incorporation,and bylaws is absolute.

Question 7

All classes of common stock must have voting rights.

Question 8

Shareholders may enter into an agreement that states that if a shareholder wants to sell his stock he must sell it to the corporation.

Question 9

A voting trust is an agreement between two or more shareholders on how they will vote their shares.

Question 10

Cumulative voting gives a minority shareholder a better chance to elect someone to the board of directors.

Question 11

Voting agreements among shareholders of a corporation are usually considered to be void.

Question 12

A proxy is valid for an indefinite period of time.

Question 13

Shareholders own the corporation.

Question 14

The bylaws of a corporation may require a "supermajority" vote for certain issues.

Question 15

A proxy may validly be given orally or in writing.

Question 16

The preemptive right allows shareholders with sufficient shares of stock the right to be on the board of directors.

Question 17

A derivative lawsuit is one that a shareholder brings against an offending party on behalf of the corporation when the corporation fails to bring the lawsuit itself.

Question 18

Because one of the characteristics of a corporation is the free transferability of shares of stock,an agreement attempting to restrict that right is generally unenforceable.

Question 19

Shareholders may not inspect the minutes of shareholders' meetings.

Question 20

An annual financial statement must be furnished to all of a corporation's shareholders.

Question 21

In a corporation,each officer position must be held by a different individual.

Question 22

Absent an agreement to the contrary,a corporate officer can be removed by the board of directors anytime the removal is deemed to be in the corporation's best interest.

Question 23

When relying on a report prepared by a professional,corporate officers and directors have a duty to use care and diligence in relying on its accuracy.

Question 24

The articles of incorporation,as well as the bylaws,may not require a greater than majority of directors to comprise a quorum of the vote of the board.

Question 25

Directors of a corporation have unlimited access to the records of the corporation.

Question 26

On the board of directors of a corporation,an outside director is a director who is not also an officer of the corporation.

Question 27

The term of a director's office expires at the next annual shareholder's meeting following his or her election,unless terms are staggered.

Question 28

Officers are not liable on an unauthorized contract regardless if the corporation ratifies it or not.

Question 29

The election of directors of the corporation may be held by electronic transmission.

Question 30

Shareholders have absolute liability for the debts and obligations of the corporation.

Question 31

Shareholders generally have liability for the debts and obligations of the corporation beyond their capital contribution.

Question 32

Generally,a corporate director is liable for mistakes in judgment.

Question 33

Shareholders never have a right to bring a lawsuit on behalf of a corporation,as this is the job of the board of directors.

Question 34

The officers of a corporation are responsible for overseeing the board of directors.

Question 35

Delivery of notices to stockholders may be made electronically with the stockholder's consent.

Question 36

The articles of incorporation,but not the bylaws,can require more than a simple majority for a quorum of the board of directors.

Question 37

It is mandatory that the directors pay dividends to all of a corporation's shareholders.

Question 38

Directors of a corporation must generally be selected from among the shareholders.

Question 39

Stockholders may not vote by electronic communication.

Question 40

Regular,as well as special,meetings are provided for in the corporate bylaws.

Question 41

The two general types of shareholders' meetings are:

A) annual and special
B) annual and quarterly
C) general and annual
D) general and special

Question 42

In order to vote shares at a shareholders' meeting,a person must own the shares as of:

A) the date the notice of the meeting is given
B) the date the shareholders' list is prepared
C) the record date
D) the voting date
E) the date of the meeting

Question 43

Which of the following describes a shareholder's preemptive rights?

A) the right to purchase shares of another shareholder pursuant to a buy-and-sell agreement
B) the right to purchase a pro-rata portion of any additional shares issued by the corporation
C) the right of shareholders to override actions of the board of directors
D) the right of shareholders to remove members of the board of directors without cause
E) the right of shareholders to call special meetings

Question 44

Where the bylaws require a simple majority vote of shareholders for a particular action,what is the legal significance of a unanimous vote instead of simple majority vote?

A) There is no difference in the legal effects of the two votes.
B) The directors can override the vote if it is less than unanimous.
C) The vote could be reversed at a later shareholders' meeting if it is less than unanimous,but not if it is unanimous.
D) The dissenting shareholders can demand that the corporation repurchase their shares in a less than unanimous vote,but this would be inapplicable in a unanimous vote.

Question 45

An agreement between shareholders that addresses how they will vote their shares in an upcoming election of the board of directors,but provides for nothing else,is a:

A) voting trust
B) proxy
C) voting agreement
D) agency agreement

Question 46

Shareholders can lose their limited liability if a corporation has been operated without the correct separateness between the owner and the corporation.

Question 47

Which of the following is true about supramajority requirements?

A) They can be required for voting but not for quorums.
B) They can be required for either voting or for quorums,but must be part of the original articles.
C) They are automatically required for quorums of shareholders meetings and voting at such meetings when approving mergers,consolidations,or the sale of substantially all of the assets of the corporation.
D) They can be required for either voting or for quorums,and if the requirement is added in an amendment,the vote approving the amendment must pass by the same supramajority as the new supramajority requirement contained in the amendment on which is being voted.
E) They can be required for either voting or for quorums,and if the requirement is added in an amendment,the vote approving the amendment needs only to have a simple majority in order to become effective.

Question 48

The notice for which type(s)of shareholders' meetings must include the purpose of the meeting?

A) annual meetings only
B) special meetings only
C) both special and annual meetings
D) neither annual nor special meetings

Question 49

Courts will pierce the corporate veil if the corporation has been formed without sufficient capital.

Question 50

Corporations are required to hold shareholders' meetings at least:

A) once a year
B) every 6 months
C) twice a year,but they are not required to be held every 6 months
D) quarterly
E) monthly

Question 51

The document by which a shareholder grants another person the right to vote the shareholder's shares at a shareholders' meeting is called a:

A) power of attorney
B) proxy
C) voting trust
D) election agency

Question 52

Which of the following is true?

A) Voting trusts and voting agreements both require the transfer of stock certificates to a trustee.
B) In a voting trust,the shareholder grants the trustee the right to vote the shares,but in a voting agreement,the shareholders vote their own shares.
C) Voting agreements,but not voting trusts,must be accompanied by proxies executed by the shareholders.
D) Voting trusts are irrevocable,while voting agreements can be either revocable or irrevocable.
E) Voting agreements cannot extend for more than 10 years.

Question 53

What is the purpose of cumulative voting?

A) to enforce a supramajority voting requirement
B) to vote on mergers and other fundamental changes to the corporation
C) to vote to pay dividends
D) A,B,and C
E) to give a minority shareholder a better opportunity to elect someone to the board of directors

Question 54

Which method of voting would give minority shareholders the best chance to elect someone to the board of directors of a corporation?

A) cumulative
B) straight
C) proxy
D) supermajority
E) preemptive

Question 55

What is a derivative lawsuit?

A) an action brought by the board of directors on behalf of the corporation
B) an action brought by a majority of the board of directors against an individual board member
C) an action brought by a shareholder or shareholders on behalf of the corporation when the board of directors does not file the suit
D) an action brought by shareholders against the corporation
E) an action brought by the officers against the directors

Question 56

Which of the following is true about the required notice for shareholders' meetings?

A) The notice can be oral or written,but is required only for special meetings.
B) The notice can be oral or written and is required for both regular and special meetings.
C) The notice must be written,but is required only for special meetings.
D) The notice must be written and is required for both regular and special meetings.
E) The notice must be written,but is required only when unusual items will be on the agenda of the meeting.

Question 57

Who may call a special shareholders' meeting if the bylaws do not address this issue?

A) the board of directors
B) any shareholder
C) shareholders holding at least 10 percent of the voting shares of the corporation
D) any two officers
E) A and C

Question 58

Which of the following best describes buy-and-sell agreements among shareholders of a corporation?

A) They are most often entered into among shareholders of large publicly held corporations because it is difficult to monitor the large numbers of sales of the shares.
B) They always provide for purchase of shares by the corporation in the event that a shareholder desires to sell shares.
C) They can provide for the sale of shares to either the corporation or to other shareholders.
D) They usually also contain an agreement for a voting trust.
E) They are enforceable only if the agreement provides for a fair price.

Question 59

Assuming there is no agreement on the issue,in order to transfer shares owned by a shareholder,the shareholder must obtain approval of:

A) the board of directors,regardless of whether the transfer is made by sale or gift
B) the board of directors if the transfer is by sale,no one if the transfer is to be made by gift
C) the other shareholders,regardless of whether the transfer is made by sale or gift
D) the other shareholders,but only if the shareholder is selling more than 50 percent of the outstanding shares
E) neither the board of directors nor the other shareholders

Question 60

The articles of incorporation can provide that existing shareholders may buy new issues of stock in the same proportion as their current holdings.This is done to allow the current stockholders to keep the same voting and dividend rights they had before the new issue.This right is known as a right of:

A) redemption
B) ratification
C) preemption
D) first refusal
E) buy-sell

Question 61

Sean owns stock in the Cardinal Corporation.All of the shareholders have agreed that if one wants to sell his or her shares,he or she must offer to sell them to the other shareholders.If the other shareholders do not buy the shares,the selling shareholder may sell them to anyone else.This type of arrangement is known as a(n):

A) buy-sell agreement
B) right of first refusal
C) preemption agreement
D) quorum agreement
E) close corporation agreement

Question 62

When a vacancy occurs because a director resigns,by whom can the vacancy be filled?

A) the remaining board members
B) the shareholders
C) the corporate president
D) A or B
E) A,B,or C

Question 63

Which of the following is correct regarding the business judgment rule?

A) Directors and officers have an obligation to exercise sound business judgment,and any failure to do so is per se negligence that results in liability to the corporation.
B) Directors and officers have an obligation to exercise sound business judgment,and any failure to do so results in a rebuttable presumption of negligence.
C) Directors and officers are never liable in suits filed against them by shareholders.
D) Directors and officers are not liable for honest mistakes of judgment.
E) Directors and officers are liable for gross negligence,but not for ordinary negligence.

Question 64

Mr.Scott owns 1,000 shares of Jackson Corporation stock.Jackson is having the election for the board of directors.There are five directors to be elected.Mr.Scott comes to you for advice.Which of the following statements is false?

A) If the voting is cumulative,Mr. Scott may cast a total of 5,000 votes for any one candidate.
B) If the voting is straight rather than cumulative,Mr. Scott may cast up to 1,000 votes for any one candidate.
C) Generally,the articles of incorporation or the bylaws determine if the voting is cumulative.
D) Straight voting gives the best chance for a minority shareholder to elect someone to the board.

Question 65

Martin,Martina,and Melvin are shareholders of Random Corporation.They each hold several hundred of the 5,000 outstanding shares.The three enter into an agreement that they will always vote against any attorney in a board of director's election and vote against any plans to expand the corporation's business overseas.This agreement is:

A) an enforceable voting agreement
B) valid as to the overseas expansion,but invalid with respect to attorneys on the board
C) invalid because any such voting agreement is against public policy because it limits a shareholder's right to vote freely on all matters
D) invalid because the agreed votes are contrary to the best interests of the corporation,but would be valid where the shareholders agree to vote in the corporation's best interests
E) valid so long as the board of directors approves it

Question 66

Which of the following is likely to be a breach of a corporate officer's/director's duty of care?

A) failing to anticipate a drop in the consumer demand of the company's product
B) failing to make a reasonable investigation of relevant facts
C) failing to predict the startup of a new competitor
D) failing to foresee a severe rise in the interest rate
E) all of the above

Question 67

Who has a right to receive dividends?

A) both preferred and common shareholders at all times
B) both preferred and common shareholders,so long as the corporation has adequate profit
C) preferred shareholders at all times when the corporation has adequate profit,and common shareholders whenever dividends have been declared
D) both preferred and common shareholders,but only when dividends have been declared
E) neither preferred nor common shareholders ever have a right to the payment of dividends,even after their declaration

Question 68

Bart and Garth own 600 and 200 shares of the 1,000 outstanding shares of a corporation.Bart and Garth separately want to sell their shares.The shares were recently appraised at $240 per share,and there have been no significant changes or events affecting the value of the shares since the appraisal.Bart has found a buyer willing to pay $300 per share and Garth plans to sell his shares for $100 each.Assuming there is no express shareholders' agreement regarding sales of shares,what approvals must Bart and Garth obtain?

A) They each must obtain the approval of the board of directors.
B) Garth,but not Bart,must obtain the approval of the other shareholders for his sale.
C) Bart,but not Garth,must obtain the approval of the other shareholders for his sale.
D) Neither needs approval for his sale,but in the case of each sale the remaining shareholders must first have the opportunity to exercise their preemptive rights.
E) Neither needs approval for his sale.

Question 69

Under what circumstances can the terms of directors be staggered such that only a portion of the board members' terms expire in any one-year?

A) in any circumstances
B) in closely held corporations
C) when there are both inside and outside directors
D) when there are nine or more members of the board of directors
E) under no circumstances

Question 70

Generally,a shareholder may not sue his corporation for which of the following?

A) to enforce preemptive rights
B) to compel the declaration of dividends
C) to inspect the corporate books and records
D) to recover an illegal dividend
E) to cancel an ultra vires contract

Question 71

Officers of a corporation typically can have which types of agency authority?

A) express only
B) express and apparent only
C) express and implied only
D) implied and apparent only
E) express,implied,and apparent

Question 72

Which of the following statements is false?

A) Shareholders may vote by proxy.
B) Directors may vote by proxy.
C) Notice must be given for shareholder meetings.
D) Notice must be given for directors meetings.

Question 73

"Piercing the corporate veil" can refer to:

A) denying corporate existence to a corporation
B) denying limited liability to owners of a corporation because the corporation failed to exercise reasonable care in its business decisions
C) denying limited liability to owners of a corporation where the corporate affairs were not sufficiently segregated from those of the owners
D) forcing a corporation to pay a dividend to its shareholders

Question 74

Self-dealing by a director of a corporation can best be described as:

A) a duty of the director to use her own expertise whenever possible
B) a breach of a director's duty of care
C) a breach of a director's duty of loyalty
D) a duty of the director to not overly rely on others
E) a director serving on the boards of both a parent and subsidiary

Question 75

Dividends may be paid in the form of:

A) cash only
B) cash or property only
C) cash,property,or additional stock
D) cash,property,debt,or additional stock

Question 76

Dividends may be paid out of which of the following?

A) common stock proceeds
B) preferred stock proceeds
C) corporation's profits
D) preemptive right proceeds

Question 77

The board of directors of Sunny Corporations votes 9-2 to require all future actions by the shareholders to be approved by a two-thirds majority.This action is:

A) invalid because supramajority requirements are not permissible
B) valid,but would not have been valid if the vote had been 6-5
C) valid,and would have been valid also with a vote of 6-5
D) valid,as long as the two dissenting directors properly registered their dissent
E) invalid because the board of directors does not have the power to decide this

Question 78

Pam owns 800 of the 2,000 issued and outstanding shares of Antelope Corporation.There are five members of the board of directors,three of whom are up for election at a shareholders' meeting.If each share of stock is entitled to one vote,what is the maximum number of votes that Pam can cast for any one of the candidates for the positions on the board under cumulative voting?

A) 800
B) 2,000
C) 2,400
D) 4,000
E) 6,000

Question 79

Which of the following situations,by itself,would not justify a court disregarding the corporate entity?

A) The corporation failed to follow the necessary corporate formalities.
B) The corporation is severely undercapitalized.
C) The corporation does not have enough assets to pay its liabilities.
D) The shareholders have looted the corporation.
E) The corporation has been used by its shareholders to commit fraud.

Question 80

Tim owns 30 of the 10,000 shares in Heron Corporation.There was a special shareholders' meeting held recently for which Tim received notice 4 days in advance.Tim could not attend.One agenda item that Tim favored was defeated by a vote of 7,050 to 2,423.Tim can:

A) do nothing because the item would not have passed with Tim's 30 votes
B) do nothing because Tim had notice of the meeting and could have executed a proxy
C) have the action declared void because he did not receive adequate notice.
D) exercise his preemptive right to preempt this improper action