Deck 35: Management Structure of Corporations

Question 1

The Statutory Close Corporation Supplement has relaxed most of the nonessential corporate formalities.

Answer 1

True

Question 2

If Marge, a vice president, made a contract on behalf of Barker Corporation when it was not within her authority, she is liable if she negligently exceeded her authority.

Answer 2

True

Question 3

Notice of a shareholder's meeting may not be waived.

Answer 3

False

Question 4

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

Question 5

MegaValue Corporation requires a quorum of five directors.If Branson, a director, shows up at the meeting for a vote on his favorite topic (dividends) and withdraws thereafter, leaving only four directors, they, under the Revised Act, may not act on any further business.

Question 6

Some publicly held corporations have used supermajority shareholder voting requirements to defend against hostile takeover bids.

Question 7

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

Question 8

According to the amendments to the Revised Act from 2014 and 2016, corporations may include in their articles of incorporation a provision that allows a director or an officer to chose to not present a business opportunity to the corporation.

Question 9

The Revised Act provides that every shareholder is entitled to examine specified corporate records upon prior signed written request if the demand is made in good faith, for a proper purpose, and during regular business hours at the corporation's principal office.

Question 10

The articles of incorporation, incorporation statute, and bylaws set the number of directors.

Question 11

The Dodd-Frank Act requires that every year publicly held companies include a provision in proxy statements for a binding shareholder vote on executive compensation..

Question 12

A shareholders' written agreement, unlimited in duration, to vote in a specified manner for the election of directors is a voting trust.

Question 13

Directors are elected at the annual meeting of shareholders.

Question 14

While officers, as agents of a corporation, owe an agent's duty of obedience, diligence, and loyalty to the corporation, this is not true of directors.

Question 15

The issuance of favorably priced shares to management while excluding other shareholders normally will constitute a violation of the fiduciary duty.

Question 16

Claude is a shareholder in the Tel Ko 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 17

Under the Statutory Close Corporation Supplement, a closely held corporation may use a shareholder agreement in place of bylaws.

Question 18

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

Question 19

In the absence of a specific agreement, shares of stock are not freely transferable.

Question 20

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

Question 21

Incorporation statutes generally require that each share of stock issued carry voting rights.

Question 22

In most states, an officer can be removed for no reason if the board decides to do so.

Question 23

Directors who are also officers or employees of a publicly held corporation are "affiliated directors."

Question 24

The 2002 Sarbanes-Oxley Act forbids use of an audit committee by the board of a publicly held corporation; the full board must oversee the work of the public accounting firm employed to audit the corporate books.

Question 25

A voting trust permits a concentration of corporate control in one or more persons.

Question 26

A quorum of shares must be present at the shareholders' meeting, either in person or by proxy, to make effective decisions.

Question 27

Any limits on the duration of the shareholder agreement must be set forth in the agreement.

Question 28

In most states, but not under the Revised Act, cumulative voting is permissive and not mandatory.

Question 29

One difference between large, publicly held corporations and closely held corporations is that more of the shares of closely held corporations are held by institutional investors.

Question 30

Unissued shares and treasury stock must be counted to see if a quorum exists.

Question 31

The directors of a corporation are expected to devote their full time to the corporation's affairs.

Question 32

The business judgment rule would require an officer or director to use the highest duty of care in the execution of his office.

Question 33

Randall has been a member of the board of his sister's company for three years but has never actually attended a board meeting.He may be liable for failing to act.

Question 34

Unlike voting trusts, shareholder voting agreements are not limited in duration.

Question 35

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

Question 36

A shareholder has no right to dissent from compulsory share exchanges.

Question 37

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

Question 38

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

Question 39

A proxy is effective until the shareholder revokes it.

Question 40

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

Question 41

A shareholder may bring a direct suit to enforce a claim that she has against the corporation, based on her ownership of shares.

Question 42

As the shareholders' elected representatives, the board of directors are delegated the power to direct the business of the corporation.

Question 43

Under the Revised Act and an increasing number of other statutes, by a majority vote, shareholders may remove the entire board of directors without cause.

Question 44

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

Question 45

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 46

In 2005, the Revised Act was amended to emphasize the responsibility of officers to inform others in the corporation of matters that come to their attention, including any material violation of law involving the corporation or material breach of duty by an officer, employee, or agent of the corporation.

Question 47

To protect a shareholder's interest in the corporation, the law provides shareholders with certain enforcement rights.

Question 48

The officers and the directors are fiduciaries of the corporation, but the business judgment rule may preclude liability on officers and directors for honest mistakes of judgment.

Question 49

The Investor Protection and Securities Reform Act of 2010 imposes new corporate governance rules on both publicly held and privately held companies.

Question 50

The board of directors of a corporation:

A) determines the capital structure and financial policy of the corporation.
B) has the power to bind the corporation when acting as a unit or individually.
C) receives no salaries for services, although directors may receive a fee for attending board meetings.
D) All of these are correct.

Question 51

The 1969 amendments to the MBCA, which were carried over to the Revised Act, tightened restrictions on closely held corporations.

Question 52

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 53

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

Question 54

With respect to the voting rights of shareholders, unless the articles of incorporation provide otherwise, a shareholder is entitled to:

A) one vote for every two shares of stock owned.
B) vote only at annual shareholder meetings.
C) vote at annual and special shareholder meetings with one vote for each share of stock he owns.
D) vote only in person and not by proxy.

Question 55

Gerhardt is the president of the Pacer 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 Pacer with tires for its bicycles.If Gerhardt wishes to negotiate a contract between Pacer and Flexible, which of the following is correct?

A) The contract will be void as a conflict of interest.
B) Under the RMBCA, the contract is permitted if it is fair and reasonable to both corporations, or Gerhardt fully discloses all information relating to the transaction and the contract is approved by either the board of disinterested directors or the shareholders.
C) The contract is a clear conflict of interest and will be avoidable by either company even with disclosure.
D) Both t he contract will be void as a conflict of interest  and t he contract is a clear conflict of interest and will be avoidable by either company even with disclosure.

Question 56

If Marilyn and George form a corporation under the Revised Act with Marilyn as president and George as treasurer, Marilyn cannot also be corporate secretary.

Question 57

The Revised Act requires dismissal of a derivative suit if qualified (disinterested) directors determine, in good faith after conducting a reasonable inquiry that maintenance of the derivative suit is not in the best interests of the corporation.

Question 58

Voting trusts generally are effective for one year.

Question 59

The percentage of shares required for a quorum may vary from state to state and from company to company.

Question 60

Special shareholder meetings may be called by:

A) holders of at least 10% of shares.
B) the board of directors.
C) Both  the board of directors and also  holders of at least 10% of shares.
D) Neither  the board of directors and also  holders of at least 10% of shares.

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 facilities to do so.
B) hire away personnel for their own business.
C) use corporate resources do do so.
D) All of the answer choices are correct.

Question 62

The RMBCA 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, its:

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

Question 63

The type of authority that arises from acts of the corporation that lead third parties to believe reasonably and in good faith that an officer has the requisite authority is:

A) apparent authority.
B) actual express authority.
C) ratification.
D) actual implied authority.

Question 64

Theodore, as treasurer of Komand Corporation, had the duty to invest corporate earnings as he deemed best for the company.When Komand 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) because of ratification if the board did not know of his actions.
C) under apparent authority if the seller knew of Theodore's past transactions.
D) since Theodore had implied authority.

Question 65

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

Question 66

Assume there are no provisions in the corporation's articles of incorporation or bylaws regarding quorum requirements.If there are 13 total directors of General Grain 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) 11
C) 4
D) 6

Question 67

The __________ precludes imposing liability on directors and officers for honest mistakes in judgment if they act with due care, in good faith, and in a manner reasonably believed to be in the best interests of the corporation.

A) business judgment rule.
B) duty of diligence.
C) duty of obedience.
D) None of these is correct.

Question 68

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

A) 501
B) 201
C) 251
D) 334

Question 69

An officer or director's responsibility to exercise ordinary care and prudence in discharging duties is the:

A) duty of good faith.
B) fiduciary duty.
C) duty of diligence.
D) duty of obedience.

Question 70

The Rutherford Corporation, a publicly held company, has employed Duncan, Saindon & Associates, PSC, as their accounting firm to perform audit services.Under the Sarbanes-Oxley Act, the lead auditor of Duncan, Saindon & Associates must rotate every:

A) five years.
B) two years.
C) three years.
D) year.

Question 71

The right of a shareholder to examine the books and records of the corporation may be denied if the shareholder:

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

Question 72

The role of shareholders in managing the corporation is generally restricted to:

A) the approval of corporate transactions that are void or voidable unless ratified.
B) election of directors.
C) approval of certain extraordinary measures.
D) All of these are restrictions.
E) None of these are restrictions.

Question 73

A shareholder would have all of the following rights EXCEPT the right to:

A) bring suit against the corporation to require payment of his declared dividend.
B) see corporate financial statements in order to value his share for future sale.
C) inspect the corporate records in order to discover customer lists to share with a competitor.
D) bring suit on behalf of the corporation to recover improper dividends.

Question 74

Shareholders normally have the right to do all but which one of the following?

A) Approve the sale of a major division.
B) Elect the officers.
C) Meet at least once a year.
D) Elect the directors.

Question 75

The board determines corporate policy in a number of areas, including:

A) determining the corporation's capital structure.
B) initiating fundamental changes.
C) selecting and removing officers.
D) declaring dividends.
E) All of these.

Question 76

In which of the following areas does the board determine corporate policy?

A) Setting management compensation.
B) Determining the corporation's capital structure.
C) Selecting and removing officers.
D) Initiating fundamental changes and declaring dividends.
E) All of these are determined by the board.

Question 77

Most states, as well as the Revised Act, hold that the test for the duty of diligence requires a director or officer to discharge corporate duties:

A) without a conflict of interest.
B) through a named attorney or legal firm.
C) with a high degree of care.
D) in good faith.
E) All of these.

Question 78

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

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

Question 79

A director may make business decisions in reliance on information provided to him without incurring liability for negligence as long as he:

A) notifies the preparer of the information.
B) is given a sworn affidavit by the preparer.
C) reasonably believes that the information is reliable.
D) conducts his own independent investigation.

Question 80

Arthur is a shareholder of Rowson, Inc.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) an unauthorized suit.
B) a direct suit.
C) a derivative suit.
D) a class action suit.