Deck 31: Management and Ownership of a Corporation

Question 1

The ordinary rules of agency normally apply to the employment of corporate officers.

Answer 1

True

Question 2

Choosing a new product line is a decision that would be made by shareholders.

Answer 2

False

Question 3

Shareholders appoint corporate officers and other executive employees.

Answer 3

False

Question 4

Directors must refrain from self-dealing.

Question 5

A director must always vote on a proposed transaction in which he or she has a personal interest.

Question 6

Quorum requirements are the same in all jurisdictions.

Question 7

Directors are not expected to act in accordance with their own knowledge and training,but to rely on information given to them by certain other persons.

Question 8

Vacancies occur on the board of directors if a director dies or resigns,but a new position cannot be created by an amendment to the articles of incorporation.

Question 9

A corporation's officers and other executive employees are hired by corporate shareholders.

Question 10

The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.

Question 11

A director or officer must exercise due care in performing their duties,including acting in good faith.

Question 12

A director can be elected by the other members of the board.

Question 13

In most states,a director cannot be removed from a corporate board for a breach of duty.

Question 14

The board of directors is the ultimate authority in every corporation.

Question 15

Some states permit a corporate board to have fewer than three directors.

Question 16

Corporate officers can usually be removed by the board of directors without cause.

Question 17

The minimum number of members of a body of officials that must be present before business can validly be transacted is known as a quorum.

Question 18

Directors are entitled to participate in all board of directors' meetings.

Question 19

Corporate directors and officers are insurers of business success.

Question 20

A board of directors can delegate some functions to corporate officers.

Question 21

Since stock is intangible personal property,the ownership right to stock exists independently of a stock certificate.

Question 22

As a general rule,shareholders make daily business decisions for a corporation.

Question 23

Shareholders are not personally liable for the debts of a corporation.

Question 24

Dividends can be paid only in stock in other corporations.

Question 25

Bret and Courtney form Delite Day Care,Inc.Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delite's 

A) ​shareholders. 
B) ​incorporators. 
C) ​board of directors. 
D) ​officers.

Question 26

Clive,Domina,and Elgar are the first directors on the board of Face x Face Corporation,a social media host.Subsequent directors are elected by a majority vote of Face x Face's 

A) ​officers. 
B) ​employees. 
C) ​shareholders. 
D) ​users.

Question 27

A majority shareholder does not owe a fiduciary duty to minority shareholders under any circumstances.

Question 28

Great Gates,Inc.has a board of ten directors.Great Gates' bylaws do not state any quorum requirements.In most states,a quorum for Great Gates will be defined as 

A) ​nine directors. 
B) ​six directors. 
C) ​two directors. 
D) ​ten directors.

Question 29

In certain instances of fraud,a court may "pierce the corporate veil" to hold the shareholders individually liable.

Question 30

If a corporation fails,the shareholders are all individually liable.

Question 31

The articles of corporation cannot exclude or limit shareholders' voting rights.

Question 32

Shareholders elect and remove the directors of the corporation.

Question 33

A straight majority vote of the shares represented at a shareholders' meeting is usually required to pass resolutions.

Question 34

When the corporation is harmed by the actions of a third party,the directors can bring a lawsuit in the name of the corporation against that party.

Question 35

Every shareholder is entitled to examine specified corporate records but only in person,not through an agent.

Question 36

Godfrey is elected as a director for Healthful Snax,Inc.He will most likely serve for a term of 

A) ​less than one year. 
B) ​life. 
C) ​one year. 
D) ​about ten years.

Question 37

Aviators Source Corporation makes and sells aircraft parts.In most states,the minimum number of directors that must be present before Aviators Source's board could transact its business is 

A) ​all of the directors authorized in the articles or bylaws. 
B) ​one. 
C) ​a majority of the number authorized in the articles or bylaws. 
D) ​any odd number.

Question 38

For shareholders to act during a meeting,a quorum must be present.

Question 39

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Question 40

With preemptive rights,shareholders preempt the decisions of directors and officers with respect to corporate policy.

Question 41

Management Consultants,Inc.,has a large number of directors.The board can delegate certain tasks to 

A) ​shareholders. 
B) ​committees of directors. 
C) ​no one. 
D) ​incorporators.

Question 42

Honi is a director of Italian Desserts,Inc.Honi opposes a tender offer that is in the company's best interest because its acceptance would cost her position as a director.Honi is most likely liable for a breach of 

A) ​the business judgment rule. 
B) ​the duty of loyalty. 
C) ​the duty of care. 
D) ​no duty or rule.

Question 43

Fiona owns one share of stock in GR8 Boards Corporation,as evidenced by a stock certificate.Fiona loses the certificate.Her ownership of the stock is 

A) ​not affected. 
B) ​forfeited within ten days of a third party's claim to ownership. 
C) ​forfeited immediately. 
D) ​forfeited within thirty days if she cannot find the certificate.

Question 44

Farrah and Grant are shareholders of Hong Kong Restaurants,Inc.As shareholders,they must approve 

A) ​conducting a merger. 
B) ​negotiating a contract between management and labor. 
C) ​none of the choices. 
D) ​deciding to pursue new business opportunities.

Question 45

Denise,Ervin,and Flem occupy the positions of directors on the board of Gallery Corporation.As directors,they may NOT 

A) ​subordinate the corporation's welfare to their personal interests. 
B) ​decide to issue stock and bonds, and declare dividends. 
C) ​select and remove corporate officers. 
D) ​authorize major corporate policy decisions.

Question 46

Etta is a director of Fab Stuff Corporation.Without informing Fab,Etta goes into business with GR8 Things,Inc.,in competition with Fab.Etta is liable for breach of 

A) ​the business judgment rule. 
B) ​the duty of loyalty. 
C) ​no duty or rule 
D) ​the duty of care.

Question 47

Shannon is an officer for Turista Shirts Corporation.Due to a bad business decision on Shannon's part,the company's sales decrease.Shannon is most likely liable for breach of 

A) ​the duty of care. 
B) ​the duty of loyalty. 
C) ​the business judgment rule. 
D) ​none of the choices.

Question 48

RayAnn is a corporate officer for Timmy's Trees,Inc.As a corporate officer,RayAnn is 

A) ​the head of the board of directors. 
B) ​involved in the day-to-day operations of Timmy's Trees. 
C) ​in charge of selecting members of the board of directors. 
D) ​not involved in the day-to-day operations of Timmy's Trees.

Question 49

Regina is a director of Shale Oil,Inc.As a director,with respect to the corporation,Regina is 

A) ​a fiduciary. 
B) ​an incorporator. 
C) ​an officer. 
D) ​an employee.

Question 50

Because stock is intangible personal property,a stockholder's ownership of the stock 

A) ​exists independently of the stock certificate itself. 
B) ​cannot exist without a tangible stock certificate. 
C) ​cannot exist without the original stock certificate. 
D) ​cannot be transferred to another person.

Question 51

Rafi,a director of Super Service Station Corporation,does not attend a board meeting for three years.During that time,Twyla,Super's president,makes improper loans that cost the company $100,000.Rafi is most likely 

A) ​liable for negligence or mismanagement. 
B) ​not liable because missing meetings is only poor judgment. 
C) ​liable for violation of the business judgment rule. 
D) ​not liable because missing meetings is an honest mistake.

Question 52

Rosa and Sean are shareholders of Tech,Inc.Rosa's written authorization to Sean to vote Rosa's shares at a Tech shareholders' meeting is 

A) ​a proxy. 
B) ​a preemptive right. 
C) ​a violation of the duty of care. 
D) ​a quorum.

Question 53

Cara and Dru are officers of EZ Trucking Corporation.As corporate officers,the rights of Cara and Dru are 

A) ​specified in state corporation statutes. 
B) ​determined by their employment contracts. 
C) ​the same as those of the shareholders. 
D) ​the same as those of the directors.

Question 54

Thor Power Products Corporation permits its directors to be elected by cumulative voting.This 

A) ​allows minority shareholders to be represented on the board. 
B) ​ensures against persons who may "cloud" the corporate direction. 
C) ​guarantees Thor's executive officers of the final choice. 
D) ​assures directors that they will be selected by their peers.

Question 55

Coast-to-Coast Distribution,Inc.,is a direct-mail distribution company.Like most corporations,Coast-to-Coast's employees include its 

A) ​officers. 
B) ​board of directors. 
C) ​shareholders. 
D) ​incorporators.

Question 56

Mickey is a director of Fine Art Dealers,Inc.Mickey is trained in art valuation.Fine Art Dealers makes several purchases in which it pays too much money for artwork.Mickey approves all the transactions without reading the details.Mickey is most likely 

A) ​liable for violation of the business judgment rule. 
B) ​liable for breach of duty of loyalty. 
C) ​liable for breach of the duty of care. 
D) ​not liable for breach of the duty of care.

Question 57

Mieko is a shareholder of Natural Gas,Inc.Natural Gas uses cumulative voting to elect directors.This means that the number of Mieko's votes is determined by the number of 

A) ​shareholders' meetings that Mieko has attended. 
B) ​members of the board to be elected multiplied by the total number of voting shares that Mieko holds. 
C) ​years that Mieko has been a shareholder. 
D) ​shareholders present at the shareholders' meeting.

Question 58

Corporate business matters are presented at a shareholders' meeting in the form of 

A) ​resolutions. 
B) ​articles of incorporation. 
C) ​proxies. 
D) ​bylaws.

Question 59

Lewis is a director of Mines & Refineries,Inc.Using information that is not available to the public,Lewis makes a profit trading in Mines & Refineries stock.Lewis is most likely liable for breach of 

A) ​the business judgment rule. 
B) ​the business judgment rule. 
C) ​no duty or rule 
D) ​the duty of care.

Question 60

Nora is a director of Outback Outfitters,Inc.Under the standard of due care owed by directors of a corporation,Nora's decisions must be informed and 

A) ​indefensible. 
B) ​unquestionable. 
C) ​reasonable. 
D) ​perfect.

Question 61

Fact Pattern 31-1Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Refer to Fact Pattern 31-1.Any damages recovered by Ray's suit will go to 

A) ​the state in which SBC is incorporated. 
B) ​Ray. 
C) ​SBC's directors. 
D) ​SBC.

Question 62

Mitch is a director and officer of Numero Uno,Inc.Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders.The shareholders accuse Mitch of breaching his fiduciary duty to the corporation.What is Mitch's best defense against this accusation? Later,the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation.Mitch is a director and shareholder of One-of-a-Kind.What is Mitch's responsibility in this situation?​

Question 63

Ida,Jerzy,and Kit are the directors of Liberty Convenience Stores,Inc.Liberty has nine officers and forty-six shareholders.Dividends are ordered by the firm's 

A) ​officers. 
B) ​majority shareholders. 
C) ​board of directors. 
D) ​minority shareholders.

Question 64

Kelly transfers shares of stock that she owns in Lone Starz Company to Max.A shareholders' meeting takes place before Max's ownership is entered in Lone Starz's stock book.A vote at the meeting can be cast by 

A) ​neither Kelly nor Max. 
B) ​Kelly and Max. 
C) ​Kelly only. 
D) ​Max only.

Question 65

Bea is a shareholder of Candy Confections Corporation.The right to inspect corporate books and records is 

A) ​held by Bea, without restrictions. 
B) ​held by Bea only if she is a director. 
C) ​held by Bea, with some restrictions. 
D) ​not held by Bea.

Question 66

Lovey is a shareholder of Matchless Corporation with preemptive rights.With these rights,Lovey can 

A) ​sell a prorated share of a new issue of stock before other sellers. 
B) ​"preempt" managerial decisions that affect shareholders. 
C) ​choose to have Matchless act exclusively in a certain area. 
D) ​buy a prorated share of a new issue of stock before other buyers.

Question 67

Fact Pattern 31-1Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Refer to Fact Pattern 31-1.Ray's suit is a shareholder's 

A) ​duty-of-care suit. 
B) ​business-judgment rule suit. 
C) ​duty-of-loyalty suit. 
D) ​derivative suit.

Question 68

Larry is a shareholder for Custom Colors,Inc.If Custom Colors fails,Larry will 

A) ​be able to reclaim his initial investment in Custom Colors. 
B) ​be able to reclaim his initial investment in Custom Colors plus damages. 
C) ​be liable for Custom Colors' debts. 
D) ​not be liable for Custom Colors' debts.

Question 69

Guy is Hot Java Company's majority shareholder.Guy decides to sell his Hot Java stock.The sale will be an effective transfer of the control of the company.Does Guy owe a duty to Hot Java or its minority shareholders in this situation?

Question 70

Generally,Sports Fitness Club Company and other corporations can pay dividends if 

A) ​the corporation can continue to pay its debts as they come due. 
B) ​the amount of the dividends exceed the corporation's net worth. 
C) ​the corporation's assets equal its total liabilities. 
D) ​the shareholders approve.

Question 71

Natalie is a shareholder of Off-Road Vehicle Company.As a shareholder,Natalie does not have 

A) ​preemptive rights. 
B) ​inspection rights. 
C) ​dividend rights. 
D) ​a right to compensation.

Question 72

Brandi is a shareholder of Cloud Servers & Routers Inc..Brandi will be deemed to have a fiduciary duty to Cloud and its minority shareholders if she has a sufficient number of shares to 

A) ​participate in a cumulative vote. 
B) ​assert the business judgment rule. 
C) ​exercise de facto control. 
D) ​bring a shareholder's derivative suit.