Deck 36: Management Structure of Corporations

Question 1

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

Answer 1

False

Question 2

By a majority vote, shareholders may remove the entire board of directors without cause.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

A proxy is effective until the shareholder revokes it.

Question 6

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

Question 7

Notice of a shareholder's meeting may be waived in writing.

Question 8

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

Question 9

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

Question 10

Directors are elected at the annual meeting of shareholders.

Question 11

Voting trusts generally are effective for one year.

Question 12

Virtually all shareholders who vote for directors do so through the use of a proxy.

Question 13

The Statutory Close Corporation Supplement has relaxed most of the non-essential corporate formalities.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

The statutory model of corporate management required by most states accurately describes the actual governance of the great majority of corporations.

Question 20

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 21

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

Question 22

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.He cannot sue the corporation to enforce a right belonging to the corporation.

Question 23

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 24

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

Question 25

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 26

Together Maynard, Armstrong, Starnes, Tidmore, and Collazos own 51 percent of the shares of Gibson, Inc.Under either straight or cumulative voting, if they vote for the same people, they can always elect the entire board of directors.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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.

Question 33

An officer can be removed for no reason if the board decides to do so.

Question 34

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

Question 35

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 36

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 37

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

Question 38

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

Question 39

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 40

The board of directors appoints the officers of the corporation.

Question 41

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

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

Question 42

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

Question 43

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

Question 44

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 70% of the business assets.

Question 45

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 46

The 2002 Sarbanes-Oxley Act created a five-person Accounting Oversight Board with authority to review and discipline auditors.

Question 47

If Eilene, a shareholder, sues in a derivative suit, the judgment will be paid to:

A)the shareholders as a dividend.
B)Eilene directly.
C)the corporate treasury.
D)the board of directors.

Question 48

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

Question 49

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

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

Question 50

Which of the following is/are director(s) in publicly held corporations?

A)Inside.
B)Outside.
C)Unaffiliated.
D)Affiliated.
E)Any of the above.

Question 51

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

Question 52

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

Question 53

Special state statutes to accommodate the needs of closely held corporations:

A)are quite similar in content.
B)are optional and must be elected by eligible corporations.
C)do not address the limited liability of shareholders.
D)require the corporation to operate with a board of directors, but it may consist of only one person.
E)All of the above.

Question 54

Under the MBCA, a quorum of shareholders at an annual meeting may be not less than what percentage of the shares entitled to vote?

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

Question 55

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

Question 56

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 may exercise all the authority of the board.
E)the committee must consist of board members and may be authorized unless otherwise provided by the articles of incorporation or bylaws.

Question 57

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

Question 58

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 59

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 60

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 approve an action as a board?

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

Question 61

A proxy, voting trust, and shareholder agreement are similar in:

A)definition.
B)duration.
C)revocability.
D)degree of formality required.
E)All of the above.

Question 62

Bill is a member of the board of directors of Telmar Corp.He would like to have the corporation lend him some money so that he 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 does not permit a corporation to lend money to its directors without authorization in each instance by its shareholders.
B)The Sarbanes-Oxley Act prohibits any publicly held corporation from making personal loans to its directors, with limited exceptions.
C)Both the Model Act and the Revised Act prohibit loans to directors in all cases.
D)Both (a) and (b) are correct.

Question 63

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

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

Question 64

A director may make business decisions in reliance on information provided to him by legal counsel or public accountants without incurring liability for negligence as long as he:

A)notifies the preparer of the information.
B)reasonably believes that the matters are within the person's professional competence.
C)conducts his own independent investigation.
D)is given a sworn affidavit by the preparer.

Question 65

If shareholders agree in writing to vote in a specified manner for 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 66

Restrictions on transfer of shares:

A)exist only for closely held corporations to control who may become shareholders.
B)are valid under the common law if they are reasonable and adopted for a lawful purpose.
C)are valid under the Revised Act if the restriction is conspicuously noted on the stock certificate.
D)All of the above.
E)Both (b) and (c).

Question 67

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

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

Question 68

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 69

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)a direct suit.
B)a derivative suit.
C)a class action suit.
D)an unauthorized suit.

Question 70

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

Question 71

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)duty of diligence.
B)duty of obedience.
C)business judgment rule.
D)None of the above.

Question 72

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

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

Question 73

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

Question 74

Special shareholder meetings may be called by:

A)the board of directors.
B)holders of at least 10% of shares.
C)Both (a) and (b).
D)Neither (a) nor (b).

Question 75

In Donahue v.Rodd Electrotype Co., Inc., the court's opinion stated:

A)by definition, a close corporation bears striking resemblance to a partnership.
B)minority shareholders have no right to rely on the loyalty and abilities of the majority.
C)minority shareholders in a close corporation can cause dissolution of the corporation.
D)when a close corporation purchases the shares of a controlling stockholder, there is necessarily a preferential distribution of the corporation's assets.

Question 76

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

Question 77

Which of the following is not imposed by the business judgment rule regarding the liability of officers and directors?

A)Strict liability.
B)Informed decisions.
C)Decisions in good faith without conflict of interest.
D)Reasonable business judgment.

Question 78

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.

Question 79

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)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 80

Zeelon 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