Deck 39: Corporations: Directors, officers, and Shareholders

Question 1

A stock subscription agreement signed before incorporation may obligate a person to purchase shares in the corporation.

Answer 1

True

Question 2

Directors each have one vote.

Answer 2

True

Question 3

If a shareholder receives watered stock,they cannot be held personally liable.

Answer 3

False

Question 4

The three main groups of individuals within a corporation are directors,bondholders and customers.

Question 5

The primary goal of shareholders is to raise the value of the company stock.

Question 6

Which of the following was the result on appeal in McCann v.McCann,the case in the text involving whether a corporation engaged in a "squeeze-out" as to a minority shareholder?

A)That a material question of fact as to whether the directors could be found to have engaged in a "squeeze-out" of the beneficiary,causing him harm beyond every other shareholder,and that the case would be remanded for further proceedings.
B)That the business judgment rule does not apply in such situations and that so long as there is any business reason for a transaction,a corporation cannot be found liable for a "squeeze-out" resulting in dismissal of the plaintiff's claims.
C)That because he owned over 20% of the stock,the failure to grant the complaining minority shareholder a seat on the board in and of itself was sufficient under the facts presented to establish that the corporation was guilty of behavior constituting an illegal "squeeze-out."
D)That while the business judgment rule applied,the corporation submitted sufficient evidence to establish legitimate reasons for all questioned transactions and that it,therefore,could not be held liable to the complaining minority shareholder.
E)That the failure to declare a dividend when sufficient assets existed with which to do so in and of itself was sufficient under the facts presented to establish that the corporation was guilty of behavior constituting an illegal "squeeze-out."

Question 7

Which of the following is true regarding the Revised Model Business Corporation Act?

A)It has been fully rejected in over half of the states in favor of the Model Business Corporation Act.
B)It has been adopted at least in part in over half of the states.
C)It has been rejected in over half of the states in favor of the Model Corporate Act.
D)It has been adopted fully by seventy-five percent of the states.
E)There is no Revised Model Business Corporation Act.

Question 8

The text case Patrick v.Allen discussed whether the business judgment rule exempted directors of a corporation from liability for renting land to a private golf course,of which several directors were members,at a price sufficient to cover only property taxes.Which of the following was the result?

A)That the business judgment rule applied to shield the directors from liability because the directors received no money directly from the golf course.
B)That while the business judgment rule applies to directors,it did not apply to provide protection to the directors because they stood to benefit personally.
C)That the directors could not benefit from the rule because the business judgment rule applies to officers,not directors.
D)That the business judgment rule applied to shield the directors from liability because the transaction was properly recorded on the company's books and not hidden.
E)That the business judgment rule applied to shield the directors from liability because no fraud was involved in the transaction.

Question 9

The French Penal Code adopts what is called the ________ which requires that corporate criminal liability be applied only in cases that pertain to an "express mention in the law or in a French regulation."

A)Specialty principal
B)Protectionist principal
C)High priority rule
D)Strict liability rule
E)Res ipsa standard

Question 10

Directors or officers who violate their duty of loyalty are self-dealing.

Question 11

In the Case Opener,a majority shareholder voted to award a bonus to her son,the president of the company,over the objection of minority shareholders.Which of the following was the result on appeal?

A)That in awarding the bonus,the majority shareholder violated the duty of care she owed to the company.
B)That the majority shareholder was guilty of no violation in awarding the bonus.
C)That in awarding the bonus,the majority shareholder violated the duty of loyalty she owed to the company.
D)That the majority shareholder's vote to award the bonus would be upheld only if she submitted additional proof that the bonus was deserved.
E)That in awarding the bonus,the majority shareholder violated the business judgment rule.

Question 12

In most states,a corporation's bylaws can negate preemptive rights.

Question 13

Typically shareholders use a majority vote to elect directors.

Question 14

Daily management of a corporation is the direct responsibility of the shareholders.

Question 15

There is no minimum number of directors who must be present at a directors meeting in order for decisions to be valid.

Question 16

If a director has caused harm to the business by violating a fiduciary duty,a shareholder can file a direct suit against the director.

Question 17

Directors and officers have a fiduciary duty of care.

Question 18

If a director makes a decision that inadvertently harms the company,shareholders can hold the director liable for the bad decision under all circumstances.

Question 19

A board of directors may take no action that benefits a director in his or her personal capacity.

Question 20

The Revised Model Business Corporation Act forbids directors' meetings being held via telephone.

Question 21

Jose has an ownership interest in TY Corporation,but he is not involved in day-to-day operations.Jose can best be described as an)________.

A)Shareholder.
B)Outside director.
C)Affiliated director.
D)Director.
E)Officer.

Question 22

Which of the following are directors who are not officers or employees of the corporation?

A)Approved directors
B)Unaffiliated directors
C)Affiliated directors
D)Inside directors
E)Outside directors

Question 23

How are directors typically chosen after the incorporation process?

A)By a unanimous vote of the shareholders.
B)By majority vote of the shareholders.
C)By majority vote of all officers.
D)The president appoints them in his or her discretion.
E)By a two-thirds vote of shareholders.

Question 24

The requirement that a minimum number of directors be present at a meeting for decisions made at the meeting to be valid is which of the following?

A)Substantial assembly
B)Adequate assembly
C)A Quorum
D)Adequate group
E)Substantial group

Question 25

Which statement accurately describes how directors are chosen during incorporation?

A)Prior to incorporation,either the incorporators appoint them or the corporate articles name them.
B)Prior to incorporation,directors may only be named by the corporate articles naming them.
C)Prior to incorporation,either the incorporators appoint them or by a majority vote of the shareholders.
D)Prior to incorporation,directors may only be named through the incorporators appointing them.
E)Prior to incorporation,directors may only be named by the president appointing them.

Question 26

While ordinary decisions made by directors require a ________ vote,more important decisions sometimes require a vote.

A)Majority;three-fourths
B)Two-thirds;three-fourths
C)One-third;majority
D)Majority;unanimous
E)Majority;two-thirds

Question 27

If a corporation has fewer than ________ shareholders,the Revised Model Business Corporation Act allows companies to eliminate the board of directors entirely.

A)100
B)10
C)50
D)30
E)25

Question 28

Which of the following are outside directors who do not have business contacts with the corporation?

A)Associated directors
B)Inside directors
C)Approved directors
D)Affiliated directors
E)Unaffiliated directors

Question 29

Which of the following is NOT within the primary role of directors?

A)Authorizing corporate policy decisions
B)Appointing,supervising and removing corporate officers
C)Declaring pay and corporate dividends for shareholders
D)Elect and remove other directors
E)Making financial decisions

Question 30

Which of the following are outside directors who have business contacts with the corporation?

A)Unaffiliated directors
B)Associated directors
C)Approved directors
D)Affiliated directors
E)Inside directors

Question 31

What type of interest does every shareholder have in a corporation?

A)Equity
B)Majority
C)Absolute
D)Preferred
E)Minority

Question 32

Which of the following is false regarding officers of a corporation?

A)Qualifications required of officers are set forth in the corporate articles and bylaws.
B)Officers are executive managers.
C)Officers run the day-to-day business of the corporation.
D)The rules of agency do not apply to the work of officers.
E)In most cases an individual may serve as both a director and an officer.

Question 33

Directors who are also officers or employees of the corporation are known as which of the following?

A)Unaffiliated directors
B)Outside directors
C)Approved directors
D)Affiliated directors
E)Inside directors

Question 34

Who can call a special shareholder meeting?

A)Only those authorized in the articles of incorporation
B)The board of directors,shareholders who own at least 10 percent of the corporation's shares,and those authorized in the articles of incorporation
C)Only the board of directors
D)Only shareholders who own at least 10 percent of the corporation's outstanding shares
E)No one.Meetings are held annually

Question 35

How is the number of corporate directors determined?

A)According to the amount of profit projected by incorporators for the first year.
B)According to the corporate articles or bylaws.
C)By vote of the stockholders.
D)In the discretion of the president of the corporation.
E)According to the number of shares issued.

Question 36

A director may be removed for which of the following reasons?

A)At the will of the president.
B)For cause.
C)In the discretion of the shareholders upon a two-thirds vote.
D)In the discretion of other directors upon a majority vote.
E)In the discretion of the shareholders upon majority vote.

Question 37

Which term describes the owners of a corporation?

A)Officers
B)The State
C)Directors
D)Affiliates
E)Shareholders

Question 38

If the corporate bylaws require a minimum of five directors to be present at each directors meeting,what happens if only two directors attend and they make a decision?

A)The decision is invalid because a quorum was lacking.
B)The decision is invalid because the directors did not have authority to vote
C)The decision is invalid unless shareholders vote to ratify
D)The decision is valid
E)The decision is invalid because of a violation of the business judgment rule

Question 39

Jamira was hired by the board of directors to run the day-to-day business of a corporation.She is an agent of the corporation.Jarmia's role can best be described as an)________.

A)Director.
B)Outside director.
C)Affiliated director.
D)Officer.
E)Shareholder.

Question 40

Although some states allow for longer terms under certain circumstances,for how long do directors typically serve?

A)Three years
B)Five years
C)Two years
D)Four years
E)One year

Question 41

Patrice is a shareholder in a corporation but she cannot attend the corporate meeting.She wants to authorize someone else to vote for her.What authorization should she create?

A)Proxy
B)Permissive voucher
C)Acknowledgement
D)Approval
E)There is no such document because a shareholder may not allow someone else to vote in the shareholder's place.

Question 42

Which of the following,if any,is an authorization of a shareholder to allow someone else to vote in his or her place?

A)Permissive voucher
B)Proxy
C)Approval
D)Acknowledgement
E)There is no such document because a shareholder may not allow someone else to vote in the shareholder's place.

Question 43

Which of the following is false regarding the liability of directors and officers for criminal behavior in the U.S.?

A)Directors and officers can be held personally responsible for the crimes of other employees within the organization when they have failed to adequately supervise the employee's behavior.
B)Directors and officers who use insider information to trade the corporation's stock for a profit can be held liable for breaching their fiduciary duty.
C)A court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.
D)Directors and officers can be held personally responsible for their own crimes.
E)According to the responsible person doctrine,an officer can be held criminally liable for conduct of an employee if the court determines that a responsible person would have known about and could have prevented the illegal activity.

Question 44

A director uses inside information to trade the corporation's stock for personal profit.Which of the following is true of the director's liability?

A)He can be held responsible for violating the business judgment rule.
B)He cannot be held responsible because the corporation provides immunity.
C)He cannot be held responsible unless the board of directors prohibited his trades.
D)He can be held responsible for breaching his fiduciary duty to the shareholders from whom the stock was purchased.
E)He cannot be held responsible unless his trades hurt the company's value.

Question 45

Ursula is an executive at a corporation.She becomes angry at her co-owners and begins making bad investments,buying up companies she thinks will soon go bankrupt.When she is sued for a breach of fiduciary duty,can the business judgment rule protect her?

A)Yes,because she was acting within the scope of her authority.
B)No,because the business judgment rule does not apply to executives.
C)Yes,because the business judgment rule protects directors and officers from being held accountable for bad decisions.
D)No,because she did not act in good faith.
E)No,because the business judgment rule is an exception to the fiduciary duty of board members.

Question 46

Under the Revised Model Business Corporation Act,how long do proxies last if they are not withdrawn?

A)One year
B)Sixteen months
C)Eleven months
D)Two years
E)Nine months

Question 47

When shareholders holding more than ________ percent of the outstanding shares are present,a quorum of shareholders exists.

A)80
B)50
C)25
D)60
E)70

Question 48

A shareholder who signs a stock subscription must pay which of the following for no-par shares?

A)The value as set by the board of directors
B)The fair market value of the shares
C)The value on the last sale
D)The value as voted upon by shareholders
E)The depreciated value

Question 49

Which of the following is NOT true of cumulative voting?

A)It is guaranteed in RMBCA.
B)Without it,majority shareholders could disregard the interests of the minority shareholders
C)Without it,majority shareholders could monopolize control of the company
D)It is more egalitarian than simple majority voting
E)It ensures every voice within a corporation is heard,not just the voices of those with the most power.

Question 50

For purposes of shareholders meetings,what is considered a majority vote?

A)The majority of the shares represented at a shareholder meeting where there is a quorum
B)The vote of at least 10 percent of shareholders total.
C)The vote of ½ of all outstanding shareholders.
D)The vote of 2/3 of all outstanding shareholders.
E)The vote of 90 percent of shareholders who make up a quorum.

Question 51

Prior to an annual meeting,which of the following items,containing proposals made by shareholders,are sent to shareholders?

A)Proxy materials
B)Meeting proposals
C)Presidential materials
D)Meeting agenda
E)Officer materials

Question 52

In a closely held corporation,a breach of the duty of a majority shareholder to act with care and loyalty when selling his or her shares is known as ________.

A)Minority oppression
B)Oppressive conduct
C)Majority holder misconduct
D)Disloyal procedure
E)Minority discrimination

Question 53

Decisions of courts in ________ have a significant impact because more than half of U.S.public traded corporations are incorporated there.

A)Florida
B)New York
C)New Jersey
D)California
E)Delaware

Question 54

The Securities and Exchange Commission has established that any shareholder who owns more than ________ worth of stock in the corporation can submit proposals to be included in proxy materials.

A)$4,000
B)$5,000
C)$2,000
D)$1,000
E)$3,000

Question 55

Which of the following is true of the business judgment rule?

A)It protects directors and officers from ever being held accountable for bad decisions.
B)It protects shareholders.
C)It encourages individuals to serve as directors.
D)It is an exception to the fiduciary duty of board members.
E)It applies in insider trading cases.

Question 56

Shares that have a fixed face value noted on the stock certificate are referred to as Which of the following?

A)Valued stock
B)Par-value shares
C)Watered stock
D)No par-value shares
E)No-valued stock

Question 57

A director of a corporation knowingly releases a dangerous drug with the knowledge that 10 percent of those who take the drug will die.He illegally falsifies testing data to get the drug approved.Which of the following is true of his liability?

A)He cannot be held responsible if the board of directors approved the release of the drug.
B)He can be held personally responsible for his crimes.
C)He can be held personally responsible only if the company was not a C-corporation.
D)He cannot be held responsible for his actions because the corporation released the drug.
E)He cannot be held responsible unless he was at least the executive vice president.

Question 58

Which of the following is true of a shareholder's legal duties.

A)Shareholders typically have few legal duties,but minority shareholders can sometimes have fiduciary duties to the corporation and to majority shareholders
B)Shareholders have a fiduciary duty to each other,but not to the corporation.
C)No shareholders ever have any legal duties
D)Shareholders typically have few legal duties,but majority shareholders can sometimes have fiduciary duties to the corporation and to minority shareholders
E)All shareholders have a fiduciary duty not to compete with the company

Question 59

An individual shareholder can enter a voting trust in which he or she transfers share titles to a trustee in exchange for a ________.

A)Proxy
B)Voting trust certificate
C)Voting acknowledgement
D)Trustee voting agreement
E)Trust acknowledgement

Question 60

A director of a corporation knowingly releases a dangerous drug that will kill 10 percent of those who take the medication.He was concerned when the drug was being developed so he told the head of medical testing not to let him know if the drug had any adverse side effects.Since he was not told of the side effects,he felt he could not be required to report them to the FDA.Which of the following is true of his liability?

A)He cannot be held responsible because he was unaware of the dangers of the drug.
B)He cannot be held responsible if the board of directors approved the release of the drug.
C)He cannot be held responsible because the corporation released the drug.
D)He cannot be held responsible because the illegal actions of hiding the drug's side effects were done by a subordinate.
E)He can be held responsible for his own torts and crimes and for the crimes of other employees whom they have failed to adequately supervise.

Question 61

A director of the corporation has embezzled money from the company.The other corporate directors fail to sue.What should the shareholders do?

A)They have no recourse.
B)They should claim a violation of the business judgment rule
C)They should initiate a shareholder's derivative suit
D)They should rewrite the corporate bylaws to require lawsuits in cases of embezzlement
E)They should initiate a shareholder's direct suit

Question 62

When a shareholder sues,alleging that he has suffered damages caused by the corporation,it is known as which of the following?

A)Shareholder derivative suit
B)Shareholder's direct suit
C)Active allocation suit
D)Shareholder action suit
E)Investigative action

Question 63

Hans receives a dividend from his closely held corporation,causing the company to go insolvent.He was aware of the fact that the dividend would result in insolvency.Which of the following is true?

A)He is liable only if he was a director
B)He is liable for losses to the extent of his investment.
C)He is personally liable and must return the funds to the corporation
D)He is not liable,because shareholders are protected from liability
E)He is liable because he violated the business judgment rule.

Question 64

Which of the following may be redeemed for a certain number of shares at a specified price within a given time period?

A)Share allowances
B)Stock warrants
C)Preemptive shares
D)Allocated shares
E)Share grants

Question 65

What duty,if any,did Tatiana violate?

A)She violated the duty of profit maximization.
B)She did not commit any violation.
C)She violated the duty of loyalty.
D)She violated the duty of care.
E)She violated the duty of understanding.

Question 66

Which of the following rights does not apply to corporate directors?

A)The right of compensation
B)The right of indemnification
C)The right of obedience
D)The right of participation
E)The right of inspection

Question 67

The right of a corporation or its shareholder to purchase any shares of stock offered for resale by a shareholder within a specified period of time is referred to as which of the following?

A)Right of first purchase
B)Right of adequate refusal
C)Right of first acknowledgement
D)Right of first refusal
E)Superior right of purchase

Question 68

Which of the following is NOT true of shareholder liability?

A)Shareholders are liable for watered stock
B)Shareholders are personally liable for receiving illegal dividends.
C)Shareholders are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased
D)Shareholders are liable for violations of the business judgment rule
E)Shareholders are liable for the debts of a corporation to the extent of their investment

Question 69

When the corporation will not issue physical stock certificates,shares are ________.

A)Unapproved
B)Acknowledged
C)Approved
D)Uncertificated
E)Unacknowledged

Question 70

If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders can file a[n] ________ on behalf of the corporation.

A)Shareholder's direct suit
B)Active allocation suit
C)Investigative action
D)Shareholder's derivative suit
E)Shareholder action suit

Question 71

Which of the following gives preference to shareholders to purchase shares of a new issue of stock?

A)Superior rights
B)Preemptive rights
C)Acknowledged rights
D)Benefit rights
E)Selective rights

Question 72

How many votes will the minority shareholders have in the election?

A)10,000
B)20,000
C)4,000
D)2,000
E)6,000

Question 73

Which of the following is a term for stock issued to individuals below its fair market value?

A)Watered stock
B)Unapproved stock
C)Less-value stock
D)Reduced stock
E)No-par stock

Question 74

Is Allison correct that officers cannot be held criminally responsible for actions they take on behalf of a corporation?

A)She is incorrect.
B)She is correct only so long as the corporation is solvent.
C)She is correct only if the board of directors has accepted all liability for acts of officers.
D)Yes,she is correct.
E)She is correct only if environmental or employment matters are involved.

Question 75

Under what circumstances are dividends illegal?

A)If the dividends are paid when the company is insolvent.
B)If they are paid over the objections of minority shareholders
C)If they are paid to majority shareholders only
D)If the payment violates the business judgment rule
E)Never

Question 76

While incorporating,the future owners of the corporation want to restrict stock transferability to ensure that existing shareholders have the right to buy any shares of stock offered for sale by a shareholder within a specified time period.The right they should establish in their corporate bylaws is referred to as the ________.

A)Superior right of purchase
B)Right of first purchase
C)Right of adequate refusal
D)Right of first acknowledgement
E)Right of first refusal

Question 77

Is Allison correct that she owes no duties to shareholders?

A)No,she is incorrect because she owes a duty of care to shareholders although she owes no other duties.
B)No,she is incorrect because she owes a duty of loyalty to shareholders although she owes no other duties.
C)Yes,she is correct because it is the directors who owe duties to shareholders.
D)She is partially correct.She owes both a duty of care and a duty of loyalty to minority shareholders,but no duties to majority shareholders because the law assumes that they have the power to protect their own interests.
E)No,she is incorrect because she owes both a duty of care and a duty of loyalty to shareholders.

Question 78

Which of the following is false regarding corporate decisions that might personally benefit a particular director or officer?

A)The director to benefit may vote on the issue although a majority of all directors must approve the transaction.
B)There must be full disclosure of the interest by a director who might personally benefit from a corporate decision.
C)The duty to disclose an interest that might personally benefit a director is a fiduciary duty.
D)The duty to disclose an interest that might personally benefit an officer is a fiduciary duty.
E)There must be full disclosure of the interest by an officer who might personally benefit from a corporate decision.

Question 79

In the text case Auerbach v.Bennett a shareholder brought a derivative action after an internal audit of the GTE Corporation suggested that the corporation's management had paid significant amounts in bribes and kickbacks over a period of several years.Which of the following was the result on appeal?

A)The court ruled that the business judgment rule shielded the lawsuit insofar as foreign wrongdoing was alleged,but not for wrongdoing committed in the U.S.
B)The court ruled that the business judgment rule exempted the directors from liability unless the shareholder could establish that the shareholders lost money on account of their actions.
C)The court ruled that the business judgment rule exempted the directors from liability only so long as the directors could establish that the shareholders did not lose money on account of their actions.
D)The court ruled that the business judgment rule did not apply because illegality was involved and that the corporation was,therefore,liable.
E)The court ruled that the business judgment rule exempted the directors from liability.

Question 80

Which of the following may be issued to shareholders as proof of ownership in the corporation?

A)Paper documentation
B)Stock certificates
C)Acknowledgement documents
D)Stock acknowledgements
E)Stock subscriptions