Deck 47: Management of Corporations

Question 1

To prevent conflicts of interest and covert compensation schemes, the Sarbanes-Oxley Act prohibits all loans either directly or indirectly to directors and executive officers by their corporations.

Answer 1

True

Question 2

The business judgment rule is a defense that can be used by directors when their actions are challenged.

Answer 2

True

Question 3

Most states permit action to be taken by the board of directors without holding an actual meeting.

Answer 3

True

Question 4

Shareholders indirectly determine the management policies of the business.

Question 5

State laws that attempt to indemnify corporate directors against personal monetary liability for gross negligence are void as contrary to public policy.

Question 6

Directors are usually allowed to vote by proxy.

Question 7

Directors do not have the right to evaluate management's performance.

Question 8

Shareholder control is generally limited to voting at shareholders' meetings to elect directors.

Question 9

According to the RMBCA, shareholders may, by majority vote, remove a director with or without cause unless the articles of incorporation provide that directors may be removed only for cause.

Question 10

A director is disqualified from taking part in corporate action with respect to a matter in which the director has a disclosed conflicting interest.

Question 11

When a meeting opens with a quorum, the quorum is broken if shareholders leave and those remaining are not sufficient to constitute a quorum.

Question 12

In dealing with the corporation, directors act in a fiduciary capacity.

Question 13

A shareholder vote has legal effect as a corporate act only if such action is taken at a regular or special meeting of the stockholders.

Question 14

The duties of officers of a corporation are generally set forth in the articles of incorporation.

Question 15

Action taken by shareholders without holding a meeting is valid under the RMBCA if it is evidenced by a written consent signed by all the shareholders entitled to vote on the action.

Question 16

The sale of corporate assets outside the regular course of a corporation's business is an example of an extraordinary matter.

Question 17

The notice of a special meeting of shareholders must include a statement of the nature of the business to be transacted and no other business may be transacted at such a meeting.

Question 18

The courts have traditionally viewed it as their responsibility to sit in judgment of decisions made by corporate directors.

Question 19

Many states stipulate that there shall be no fewer than three directors for each corporation.

Question 20

Absent a showing of fraud, generally courts will not 'second guess' directors' right to manage the company.

Question 21

Generally, corporate management is not liable to third persons if the managerial policies cause loss to such third persons.

Question 22

Officers have a fiduciary obligation not to make any secret financial gain at the expense of the corporation.

Question 23

Under the responsible corporate officer doctrine a CEO could be criminally liable for failure to prevent the commission of a crime.

Question 24

A corporation itself may be convicted of a criminal offense if its agent committed the offense acting within the scope of the agent's authority.

Question 25

A valid meeting of the voting shareholders of a corporation requires the presence of a: ______.

A) quorum.
B) forum.
C) majority.
D) voting majority.

Question 26

Under the Dodd-Frank Act's "say-on-pay" rule, public company shareholders have the right to a nonbinding vote to approve or disapprove executive compensation.

Question 27

If an officer diverts a corporate opportunity, the corporation may not recover from the officer the profits of which the corporation has been deprived.

Question 28

Application of the business judgment rule to a board's decision presumes all of the following except: ______.

A) that the board's decision was profitable to the corporation
B) that the board acted on an informed basis
C) that the board acted in good faith
D) that the board believe it was acting in the best interest of the corporation

Question 29

The __________ rule allows management immunity from liability for corporate acts where there is a reasonable indication that the acts were made in good faith and with due care.

A) sovereign immunity
B) business judgment
C) reasonable director
D) good faith

Question 30

Which of the following is an incorrect statement about officers?

A) Their duties are generally set forth in the corporation's bylaws.
B) They have a fiduciary obligation to the corporation.
C) They are agents of the corporation.
D) Their authority as agents is increased if they are shareholders.

Question 31

Officers are generally not liable to the corporation for secret profits made at the expense of the business of the corporation.

Question 32

A stockholder-approved amendment to the certificate of incorporation may indemnify directors who: ______.

A) acted in bad faith.
B) acted negligently.
C) breached their duty of loyalty.
D) gained an improper personal benefit.

Question 33

Eligibility for membership on a board of directors is determined by all of the following except: ______.

A) statute.
B) certificates of filing.
C) articles of incorporation.
D) bylaws.

Question 34

Under the responsible corporate officer doctrine officers and directors are not personally responsible for crimes they have committed when it can be demonstrated that in carrying out such crimes, they acted on behalf of the corporation.

Question 35

Although officers may be agents of the corporation, a third person suing the company has the burden of proving that a particular officer had the authority he purported to have.

Question 36

Extraordinary matters requiring shareholder votes include all of the following except: ______.

A) sale of corporate assets outside the regular course of business.
B) amendment of bylaws.
C) corporate mergers.
D) corporate dissolution.

Question 37

The president of a business corporation does not have implied authority to execute commercial paper in the name of the corporation.

Question 38

The RMBCA provides that, absent a conflicting provision in the articles of incorporation, directors may be removed: ______.

A) with or without cause by a majority vote of the shareholders.
B) with cause by a majority vote of the shareholders, and without cause by a unanimous vote.
C) with or without cause by a unanimous vote of the shareholders.
D) only with cause.

Question 39

The Sarbanes-Oxley Act prohibits all corporate loans to directors and executive officers unless: ______.

A) the company is in the consumer credit business.
B) the loan is to relocate as part of an employment contract.
C) the loan is made to purchase securities.
D) none of these, as all loans are prohibited.

Question 40

Which of the following is an incorrect statement about directors?

A) Their eligibility requirements may be found in the bylaws.
B) Bylaws may require that directors be shareholders in the corporation.
C) The board of directors has authority to manage the corporation.
D) Courts will interfere with the board's discretion when they disagree with its actions.

Question 41

Under the doctrine of ______, a corporation is ______ to third persons for the tortious acts of its officers, employees, and agents to the same extent that a natural person is liable for the acts of agents and employees.

A) respondeat superior, not civilly liable
B) business judgment, criminally liable
C) business judgment rule, civilly liable
D) respondeat superior, civilly liable

Question 42

All of the directors of the XYZ Corporation were present at a meeting called on a Monday evening at 9 p.m. Meetings normally were held on Friday evenings at 6 p.m. At the Monday meeting, a report was made indicating that an agent of the corporation was having difficulties formalizing a contract in a foreign country. The report indicated that if funds were made available to a local political figure, the contract the company desired would be obtained. The directors unanimously voted to forward the necessary funds for this operation to the agent. An action was later commenced against the directors, alleging illegal activities. In response, the directors argue that: (1) no illegal activity had occurred; (2) if an illegal activity did occur, it was not at a valid meeting of the corporation and was therefore not an official action of the board; and (3) if they had to legally defend themselves, they would seek reimbursement from the corporation. Discuss the directors' contentions.

Question 43

Corporations may ________ officers, directors, employees, and agents when they act in good faith, in a manner not opposed to corporate interests and with no reason to believe their conduct was unlawful.

A) ratify
B) breach
C) indemnify
D) authorize

Question 44

The means by which stockholders may seek to protect themselves against corporate actions to which they object include all of the following except: ______.

A) voting in new directors.
B) bringing legal action.
C) voiding the charter.
D) calling a special stockholders' meeting.

Question 45

A corporation is liable to a third person for the act of its agent: ______.

A) to the same extent as a natural person would be liable.
B) only if the agent was expressly authorized to perform the act.
C) only if the agent's act was a crime.
D) only if the agent's act was based on an intent to benefit the corporation.

Question 46

If an officer diverts a corporate opportunity, the corporation may recover from the officer:

A) triple damages for breach of a fiduciary duty.
B) the profits of which the corporation has been deprived.
C) past wages for the time period in question.
D) any and all funds used to divert the corporate opportunity.

Question 47

A corporation may be prosecuted and convicted of: ______.

A) a criminal offense if its agent committed the offense while acting within the scope of the agent's authority.
B) an error in business judgment, assuming that no other reasonable corporation would have committed such an error.
C) operating without a corporate charter if the corporation has never sought a charter from the secretary of state's office, or if its directors and/or officers either knew of should have known that the secretary of state's office had revoked the charter.
D) none of the above; a corporation itself is not subject to criminal prosecution and conviction.

Question 48

The stockholders of the Apex Corporation attended a special meeting of the stockholders called to discuss matters of extreme urgency to the corporation. A quorum was not present when the meeting opened, nor was a quorum present when the matters to be treated in the meeting were discussed. Management, however, felt that the importance of the issue was significant enough to warrant continuation of the meeting without a quorum, and the stockholders voted on the issues presented during the meeting. During the last fifteen (15) minutes of the meeting, just prior to the cocktail hour regularly attended by many stockholders, enough stockholders had arrived to constitute a quorum. Were the issues of this meeting dealt with in a valid manner?

Question 49

The Dodd-Frank Act requires greater accountability by the board of directors to the shareholders, including all of the following except:

A) executive pay.
B) pay for performance.
C) claw-back provisions.
D) enhanced ethical training.

Question 50

A corporate officer, while still employed by his or her firm, may be in breach of the officer's fiduciary duty of __________ by recruiting key management employees to join a competing company.

A) obedience
B) loyalty
C) conflict of interest
D) confidentiality

Question 51

Generally, a President of a corporation does not have the authority to do any of the following except:

A) make a long-term employment contract.
B) mortgage corporate property.
C) call a special meeting.
D) execute commercial paper in the name of the corporation.

Question 52

A manager who is directly responsible for compliance with federal water quality statutes would be liable under the __________ for toxic waste spilled into the river over a period of six months.

A) Revised Model Business Corporation Act.
B) federal organizational sentencing doctrine
C) corporate opportunity doctrine.
D) responsible corporate officer doctrine.

Question 53

Ping was the president and chairman of the board of directors of Oh Imports, Inc. Ping was also a major shareholder. Acting as president, Ping negotiated a series of contracts that caused the corporation serious economic losses. In this role, Ping failed to exercise the care of a reasonably prudent person acting in similar circumstances. When substantial economic losses began to pile up, Ping insisted that the corporation breach a contract with Ory in favor of a larger contract that was later entered into with Magnificent Enterprises. Ping hoped to reverse Oh's economic fortunes through this contract with Magnificent, but the attempt failed. Oh then became insolvent. Ultimately, the corporation failed. Two law-suits were initiated against Ping. In the first, a creditor of Oh who never was paid because the business failed sued Ping alleging that the negligence of Ping had caused Oh to fail to pay the creditor what was owed. The second lawsuit instituted by Ory claimed damages from Ping because Ping caused Oh to breach its contract with Ory. Decide both lawsuits.