ACCT 324 Ch 39

What does the duty of loyalty mean for directors and officers of a corporation? A. A director or officer must put the corporation's interests before their own interest. B. A director or officer must agree to make share price rise. C. A director or officer must make the corporation profitable. D. A director or officer must agree to be loyal to the government of the United States.

A. A director or officer must put the corporation's interests before their own interest.

Which of the following is not a major group of individuals within a corporation? A. Corporate arbitrators B. Corporate officers C. Corporate directors D. Corporate shareholders

A. Corporate arbitrators

What is the term for individuals who serve on the board of directors and are also officers or employees of a corporation? A. Inside directors B. Proxy directors C. Derivative directors D. Outside directors

A. Inside directors

Identify a true statement about the business judgment rule. A. It grants directors freedom to work without constant fear of personal liability. B. It discourages individuals from serving as directors. C. It is a federal statute. D. It is civil law recognized by almost every court in the country.

A. It grants directors freedom to work without constant fear of personal liability.

What is the term used when a director or officer makes decisions that personally benefit him or her? A. Personal self-dealing B. Infringement C. Business self-dealing D. Watered stock

A. Personal self-dealing

What is the term describing the right that current shareholders in a corporation have, which gives them preference for purchasing a new issue of stock? A. Preemptive rights B. Watered stock C. No-par rights D. Indemnification

A. Preemptive rights

What is the term used to describe when a corporate director or officer breaches their duty of loyalty? A. Self-dealing B. Watered stock C. Infringement D. Proxy

A. Self-dealing

What is the term for an agreement where shareholders agree to vote on a singular issue together? A. Shareholder voting agreement B. Inside director agreement C. Affiliation agreement D. Corporate officer agreement

A. Shareholder voting agreement

In the context of the three major groups of individuals within a company, which of the following groups wants to raise the value of their company's stock? A. Shareholders B. Arbitrators C. Customers D. Senators

A. Shareholders

True or false: Almost all individuals within a corporation have legal fiduciary duties to the corporation. A. True B. False

A. True

Officers act as ______ of a corporation. A. agents B. incorporators C. directors D. shareholders

A. agents

The corporate articles or bylaws specify the number of ______ within a company. A. corporate directors B. external shareholders C. corporate employees D. internal shareholders

A. corporate directors

In most states, shares may be uncertificated, meaning that ______. A. the corporation does not issue physical stock certificates B. the corporation does not issue shareholder voting agreements C. the shareholders hold the stocks of the corporation in name only D. the shareholders do not have ownership in the corporation in any form

A. the corporation does not issue physical stock certificates

Identify true statements about a shareholder's inspection rights. (Check all that apply.) A. Some states allow only shareholders with a minimum number of shares to inspect. B. A shareholder who feels his right of inspection has been wrongly denied can take the issue to court. C. A shareholder can inspect the books of a corporation only if he or she has a certificate of inspection. D. Corporations cannot deny shareholders the right to inspect confidential corporate information.

A., B. A. Some states allow only shareholders with a minimum number of shares to inspect. B. A shareholder who feels his right of inspection has been wrongly denied can take the issue to court.

What must occur for a shareholder to inspect the records and books of a corporation? (Check all that apply.) A. The shareholder must ask in advance. B. The shareholder must have a proper purpose. C. The shareholder must use the freedom of information act. D. The shareholder must pay a fee.

A., B. A. The shareholder must ask in advance. B. The shareholder must have a proper purpose.

Corporate directors and officers must make what type of decisions? (Check all that apply.) A. Decisions that are informed B. Decisions that are reasonable C. Decisions that are profitable D. Decisions that are popular

A., B. A. Decisions that are informed B. Decisions that are reasonable

Decisions can be made that will personally benefit one director or officer as long as ______. (Check all that apply.) A. there is full disclosure of the interest B. there is an ethical reason to make the decision C. the disinterested board members and/or disinterested shareholders approve it D. the decision involves business self-dealing

A., C. A. there is full disclosure of the interest C. the disinterested board members and/or disinterested shareholders approve it

Into what categories are outside directors divided? (Check all that apply.) A. Unaffiliated directors B. International director C. Affiliated directors D. Proxy director

A., C. A. Unaffiliated directors C. Affiliated directors

Which of the following are reasons due to which shareholders could dissolve a corporation under the RMBCA? (Check all that apply.) A. Assets are being wasted or used improperly. B. The corporation is not making a large enough profit. C. The corporation has less than five members in its board of directors. D. Directors are acting in illegal, oppressive, or fraudulent ways. E. Directors are deadlocked in managerial decisions and harming the corporation.

A., D., E. A. Assets are being wasted or used improperly. D. Directors are acting in illegal, oppressive, or fraudulent ways. E. Directors are deadlocked in managerial decisions and harming the corporation.

What are the major groups of individuals within a corporation? (Check all that apply.) A. Officers B. Senators C. Arbitrators D. Directors E. Shareholders

A., D., E. A. Officers D. Directors E. Shareholders

Within a corporation, who has fiduciary duties? A. Only the board of directors B. All individuals within the corporation C. The Secretary of State D. A foreign agent of a competing corporation

B. All individuals within the corporation

The business judgment rule is based on what legal authority? A. Constitutional law B. Common law C. State statutory law D. Federal statutory law

B. Common law

What document dictates the number of members of a board of directors in a corporation? A. Articles of organization B. Corporate bylaws C. Stock certificate D. State law

B. Corporate bylaws

What is the term for individuals hired by the board of directors to run the day-to-day business of a corporation? A. Employees B. Corporate officers C. Shareholders D. Incorporators

B. Corporate officers

What is the term for the system where majority and minority shareholders are granted votes based on the number of shares and the number of open director positions? A. Affiliate voting B. Cumulative voting C. Corporate voting D. Proxy voting

B. Cumulative voting

True or false: Cumulative voting is guaranteed under the RMBCA. A. True B. False

B. False

Identify a true statement about the business judgment rule. A. It is a federal statute. B. It grants directors freedom to work without constant fear of personal liability. C. It is civil law recognized by almost every court in the country. D. It discourages individuals from serving as directors.

B. It grants directors freedom to work without constant fear of personal liability.

Which of the following statements is true of cumulative voting? A. It is guaranteed in RMBCA. B. It occurs only if a corporation's articles of incorporation provide for it. C. It excludes minority shareholders from the process of electing the board of directors. D. It gives the majority and minority shareholders of a corporation an equal number of votes.

B. It occurs only if a corporation's articles of incorporation provide for it.

What is the term for when a corporation has a right to purchase a shareholder's stock prior to it being sold to another investor? A. Right of passage B. Right of first refusal C. Right to be informed D. Right to be compensated

B. Right of first refusal

Identify a corporate behavior that gives the shareholders of a corporation the legal right to initiate dissolution under Section 14.30 of RMBCA. A. The corporation is not making substantial profits. B. Shareholders are deadlocked and cannot elect directors. C. Shareholders have not been paid dividends for one quarter. D. There are fewer than eight members in the corporation's board of directors.

B. Shareholders are deadlocked and cannot elect directors.

With a voting trust, who is responsible for voting the shares of the trust? A. The secretary of state B. The trustee C. The officer D. The director

B. The trustee

Identify a true statement about a shareholder voting agreement. A. They typically do not hold up in court. B. They are usually legally enforceable. C. They allow a trustee to vote on behalf of a shareholder at a shareholders' meeting. D. They are agreements between a shareholder and his or her trustee.

B. They are usually legally enforceable.

How are directors of a corporate board typically chosen? A. Usually, they run for office. B. Usually, they are elected by a majority vote of shareholders. C. Usually, they are appointed by the Secretary of State. D. Usually, they are selected for life terms by the incorporators.

B. Usually, they are elected by a majority vote of shareholders.

What is the term used for stock issued below its fair market value? A. Oppressive conduct B. Watered stock C. Articles of Incorporation D. Affiliate stock

B. Watered stock

Shareholders have a right to ______ from the directors. A. compensation B. a dividend, unless there is a good reason to withhold it C. office space from which to operate out of D. office materials

B. a dividend, unless there is a good reason to withhold it

All directors have a right to: _______. A. an office B. compensation C. support staff D. watered stock

B. compensation

If a corporation is harmed by an individual or another corporation, an individual shareholder of the harmed corporation has the right to file a shareholder's ______ suit on behalf of the corporation. A. proxy B. derivative C. request for inspection D. direct

B. derivative

To protect shareholders, directors and officers have a ______, which puts the corporation's interest above their own when making business decisions. A. fiduciary duty of rewards B. fiduciary duty of loyalty C. duty of notification D. duty of business self-dealing

B. fiduciary duty of loyalty

Almost all individuals within a corporation have ______ to it, so they can be held liable for harming the business by violating these duties. A. social duties B. legal fiduciary duties C. cultural fiduciary duties D. political duties

B. legal fiduciary duties

The purchasing of ______ makes a shareholder an owner of a corporation. A. articles of incorporation B. stock C. bonds D. articles of organization

B. stock

If a corporate transaction is expected to personally benefit an individual officer or director, that person has a duty to: _______. (Check all that apply.) A. inform the board of business self-dealing B. abstain from voting on the issue C. immediately resign D. disclose any conflict of interest

B., D. B. abstain from voting on the issue D. disclose any conflict of interest

______ ensures that the minority shareholders of a company have a voice in electing the board of directors. A. Affiliate voting B. Proxy voting C. Cumulative voting D. Corporate voting

C. Cumulative voting

Identify a true statement about a stock warrant. A. It is seldom issued with preferred stock. B. It is issued only in the absence of preemptive rights. C. It is often traded publicly on securities exchanges. D. It lists the name of a corporation and the number of shares owned by it.

C. It is often traded publicly on securities exchanges.

What is the term for a shareholder who owns less than half of the shares of a corporation? A. Unaffiliated shareholder B. Majority shareholder C. Minority shareholder D. Proxy shareholder

C. Minority shareholder

What type of stocks do shareholders purchase from the corporation at fair market value? A. Par-value stocks B. Self-dealing stocks C. Non-par stocks D. Pretextual stock

C. Non-par stocks

What is the term used when a majority shareholder does not show care in selling their shares? A. Infringement B. Watered stock C. Oppressive conduct D. Business self-dealing

C. Oppressive conduct

______ rights mean that current shareholders in a corporation have preference in purchasing a new issue of stock. A. Indemnification B. Watered stock C. Preemptive rights D. No-par rights

C. Preemptive rights

What is the term for a document that is given to shareholders to indicate the number of shares owned in a corporation? A. Self-dealing certificate B. Watered stock C. Stock certificate D. Par-value certificate

C. Stock certificate

What is the term for documents that shareholders receive if they have preemptive rights and there is going to be a new issue of stock by the corporation? A. No-par stocks. B. Watered stocks C. Stock warrants D. Indemnifications

C. Stock warrants

If a corporate director is sued, then under the theory of indemnification, who will assume the cost and liability for the legal defense of the director? A. The United States taxpayer B. The state C. The corporation D. The state taxpayer

C. The corporation

What is the term for the type of care a director or officer must show when making decisions for the corporation? A. Disinterested shareholder care B. Voting trust C. The fiduciary duty of care D. Cumulative agreement

C. The fiduciary duty of care

Identify a true statement about the shareholders of a corporation. A. Every shareholder has an unequitable interest in the corporation. B. They are directly responsible for the daily management of the corporation. C. They own the corporation through the purchase of stock. D. Every shareholder is legally recognized as an owner of corporate property.

C. They own the corporation through the purchase of stock.

What type of corporate documents can shareholders be denied the right to inspect? A. By-laws B. Financial forecast memos C. Trade secrets D. Quarterly fiscal reports

C. Trade secrets

Corporate directors have a right to ______ for their work with the corporation. A. dividends B. fiduciary duties C. compensation D. stock splits

C. compensation

Corporate officers are technically employees of a corporation, so their rights are defined by ______ drawn up by the board of directors or the incorporators. A. corporate bylaws B. employer-employee wills C. employment contracts D. security agreements

C. employment contracts

Under the business judgment rule, directors and officers will not be held liable for their actions as long as they acted in: _______. A. the interest of the incorporators B. the interest of maximum profit C. good faith D. the confines of the law

C. good faith

A director of a corporation has a right to ______ or the right to be reimbursed for any lawsuit against her. A. cumulative dividends B. self-dealing C. indemnification D. preemption

C. indemnification

Sam is a member of the board of directors of a pharmaceutical company and is also the Vice President of Research and Development in the company. In this context, Sam is a(n) ______. A. affiliated director B. unaffiliated director C. inside director D. outside director

C. inside director

Shareholders are _______ responsible for the daily management of the corporation, but they elect the directors who are. A. always B. never C. not directly D. directly

C. not directly

An individual shareholder can enter a voting trust by transferring his or her share titles to a trustee in exchange for a ______. A. trustee-shareholder contract B. share title transfer C. voting trust certificate D. shareholder voting agreement

C. voting trust certificate

If directors fail to declare and distribute dividends, shareholders can take legal action to force them to do so. In this context, shareholders must show that ______. (Check all that apply.) A. the law mandates that shareholders be paid dividends each month B. dividends have not been paid for at least two consecutive years C. the directors are abusing their discretion in withholding the dividend D. the directors are acting unreasonably

C., D. C. the directors are abusing their discretion in withholding the dividend D. the directors are acting unreasonably

What groups of individuals in a corporation attempt to ensure that the corporation survives? (Check all that apply.) A. Senators B. Customers C. Officers D. Directors

C., D. C. Officers D. Directors

If a corporation violates a corporate officer's employment agreement, then what cause of action will that individual have? A. Trademark violation B. Employment discrimination suit C. Derivative action D. Breach of contract

D. Breach of contract

______ ensures that the minority shareholders of a company have a voice in electing the board of directors. A. Proxy voting B. Corporate voting C. Affiliate voting D. Cumulative voting

D. Cumulative voting

What is the term for an authorization that allows a third party to attend and vote in the place of a shareholder? A. Affiliation B. Organizing C. Incorporation D. Proxy

D. Proxy

What is the doctrine a court can use to find a corporate officer liable if a responsible person would have known about the criminal activity and would have prevented it? A. Substantial performance B. Frustration of purpose C. Promissory estoppel D. Responsible person

D. Responsible person

______ often meet once year, but can meet more often if necessary. A. Stakeholders B. Officers C. Directors D. Shareholders

D. Shareholders

What is the term for a document that is given to shareholders to indicate the number of shares owned in a corporation? A. Watered stock B. Self-dealing certificate C. Par-value certificate D. Stock certificate

D. Stock certificate

When a corporation faces an important decision, who will meet to decide what course of action the corporation will take? A. The shareholders B. The incorporators C. The secretary of state's office D. The board of directors

D. The board of directors

What is the penalty for breaching a duty of loyalty? A. The director or officer must purchase more stock of the corporation. B. The director or officer must pay penalties to the government. C. The director or officer may be placed in a federal prison. D. The director or officer must pay back all profits made as a result of breach.

D. The director or officer must pay back all profits made as a result of breach.

When a corporation faces an important decision, the ______ meets to decide what course of action it will take. A. senior executive team B. stakeholders C. shareholders D. board of directors

D. board of directors

Typically, shareholders vote to elect: ______. A. officers B. stakeholders C. the CEO D. directors

D. directors

A director or officer convicted of breaching the duty of loyalty is required to cede to the corporation all profits earned as a result of the breach. The goal of this rule is to ______. A. discourage the directors and officers of a company from making decisions with the sole aim of increasing the finances of the company B. encourage business self-dealing and discourage personal self-dealing C. reward the officers and directors who return the profits so made by giving them stock options in the company, thereby encouraging the duty of loyalty D. discourage breaches of the duty of loyalty by taking all profits so made

D. discourage breaches of the duty of loyalty by taking all profits so made

The fiduciary duty of care means that directors and officers must exercise ______ when making decisions for the corporation; they must act in good faith and in the best interest of the company. A. due process B. coercive power C. viable care D. due care

D. due care

If a corporation establishes the right of ______ ______ in its bylaws, the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time. A. secondary rejection B. conditional remediation C. primary rescission D. first refusal

D. first refusal

Under the business _______ rule, directors or officers will not be held ______ if they acted in _______ in their decisions. A. affairs, responsible, reasonable B. affairs, responsible, good faith C. judgment, liable, reasonable D. judgment, liable, good faith

D. judgment, liable, good faith

In a closely held corporation, ______ conduct occurs when a majority shareholder does not act with care when selling their shares. A. undisclosed B. unreasonable C. arrogant D. oppressive

D. oppressive

According to the ______ doctrine, a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity. A. frustration of purpose B. substantial performance C. promissory estoppel D. responsible person

D. responsible person

If a director or officer of a company is taken to court for breaching the duty of care by making an unreasonable decision, the court typically inquires whether ______. A. the decision was made within 30 days prior to the court hearing B. the director or officer was sane at the time of making the decision C. the director or officer is a citizen of the country in which the company is headquartered D. the decision had any rational business purpose

D. the decision had any rational business purpose

When shares are issued without a stock certificate, then they are called A. no-par stocks. B. certified stocks. C. watered stocks. D. uncertified stocks.

D. uncertified stocks.

Stock issued below its fair market value is called ______ stock. A. cumulative B. no-par C. par-value D. watered

D. watered

A document that serves as a stockholder's proof of ownership in a corporation is known as a _______ _______.

Stock certificate

Corporate _______ have a right to participate and inspect every aspect of the corporation in order to make informed decisions.

directors

Shareholders elect _________ who are directly responsible for the daily management of a corporation.

directors

All individuals within a corporation have specific legal responsibilities called ________ ________.

fiduciary duties

All individuals within a corporation have specific legal responsibilities called ________ _________.

fiduciary duties

A __________ _________ is a shareholder who controls more than half of the outstanding shares of a corporation, or at least 51 percent.

majority shareholder

Stock shares that have a fixed face value noted on the stock certificate are called

par-value shares

A writing signed by a shareholder that authorizes the individual named in the writing to exercise the shareholder's votes (corresponding to his or her shares of stock) at a shareholders' meeting is called a __________.

proxy

A(n) ______ can inspect records and books only if she asks in advance and has a proper purpose.

shareholder

A(n) _______ can inspect records and books only if she asks in advance and has a proper purpose.

shareholder

A lawsuit filed by a shareholder on behalf of the corporation is called a ______ _______ ______.

shareholder's derivative suit