BUL EXAM 1 ch.39

In what year did the ABA draft the first version of the Model Business Corporation Act?

1946

In what year did the ABA replace the MBCA with the Revised Model Business Corporation Act (RMBCA)?

1984

If a corporation violates a corporate officer's employment agreement, what cause of action will the officer have?

A breach of contract action

What does the duty of loyalty mean for directors and officers of a corporation?

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

What is the term for a shareholder who controls fewer than one-half of the outstanding shares of a corporation?

A minority shareholder

Which of the following are correct regarding shareholder's inspection rights?

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

Which of the following is a document that is given to shareholders to indicate the number of shares owned in a corporation?

A stock certificate

Within a corporation, who has fiduciary duties?

All individuals within the corporation

What is the term used when a director or officer makes decisions that benefit a company other than the corporation they serve?

Business self-dealing

The business judgment rule is based on what legal authority?

Common law

Which of the following are reasons due to which shareholders could dissolve a corporation under the RMBCA? (Check all that apply.)

Corporate assets are being wasted or used improperly. The directors are acting in illegal, oppressive, or fraudulent ways. The directors are deadlocked in managerial decisions and harming the corporation.

What is the term for individuals hired by the board of directors to run the day-to-day business of a corporation?

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?

Cumulative voting

Which of the following ensures that the minority shareholders of a company have a voice in electing the board of directors?

Cumulative voting

Affiliated directors

Directors who have business contacts with the corporation.

Unaffiliated directors

Directors who have no previous business connections with the corporation

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.

Due Care

All individuals within a corporation have specific legal responsibilities called

Fiduciary Duty

What is the term for individuals who serve on the board of directors and are also officers or employees of a corporation?

Inside Directors

To make informed decisions, directors of corporations are allowed the right to: _____.

Inspect and have access to every aspect of the corporation.

Which of the following is correct regarding the business judgment rule?

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

Which of the following is correct regarding cumulative voting?

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

What type of stocks do shareholders purchase from the corporation at fair market value?

Non-par stocks

What groups of individuals in a corporation attempt to ensure that the corporation survives? (Check all that apply.)

Officers and Directors

What are the major groups of individuals within a corporation? (Check all that apply.)

Officers, Shareholders, and Directors

What is the term used when a majority shareholder in a closely held corporation does not exercise care and loyalty in selling his or her shares?

Oppressive conduct

Which of the following is not a major group of individuals within a corporation?

Partners

Which of the following refers to the rights current shareholders have that give them preference in purchasing a new issue of stock?

Preemptive

______ mean that current shareholders in a corporation have preference in purchasing a new issue of stock.

Preemptive rights

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

What is the term for an authorization that allows a third party to attend and vote in the place of a shareholder?

Proxy

Shareholders are ______ responsible for the daily management of the corporation, but they elect the directors who are.

Reasonable ad Informed

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?

Responsible person

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?

Right of first refusal

What is the term for an agreement where shareholders agree to vote on a singular issue together?

Shareholder voting agreement

Regarding the three major groups of individuals within a company, which of the following groups wants to raise the value of their company's stock?

Shareholders

Which of the following often meet once per year, but can meet more often if necessary?

Shareholders

Identify a corporate behavior that gives the shareholders of a corporation the legal right to initiate dissolution under Section 14.30 of RMBCA.

Shareholders are deadlocked and cannot elect directors.

Which of the following refers to documents that shareholders receive if they have preemptive rights and there is going to be a new issue of stock by the corporation?

Stock warrants

When a corporation faces an important decision, who will meet to decide what course of action the corporation will take?

The board of directors

Which of the following can specify the number of corporate directors?

The corporate bylaws

Suppose that a corporate director is sued. According to the theory of indemnification, who will assume the cost and liability for the legal defense of the director?

The corporation

What is the penalty for a director or an officer breaching the duty of loyalty?

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

What is the term for the type of care a director or an officer must exercise when making decisions for the corporation?

The fiduciary duty of care

What must occur for a shareholder to inspect the records and books of a corporation? (Check all that apply.)

The shareholder must ask in advance. The shareholder must have a proper purpose.

With a voting trust, who is responsible for voting the shares of the trust?

The trustee

How are directors of a corporate board typically chosen?

They are elected by a majority vote of shareholders.

Which of the following is correct regarding stock warrants?

They are often traded publicly on securities exchanges.

Which of the following is correct regarding shareholder voting agreements?

They are usually legally enforceable.

Which of the following is correct regarding the shareholders of a corporation?

They own the corporation through the purchase of stock.

What type of corporate documents can shareholders be denied the right to inspect?

Trade secrets

Into what categories are outside directors divided?

Unaffiliated directors and Affiliated directors

How are directors of a corporate board typically chosen?

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

Shareholders have a right to ______ from the directors.

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

Officers act as ______ of a corporation.

agents

When directors or officers violate their duty of loyalty, they: ______.

are self-dealing

All directors have a right to: ______.

compensation

Corporate directors have a right to ______ for their work with the corporation.

compensation

In most states, shares may be uncertificated, meaning that the: ______.

corporation does not issue physical stock certificates

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 the: ______.

decision had any rational business purpose

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.

derivative

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

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

directors

The corporate articles or bylaws specify the number of corporate ______ within a company.

directors

Typically, shareholders vote to elect: ______.

directors

If a corporate transaction is expected to personally benefit an individual officer or director, that person has a duty to:______. (Check all that apply.)

disclose any conflict of interest and abstain from voting on the issue

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:______.

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

Corporate officers are technically employees of a corporation, so their rights are defined by ______ drawn up by the board of directors or the incorporators.

employment contracts

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

false

To protect shareholders, directors and officers have a ______, which puts the corporation's interest above their own when making business decisions.

fiduciary duty of loyalty

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.

first refusal

Under the business judgment rule, directors and officers will not be held liable for their actions as long as they acted in: ______.

good faith

Directors have a right to ______; in other words, they can be reimbursed for any legal fees incurred in lawsuits against them.

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 an: ______.

inside director

Under the business ______ rule, directors or officers will not be held ______ if they acted in ______ in their decisions.

judgment; liable; good faith

Almost all individuals within a corporation have ______ duties to it, so they can be held liable for harming the business by violating these duties.

legal fiduciary

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

majority shareholder

In a closely held corporation, ______ conduct occurs when a majority shareholder breaches his or her fiduciary duty to act with care and loyalty when selling corporate stock.

oppressive

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

par-value shares

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.

responsible person

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

The purchasing of ______ makes a shareholder an owner of a corporation.

stock

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

stock certificate

Decisions can be made that will personally benefit one director or officer as long as: ______. (Check all that apply.)

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

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

true

When shares are issued without a stock certificate, they are called: ______ shares.

uncertificated

An individual shareholder can enter a voting trust by transferring his or her share titles to a trustee in exchange for a ______.

voting trust certificate

Stock issued below its fair market value is called ______ stock.

watered

Stock that is issued below its fair market value is known as: ______ stock.

watered