Chapter 35

The recent reforms in shareholder voting rights and director election requirements have led to a great deal of turnover of corporate directors.

False

Under SEC regulations, both privately held and publicly traded companies must make certain disclosures to shareholders.

False

Minority shareholders have no right to overturn an ordinary business transaction between the corporation and a controlling shareholder.

False

Controlling shareholders have no fiduciary responsibility to minority shareholders.

False

What is an inside director?

A member of the board of directors who is also an employee of the corporation

Ev-R-Green Co., a private corporation, decides to sell substantially all of the company's assets. Under the Model Act and many state statutes

Ev-R-Green must buy back, at fair value, the stock of any shareholders who object to the decision.

A derivative lawsuit is filed by a shareholder of the corporation if his or her own rights have been harmed.

False

A proxy is a vote that is mailed in, like an absentee ballot.

False

Alfrieda purchased an ownership interest in a corporation. This gives her the right to use the equipment owned by the corporation, as long as her usage does not interfere with the normal operation of the business.

False

Companies can avoid providing the extensive disclosures required for proxy solicitations by choosing not to solicit proxies.

False

For publicly traded companies, independent directors must comprise which of the following?

the entire audit committee, a majority of the board, and the entire nominating committee

A public company instituted a clawback policy. What does this mean?

The company can require the CEO and CFO to reimburse the company for any bonus or profits they recieved from selling company stock within a year of the release of flawed financials.

In which of the following situations would a shareholder be entitled to sue the company directly?

The company fails to hold an annual meeting for three years, and the company fails to disclose executive compensation as required by the SEC

A corporation is required to have at least one class of stock with voting rights.

True

Although not required to solicit proxies, nearly all corporations do because it is the only practical way to obtain a quorum needed to make shareholder votes at meetings effective.

True

Because making a demand to the board of directors for a derivative suit will almost always fail in practice, shareholders must realistically be able to prove that demand is not required in order to recover for wrongs committed against the corporation.

True

In a derivative lawsuit, any proceeds awarded by the court must be paid to the corporation, not the shareholders themselves.

True

In reality, the officers of the large corporations have a great deal of influence on who will be nominated and elected as directors.

True

Minority shareholders have the right to overturn ordinary business transactions between the corporation and a controlling shareholder unless the corporation can show that the transaction is fair to the minority shareholders.

True

The NYSE and NASDAQ both require that the members of the nominating committee be independent directors who are less likely to simply go along with whatever the CEO wants.

True

Under both state and federal law, a shareholder can generally revoke a proxy at any time.

True

Kian is the chief financial officer of Yonkka, Inc. He is also a member of Yonkka's board of directors. Kian is

an inside director

A Special Litigation Committee is usually comprised of

at least 2 independent directors

Meredith, a shareholder in Quarto, Inc., notified Quarto's board of directors that the corporation had been wronged and asked the board to bring a lawsuit in the corporation's name. In response to Meredith's demand, the board

can do any of the above (can reject Meredith's demand or simply fail to respond, can file suit on behalf of the corporation, can appoint a Special Litigation Committee)

Lucy owns 10 shares of stock in Quamba, Inc. Lucy wishes to place a proposal in a company's proxy statement to be voted on at the shareholders' meeting. Pursuant to the SEC rules, before Lucy is allowed to place her proposal on the proxy statement she must

have owned continuously for one year at least one percent of the company or $2,000 or more of the stock.

Charles owns 1,000 shares of stock in Temperan, Inc. Charles wants to obtain corporate records including the corporation's minute book and accounting records. Under the Model Act, Charles is entitled to this information if he requests it in good faith and

he has a proper purpose

Shareholder proposals on the company proxy statement

historically have been rarely approved.

Veritas, Inc. is planning its annual shareholder meeting on June 15. The company

must send notices to everyone who owns stock on the "record date," which can be no more than 70 days before the meeting.

Before filing a derivative lawsuit, shareholders must

notify the board that the corporation has been wronged and ask the board to bring suit in the name of the corporation directly.

A corporation must obtain shareholder approval before the company

sells off a major portion of its business to another company.

The proceeds, if any, of a derivative lawsuit go to

the corporation

All of the following are shareholder rights EXCEPT

the right to manage the firm (vs. the right to vote, the right to dissent, the right to information)

Today the vast majority of corporate stock is held by institutional investors.

true

Luella just purchased 5 shares of common stock in TriColor, Inc. for $250. Luella has the right to

vote to elect directors