Legal and Social Chapter 21

Activist investor

A shareholder with a large block of stock whose goal is to influence management decisions and strategic direction

Inside directors

Members of the board of directors who are also employees of the corporation

Total shareholder return

The percentage increases in stock price appreciation and dividends

Zombie directors

Directors who serve on a board with less than majority support from shareholders

Quorum

How many people or shares must be present for a meeting to count

Adopt

Agree to be bound by the terms of a contract

Manager

Both directors and officers

Record date

Everyone who owns stock on this date is entitled to vote at the shareholders meeting

Case Study: Marchand v. Barnhill

Facts: Issue: Conclusion

Case Study: In re Dole Food Co.

Facts: Issue: 1. Did Murdock pay a fair price for the Dole stock? 2. Were Murdock and Carter liable under the business judgment rule? Conclusion

Case Study: Raul v. Rynd

Facts: Issue: Did the Hercules board violate its fiduciary duty when it implemented the compensation plan? Conclusion:

Q3. A derivative lawsuit is filed by shareholder of the corporation if his or her own rights have been harmed. (T/F)

False

Making demand

When shareholders ask the board of directors to authorize litigation on behalf of the corporation

Q6. The business judgement rule is designed to protect a. only the manager's decision b. both the manager and the manager's decision c. only the manager d. a business from conflict of interest

b. both the manager and the manager's decision

CH4. What documents spell out the powers of a corporation? Choose 2 answers. a. de facto documentation b. the charter (also called the articles of incorporation) c. the bylaws d. certificate of corporate power

b. the charter (also called the articles of incorporation) c. the bylaws

CH6. Which of the following is a duty of both corporate directors and corporate officers? a. working at least forty hours per week for the corporation b. purchasing stock in the company c. making a full disclosure of potential conflicts of interest d. limiting political endorsements to only candidates that the corporation supports

c. making a full disclosure of potential conflicts of interest

Appraisal Rights

If a corporation decides to undertake a fundamental change, the company must buy back at fair value the stock of any shareholders who object

Proxy statement

Information a company provides to shareholders in preparation for the annual meeting

Registered agent

Someone hired by a business to serve as the official presence in the state

Treasury Stock

Stock that a company has sold, but later bought back

Authorized and issued or outstanding

Stock that has been authorized and sold

Authorized and unissued

Stock that has been authorized, but not yet sold

Net returns on invested capital

The company's return on its capital investments, such as plants and equipment, less the opportunity cost of those investments

Minute book

A book that contains a record of a corporation's official actions

Domestic corporation

A corporation is a domestic corporation in the state in which it was formed

Foreign corporation

A corporation operating in a state in which it was not incorporated

Pierce the corporate veil

A court holds shareholders personally liable for the debts of the corporation

Annual report

A document containing detailed financial information that public companies provide to their shareholders

Bylaws

A document that specifies the organizational rules of an organization, such as the date of the annual meeting and the required number of directors

Novation

A new contract

Written consent

A signed document that takes the place of a shareholders or directors meeting

Classes and Series

Categories of stock with different rights

Proxy advisory firms

Companies that advise shareholders on how to vote in corporate elections

Q7. Which state does your textbook cite as being particularly attractive to companies looking to incorporate?

Delaware

Majority voting

Directors must resign if more than half the shares that vote in an uncontested election withhold their vote from them

Independent directors

Members of the board of directors who are not employees of the company and do not have close ties to the CEO; also known as outside directors

Promoter

Someone who organizes a corporation

Incorporator

The person who signs the charter and files it with the secretary of state

Proxy

The person whom a shareholder appoints to vote for her at a meeting of the corporation; also, the document a shareholder signs appointing this substitute voter

Plurality voting

To be elected, a candidate only needs to receive more votes than his opponent, not a majority of the votes cast

6. Officers and directors owe which of the following duties to the corporation? Choose 2 answer choices. a. Duty of Care b. Duty of Loyalty c. Duty of Compensation d. Duty of Good Decisions

a. Duty of Care b. Duty of Loyalty

Q5. A "fundamental change" in a corporation would be illustrated by a. E-prise, Inc. merging with Vitta Corporation b. E-prise electing new members to the board c. Vitta Corporation addint a new product to its product line d. Vitta Corporation setting the date for its annual meeting

a. E-prise, Inc. merging with Vitta Corporation

2. At the first meeting of corporate shareholders, what business is normally conducted? Select 2 answers. a. The adoption of corporate bylaws b. The filing of the articles of incorporation c. Voting on the business name d. The election of the board of directors

a. The adoption of corporate bylaws c. Voting on the business name

1. Where should Articles of Incorporation be filed? a. With the state b. With the federal government c. With the county recorder's office d. Articles of Incorporation are not filed.

a. With the state

5. To meet the standard for the duty of care, a person must: a. act in good faith and with the judgment of an ordinarily prudent person. b. act in good faith and without a mistake. c. act in good faith and with the judgment of a highly skilled person. d. be faithful to the corporation.

a. act in good faith and with the judgment of an ordinarily prudent person.

4. The Board of Directors may conduct business: (Choose 2 answer choices) a. at special meetings. b. at any time. c. privately and outside of meetings called by the corporation. d. at regular meetings.

a. at special meetings. c. privately and outside of meetings called by the corporation.

CH10. Which class of stockholders typically takes the greatest risk, but also has the greatest chance of financial gains? a. common stock b. mutual funds c. bonds d. preferred stock

a. common stock

CH7. Common shareholders have the right to vote on: a. proposals for fundamental changes affecting the company such as mergers or liquidation. b. when to pay dividends. c. price of stock. d. compensation for the officers.

a. proposals for fundamental changes affecting the company such as mergers or liquidation.

3. The board of directors manages: a. the business and affairs of the corporation. b. employees' daily tasks. c. shareholder proxies. d. the day-to-day activities of a corporation.

a. the business and affairs of the corporation.

CH2. Which of the following provisions are typically in a charter for a corporation? Choose 2 answers. a. the intended business purpose of the corporation b. the trade secrets of the corporation c. the name and address of the corporation's agent d. the advertising plan for the corporation

a. the intended business purpose of the corporation c. the name and address of the corporation's agent

CH8. Which of the following are rights of common shareholders? Choose 3 answers. a. transferable ownership b. priority for having debts paid from the liquidating company's assets c. opportunity to inspect corporate books and records d. voting on matters such as election of directors and proposals for mergers or liquidation

a. transferable ownership c. opportunity to inspect corporate books and records d. voting on matters such as election of directors and proposals for mergers or liquidation

CH3. A corporation that is formed in one state but does business in another state is referred to in the second state as: a. a distant corporation. b. a foreign corporation. c. a domestic corporation. d. an alien corporation.

b. a foreign corporation.

CH9. Along with a claim on assets, shareholders may also receive a portion of profits the company pays out in the form of a: a. capital gain. b. dividend. c. proxy. d. reinvestment.

b. dividend.

CH5. The first step in terminating a corporation is: a. paying all debts and outstanding taxes. b. the board of directors adopting a resolution to dissolve the corporation. c. closing all bank accounts. d. the officers winding up business.

b. the board of directors adopting a resolution to dissolve the corporation.

8. Which of the following should be approved by shareholders? Select 2 answers. a. A sale of old computers that the company no longer uses b. A change in employee compensation c. An acquisition of the company by another company d. A dissolution of the corporation

c. An acquisition of the company by another company d. A dissolution of the corporation

Q1. A public company instituted a clawback policy. What does this mean? a. At least once every three years, companies must take a non-binding shareholder vote on the compensation of the five highest-paid executives. b. The company is prohibited from expelling shareholders unless the firm pays a fair price for the minority stock and the expulsion has a legitimate business purpose. c. The company can require the CEO and CFO to reimburse the company for any bonus or profits they received from selling company stock within a year of the release of flawed financials. d. The company has decided that the compensation level of its executives is not in the company's best interests, so it reduces all executive pay levels by a certain percentage.

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

CH1. Which of the following is a requirement for the initial formation of a corporation? a. a board of directors b. an initial stock offering c. a charter d. a minute book

c. a charter

Q8. Carey decided to incorporate her business under the name yStar Inc. Before yStar was incorporated, Carey signed a contract in the name of yStar, Inc. to have some office space remodeled. Which statement is correct? a. yStar is liable on the contract if the contractor knows the corporation does not yet exist b. yStar becomes liable on the contract as soon as it is incorporated c. yStar will be liable on the contract only if the corporation adopts the contract d. yStar is liable on the contract because the contract was signed in its name

c. yStar will be liable on the contract only if the corporation adopts the contract

7. A shareholder has the right to inspect the corporate books, if done: a. to determine voting alliances. b. for any purpose. c. to provide a competitor with an advantage. d. in good faith and for a proper purpose.

d. in good faith and for a proper purpose.

Q2. Which of the following describes the duty of loyalty? a. it requires managers to make decisions they reasonably believe to be the best interest of the corporation b. it requires using care that an ordinarily prudent person would take in a similar situation c. it requires consideration of the interests of the surrounding community d. it prohibits making a decision that benefits the decision-maker at the expense of the corporation

d. it prohibits making a decision that benefits the decision-maker at the expense of the corporation

Q4. At least once every three years, companies must take a nonbinding shareholder vote on the compensation of the five highest-paid executives. This is referred to as

say-on-pay