PA Corps
A corporate officer possesses all of the following powers EXCEPT: A Express authority as granted by the board of directors. B Implied authority to do those activities normally implied by the officer's title. C Fiduciary authority to perform any act that the officer reasonably believes to be in the best interests of the corporation. D Apparent authority when the corporation has held out the officer as possessing certain authority thereby inducing others reasonably to believe that the authority exists.
Fiduciary authority to perform any act that the officer reasonably believes to be in the best interests of the corporation. A corporate officer has whatever actual authority is expressly granted by statute, the articles of incorporation, the board, etc. A corporate officer also has implied authority to do those activities normally implied by his title. A corporate officer will also have apparent authority when the corporation holds out the officer as possessing certain authority thereby inducing others reasonably to believe that the authority exists, even if this exceeds the officer's actual authority. An officer does not have broad authority to perform any act he believes to be in the best interests of the corporation.
Under which of the following circumstances would a shareholder most likely be prevented from bringing a derivative action? A Where the shareholder has failed to obtain the approval of a majority of shareholders for the suit. B Where the shareholder has failed to demand that the board of directors enforce the corporation's rights. C Where the shareholder has accused an officer of stealing corporate assets, but the board has determined that pursuing the matter would not be in the corporation's best interests. D Where the shareholder has suffered no economic harm.
In general, a shareholder cannot bring a derivative suit until he has first demanded that the directors enforce the corporation's rights. This requirement may be excused, however, if irreparable injury to the corporation would result. Shareholders are not required to obtain the approval of the other shareholders in order to bring a derivative suit. If directors with no personal interest in a controversy refuse to sue, and their refusal is in good faith and arguably warranted by legitimate business considerations, the court may dismiss the derivative suit. There is no requirement that the shareholders bringing the action have suffered harm.
Compensation of corporate officers that is clearly excessive when compared to the services rendered by the officers may be permissible if approved by: A All of the corporation's shareholders. B All of the corporation's directors. C A majority of the corporation's shareholders. D A majority of the corporation's disinterested directors.
All of the corporation's shareholders. Although compensation of corporate officers and directors must generally be fair and reasonable, excessive compensation can be approved by unanimous shareholder action if no creditor of the corporation is prejudiced. Excessive compensation cannot be approved by the directors, or by a mere majority of shareholders.
A corporation's board of directors is sued over an action taken at a board meeting, at which Director X was present. The action was approved by a majority of the board. Under which of the following circumstances is Director X most likely liable for the action? A Director X did not vote for the action and dissented from the action during the meeting, which is reflected in the minutes of the meeting. B Director X reluctantly voted for the action, but also registered his dissent during the meeting, which is reflected in the minutes of the meeting. C Director X said nothing during the meeting, but filed a written dissent with the secretary of the meeting before the meeting was adjourned. D Director X said nothing during the meeting, but sent a written dissent to the secretary immediately after the meeting was adjourned.
B A director who votes for or assents to certain corporate actions does not have the right to dissent and will be liable for those actions. A director who is present at a meeting of the board is presumed to have assented to an action unless: (i) his dissent is entered in the meeting's minutes; (ii) he files a written dissent with the secretary of the meeting prior to its adjournment; or (iii) he transmits his written dissent to the secretary immediately after the meeting is adjourned.
A corporation buys land from one of its directors. In which of the following situations would the transaction most likely be invalidated as a breach of the duty of loyalty? A The details of the transaction were disclosed to the corporation's board, and the transaction was approved by a majority of the disinterested members of the board. B The details of the transaction were disclosed to the corporation's shareholders, and the transaction was approved by owners of a majority of shares entitled to vote. C The details of the transaction were disclosed to the corporation's officers, and the transaction was approved by the CEO or similar officer with final authority for such transactions. D The transaction was fair to the corporation at the time it was approved.
C Within the duty of loyalty, there is no exception for transactions that were disclosed to and approved by the corporation's officers. Although transactions between a director and a corporation may be set aside for violations of the duty of loyalty, a transaction in which a director has a personal interest cannot be set aside if: (i) the material facts of the transaction were disclosed to or known by the board of directors and the board authorized the transaction by an affirmative vote of the majority of the disinterested directors; (ii) the material facts of the transaction were disclosed to or known by a majority of the shares entitled to vote on the action and they vote in good faith to approve the transaction; or (iii) the transaction was fair to the corporation at the time it was approved or adopted.
Under the Business Corporations Law, which of the following limitations may a corporation's articles of incorporation or bylaws place on a shareholder's right to inspect corporate records?
No such limitations are permitted. The right of a shareholder to inspect corporate records cannot be limited by a corporation's articles of incorporation or bylaws. Under the Business Corporations Law, a shareholder generally has the right to inspect the corporation's books, papers, accounting records, and other records. If the corporation refuses to allow inspection, the shareholder may apply to the court for an order to compel inspection. The court has discretion to refuse or limit an inspection.
Which of the following would constitute valid notice of a shareholders' meeting? A Notice sent to the shareholders by a phone message two days before the meeting. B Notice sent to the shareholders by first class mail four days before the meeting. C Notice sent to the shareholders by bulk mail six days before the meeting. D Notice sent to the shareholders by e-mail eight days before the meeting.
Notice sent to the shareholders by e-mail eight days before the meeting. Notice sent to the shareholders by e-mail eight days before the meeting would constitute valid notice of a shareholders' meeting. Generally, notice must be given at least five days prior to a shareholders' meeting. However, if notice is to be given by bulk mail, it must be sent at least 20 days prior to the meeting. E-mail is an acceptable form of notice, when the notice is sent to an e-mail address that is supplied to the corporation for purposes of notice.
The board of directors of a corporation may remove one or more directors:
Only with cause, although this right may be limited by the corporation's bylaws. Unless the corporation's bylaws provide otherwise, the board of directors may remove a director for cause. Causes that can serve as grounds for removal include: (i) judicially declared mental incapacity; (ii) conviction of a crime punishable by imprisonment of more than one year; and (iii) failure to attend board meetings.
Which of the following statements regarding the general characteristics of a corporation is true? A A corporation must be dissolved upon completion of its corporate purpose. B A shareholder is required to obtain the consent of the holders of a majority of the corporation's shares before transferring shares in a corporation to a third party. C Shareholders are responsible for the management of a corporation. D Shareholders are generally not liable for corporate debts.
Shareholders are generally not liable for corporate debts. Individual shareholders are not normally liable for corporate debts or obligations. A corporation may have perpetual existence. Corporate ownership is normally freely transferable. Ownership (by shareholders) and management (by directors and officers) of corporations are generally separate.
Which of the following is true regarding restrictions on the transfer of stock in a corporation? A A requirement that stock must first be offered for sale to the corporation before it is offered to third parties would likely be void. B Stock transfer restrictions are disfavored under Pennsylvania law. C An outright prohibition against transferring stock may be upheld under Pennsylvania law under certain circumstances. D Shareholders may not agree to restrict the transferability of stock.
Stock transfer restrictions are disfavored under Pennsylvania law. Although stock transfer restrictions are disfavored under Pennsylvania law, shareholders may agree to restrict the transferability of stock, as long as those restrictions are reasonable. A requirement that shareholders offer to sell stock to the corporation or to other shareholders before offering to sell to third parties may be upheld. An outright prohibition on transfers is unreasonable and therefore void.
A corporation undergoes a merger that fundamentally alters its business. Under which of these circumstances may a shareholder require the corporation to purchase her shares for their fair value?
The corporation has not requested a judicial valuation for the shares. A shareholder may require purchase of her shares if the corporation has not requested a judicial valuation for the shares. Under certain circumstances, following a merger (or other fundamental change) a shareholder may seek judicial appraisal of her shares and require the corporation to purchase the shares from her. The corporation and shareholder may agree on a fair price, or the corporation may request judicial appraisal. If the corporation does not request appraisal, the shareholder may do so. A shareholder is not entitled to have the corporation purchase her shares if, among other things: (i) the corporation is listed on a national securities exchange; (ii) she voted for the merger; or (iii) she was not entitled to vote on the merger.
Which of the following scenarios is most likely a breach of a director's duty of loyalty to a corporation? A The director knew that the offices of the corporation were located in a flood zone and failed to obtain appropriate insurance. B The director stole funds from a third party and used them to support the corporation. C The director also sits on the board of a different corporation. D The director uses inside information to decide when to purchase stock of the corporation.
The director uses inside information to decide when to purchase stock of the corporation. Use of inside information for personal transactions in the corporation's securities is likely a breach of the director's duty of loyalty to the corporation. The duty of loyalty provides that a director cannot profit at the corporation's expense. Failing to obtain necessary insurance, or performing criminal acts to support the corporation are likely breaches of the duty of care. A director is permitted to serve as a director of other corporations, though a breach of the duty of loyalty may arise if the director serves a competing corporation.
A promoter intending to create a corporation enters into a contract with a third party on behalf of the corporation he is intending to create. Once the corporation is legally formed:
The promoter remains obligated on the contract, and the corporation assumes no liability. Promoters that enter into agreements with third parties to benefit unformed corporations are generally personally liable on the agreements. This liability continues after formation, unless there is a subsequent agreement among the parties to extinguish the promoter's liability. The corporation does not become liable until and unless it adopts the contract.
Which of these alone is NOT an adequate reason for upholding a transaction in which a director has a conflicting personal interest? response - incorrect A The transaction was fair to the corporation at the time it was approved or adopted. B The transaction will result in any tangible or intangible benefit to the corporation. C The material facts of the transaction were disclosed to or known by a majority of the shares entitled to vote on the action, and they voted in good faith to approve the transaction. D The material facts of the transaction were disclosed to or known by the board of directors, and the board authorized the transaction by an affirmative vote of the majority of the disinterested directors, even if less than a quorum.
The transaction will result in any tangible or intangible benefit to the corporation. A conflicting interest transaction can be upheld if: (i) the material facts of the transaction were disclosed to or known by the board of directors and the board authorized the transaction by an affirmative vote of the majority of the disinterested directors, even if less than a quorum; (ii) the material facts of the transaction were disclosed to or known by a majority of the shares entitled to vote on the action and they voted in good faith to approve the transaction; or (iii) the transaction was fair to the corporation at the time it was approved or adopted. Any tangible or intangible property or benefit to the corporation is not the standard that is used to judge a conflicting interest transaction. A transaction might offer some benefit to a corporation, but still be unfair at the time of the commitment.
A transferor corporation sells some of its assets to a transferee corporation. Under which of the following circumstances is the transferee corporation generally protected from assuming the transferor corporation's liabilities?
Where the sale involved substantially all of the transferor's assets. In general, when a corporation sells substantially all of its assets to another corporation, the transferee is not liable for the liabilities of the transferor. However, there are a number of exceptions to this rule, including where: (i) the purchaser has impliedly agreed to assume the obligations; (ii) the purchaser is a continuation of the seller; or (iii) the transfer was not made for adequate consideration and provisions were not made for the transferor's creditors.
