BLAW Chap. 5

Stock Certificate

A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation

Inside Director

A person on the board of directors who is also an officer of the corporation

Outside Director

A person who on the board of directors who does not hold a management position at the corporation

Business Judgment Rule

A rule that immunizes corporate management from the liability for actions that result in corporate losses or damages if the actions are undertaken in good faith

Shareholder's Derivative Suit

A suit brought by a shareholder to enforce a corporate cause of action against a third party

Proxy

A written agreement between a stockholder and another under which the stockholder's authorizes the other to vote the stockholder's shares in a certain manner

Voting Trust

An agreement (trust contract) under which legal title to shares of corporate stock is transferred to a trustee who is authorized by the shareholders to vote the shares on their behalf

Darius is a shareholder of Energy Renewable, Inc.). When the directors fail to undertake an action to redress a wrong suffered by the corporation, Darius files a suit on the firm's behalf. Refer to Fact Pattern 5-1A. Any damages recovered by Darius's suit will normally go to a. Energy Renewable. b. Energy Renewable's shareholders. c. Energy Renewable's directors. d. Darius.

a. Energy Renewable.

Kelly transfers shares of stock that she owns in Lone Starz Company to Max. A shareholders' meeting takes place before Max's ownership is entered in Lone Starz's stock book. A vote at the meeting can be cast by

Kelly Only

Quorum

The number of members of a decision making body that must be present before business may be transacted

Stock Warrant

A certificate that grants the owner the option to buy a given number of shares of stick, usually within a set time of period

Preemptive Rights

Rights held by shareholders that entitle them to purchase newly issued shares of a corporations stock, equal in percentage to shares presently held, before the stock is offered to any outside buyers. Preemptive rights enable shareholders to maintain their proportionate ownership and voice in the corporation

Watered Stock

Shares of stock issued by a corporation for which the corporations receives , a payment, less than the fair market value if the shares

A court will dismiss a derivative suit if a majority of the directors or an independent panel determines in good faith that the lawsuit is not in the best interests of the corporation. a. True b. False

a. True

A director who does not hold a management position in the corporation is an outside director. a. True b. False

a. True

Directors cannot use corporate funds or confidential corporate information for personal advantage. a. True b. False

a. True

Normally, a corporate board of directors appoints itself as the first board at the time the corporation is created. a. True b. False

a. True

Shareholders have the power to vote to elect or remove members of the board of directors. a. True b. False

a. True

The board of directors normally can remove a corporate officer at any time with or without cause. a. True b. False

a. True

When shareholders want to change a company policy, they can put their ideas up for a shareholder vote. a. True b. False

a. True

Dionne is an officer of Event Ticketing, Inc. As an officer, with respect to the corporation, Dionne is a. a fiduciary b. a forum c. Proxy

a. a fiduciary

Doyle and Emily are directors of Freshé Bottled Water Corporation. As corporate directors, unless the articles or bylaws provide otherwise, their compensation is set by Freshé's a. board of directors. b. incorporators. c. officers. d. shareholders.

a. board of directors.

Lovey is a shareholder of Made-2-Order Manufacturing Corporation with preemptive rights. With these rights, Lovey can a. buy a prorated share of a new issue of stock before other buyers. b. choose to have Made-2-Order act exclusively in a certain area. c. "preempt" managerial decisions that affect shareholders. d. sell a prorated share of a new issue of stock before other sellers.

a. buy a prorated share of a new issue of stock before other buyers.

Godwin is a director on the board of Health Insurance Corporation. On the receipt of notice of a board meeting, Godwin attends the meeting and takes part in the discussion of business matters and votes on corporate issues. Godwin is entitled to be notified of, and to take part in, these meetings a. under the director's right to participation. b. under the director's right to compensation. c. under the director's right to indemnification. d. only on his own initiative.

a. under the director's right to participation.

Each director present at a meeting of the board of directors has one vote for each outstanding share of corporate stock that he or she holds. a. True b. False

b. False

Shareholders hire the officers and other executive employees. a. True b. False

b. False

Voting rights in a corporation apply only to the election of the firm's board of directors. a. True b. False

b. False

Order Fulfillment, Inc., is a shipping and distribution company. Like most corporations, Order Fulfillment's employees include its a. outside directors. b. officers. c. shareholders. d. inside directors.

b. officers.

Dwayne is a director of Eco Packaging Company. Dwayne's rights, as a director, do not include a right to a. inspection. b. self-dealing. c. participation. d. reimbursement.

b. self-dealing.

Renee is a director of Sharp Focus Lens Corporation. With respect to Sharp Focus, Renee can access the corporation's books and records. Renee has this access under a. the director's right to participation. b. the director's right of inspection. c. the director's right to indemnification. d. the articles of incorporation or corporate bylaws.

b. the director's right of inspection.

Misha and Nguyen are shareholders of Outsourcing Solutions, Inc. Misha's written authorization to Nguyen to vote her shares at a shareholders' meeting is a. a violation of the duty of loyalty. b. a preemptive right. c. a proxy. d. a quorum

c. a proxy.

Brandi is a shareholder of Cloud Servers & Routers Inc. Brandi will be deemed to have a fiduciary duty to Cloud and its minority shareholders if she has a sufficient number of shares to a. constitute watered stock. b. bring a shareholder's derivative suit. c. exercise de facto control. d. assert the business judgment rule

c. exercise de facto control.

Lonny owns one share of stock in McQuik's Smoothies Corporation, as evidenced by a stock certificate. Because stock is intangible personal property, Fiona's ownership of the stock a. cannot exist without a tangible stock certificate. b. cannot exist without the original stock certificate. c. exists independently of the stock certificate. d. cannot be transferred without the stock certificate

c. exists independently of the stock certificate.

Alain is chairman of the board of Barber & Beauty Supply Corporation. Consuela, a consumer, is injured while using a Barber & Beauty product. She sues Barber & Beauty and Alain individually. The corporation may pay Alain's legal fees under a. under the director's right to participation. b. under the director's right to compensation. c. under the director's right to indemnification. d. only on the firm's own initiative.

c. under the director's right to indemnification.

Gannon is an officer for Hawaiian Shirts Corporation. Due to a bad business decision on Gannon's part, the company's sales decrease. Gannon is most likely liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty. d. none of the choices.

d. none of the choices.

Rafi, a director of Super Service Station Corporation, does not attend a board meeting for three years. During that time, Twyla, Super's president, makes improper loans that cost the company $100,000. Rafi is most likely

liable for negligence or mismanagement