BLAW Chapter 44

Under the Model Business Corporation Act (MBCA), dissenters' rights apply only if the shareholders' shares are not traded on a national securities exchange.

False

Under the Model Nonprofit Corporation Act (MNCA), members have an absolute right to inspect and copy a list of the members.

False

Minutes of the meetings are usually kept by the board of directors.

False

Shareholders are owners as well as managers of a corporation.

False

Shareholders have a right of full participation in board of directors' meetings.

False

Shareholders who hold at least _____ percent of the shares entitled to vote at the meeting may call a special meeting. A. 10 B. 50 C. 30 D. 25

A. 10

Which of the following corporate decisions requires an approval vote of the shareholders? A. Merger B. Share trading C. Purchasing land for office D. Joint venture

A. Merger

For which of the following would a shareholder derivative action be appropriate? A. The shareholder alleges that the board of directors has imprudently managed the corporation. B. The shareholder has been refused a request that his/her accountant be permitted to look at the corporate accounting records. C. The shareholder alleges that the corporation has violated the shareholder's preemptive right. D. The shareholder alleges that the corporation has been paying dividends to a previous shareholder from whom the shareholder purchased his/her shares.

A. The shareholder alleges that the board of directors has imprudently managed the corporation.

Some courts have held that certain shareholders are fiduciaries of each other. These are shareholders of: A. close corporations. B. open corporations. C. publicly traded corporations. D. nonprofit corporations.

A. close corporations.

Karen is attending the annual general meeting of shareholders of Express Corporation. Six directors are going to be elected from seventeen nominees during the meeting through straight voting. Karen owns 372 shares of Express. What is the maximum number of nominees Karen can vote for? A. 1 B. 6 C. 10 D. 17

B. 6

According to the Model Nonprofit Corporation Act (MNCA), which of the following nonprofit corporations can abolish or limit the right of a member to inspect corporate records? A. A tennis club B. A church C. A golf country club D. A cooperative grocery store

B. A church

Catz Corporation has two majority shareholders and five minority shareholders. The five minority shareholders created a voting trust in November 2011 to control Catz through the concentration of shareholder voting power in the voting trustees. Under the Model Business Corporation Act (MBCA), this voting trust will be valid till: A. September 2014. B. October 2021. C. September 2026. D. October 2016.

B. October 2021.

A corporation's decision to issue a dividend, and the size of that dividend, is made by the: A. shareholders. B. board of directors. C. officers of the corporation. D. creditors of the corporation.

B. board of directors

When a majority of the directors of a corporation are not independent and the shareholders bring a derivative action against the directors, the burden of proving that the Zapata test has been met lies on the: A. company secretary. B. secretary of state. C. corporation. D. shareholders.

C. corporation.

Normally, how long is the ordinary proxy valid for voting under the Model Business Corporation Act (MBCA)? A. 9 months B. 1 year C. 6 months D. 11 months

D. 11 months

The LexCon Corporation takes over the Zebra Corporation. By applying which principle will LexCon become the owner of all the shares of Zebra Corporation? A. Merger B. Acquisition C. Share trading D. Share exchange

D. Share exchange

Under what circumstances can a shareholder have liability for corporate debts?

Normally, shareholders enjoy limited liability for corporate debts. They are only liable up to their capital contribution. However, in some instances, shareholders have excessive liability. For example, if the corporation was defectively formed or if the creditor successfully pierces the corporate veil, a shareholder may lose limited liability. In addition, shareholders may have liability for unpaid wages owed to employees of the corporation.

Atria Corporation wishes to dissolve. How can it do so?

The directors of Atria Corporation must adopt a dissolution resolution, and a majority of the shares outstanding must be cast in favor of dissolution at a shareholders' meeting. For this voluntary dissolution to be effective, Atria must then submit articles of dissolution to the secretary of state. The dissolution is effective when the articles are filed by the secretary of state.

What are the various ways through which a corporation can be dissolved?

The various ways through which a corporation can be dissolved are: • Voluntary dissolution: This kind of dissolution happens through the action of a corporation's directors and shareholders. Voluntary dissolution becomes effective once the corporation submits the articles of dissolution with the secretary of state and the articles of dissolution are filed by the secretary of state. • Administrative dissolution: It requires that the secretary of state give written notice to the corporation of the grounds for dissolution. If, within 60 days, the corporation has not corrected the default or demonstrated that the default does not exist, the secretary dissolves the corporation by signing a certificate of dissolution. • Judicial dissolution: The shareholders, secretary of state, or the creditors of a corporation may ask a court to order the involuntary dissolution of a corporation.

A corporation may have several classes of common shares with unequal voting rights

True

A corporation may not declare and distribute dividends unless it has excess solvency.

True

A corporation's sale of substantially all of the assets of the business must be approved by its shareholders.

True

A person who purports to act on behalf of a terminated corporation has the liability of a person acting for a corporation prior to its incorporation.

True

Shareholders may bring a suit on behalf of the corporation against the board of directors. Such a suit is generally called a(n) _____ suit. A. class action B. derivative action C. shareholder action D. injunction

B. derivative action

Repurchase of _____ shares by a corporation is involuntary on the shareholder's part. A. split B. fractional C. outstanding D. preferred

B. fractional

MacTech Corporation is a subsidiary of Clickon Corporation, which owns 90 percent shares of MacTech. The management of Clickon is not happy with the way MacTech is being managed. They believe that MacTech is losing out a huge chunk of potential business to rivals due to mismanagement. As a solution, the board of directors of Clickon approves a merger between Clickon and MacTech and they send a copy of the merger plan to MacTech's shareholders. This form of merger is called a(n): A. semi-merger. B. short-form merger. C. incomplete merger. D. half-merger.

B. short-form merger.

Bev Stratton owns 100 shares of Maxom Company, which are traded on the New York Stock Exchange. Maxom's board of directors has approved a merger of Maxom with Vert Company. Bev believes the merger is economically unjustified and intends to seek her dissenters' right. What must Bev do to enforce her dissenters' right?

Bev must notify Maxom of her intent to seek her dissenters' right and vote against or abstain from voting on the merger. Next, Maxom must inform her on how to demand payment (fair value of her shares) after which she can demand payment from Maxom. Then, if Bev and Maxom can negotiate a mutually acceptable price, she will get that payment from Maxom. Otherwise, a court will determine a fair value of her shares and order Maxom to pay that amount to Bev.

_____ voting allows a majority shareholder to elect the entire board of directors. A. Preference B. Cumulative C. Ranked D. Straight

D. Straight

A dissenting shareholder seeking payment of the fair value of his/her shares (dissenters' rights) must have the right to vote on the action to which he/she objects. In which of the following cases does a shareholder have dissenters' rights despite his/her lack of voting power? A. Short-form mergers B. Significant amendments of the articles of incorporation C. Share exchanges D. Sales of all the assets

A. Short-form mergers

Which of the following is true about mergers? A. The shareholders of the surviving corporation must approve the merger. B. The MBCA does not recognize mergers done solely for the profit motive. C. A merger may be invalidated if it freezes out minority shareholders. D. Shareholders of the acquired corporation must be paid a premium on their shares.

A. The shareholders of the surviving corporation must approve the merger.

Tom, Brady, and Alex are members of a golf country club (a nonprofit corporation). Tom holds 5 percent of voting power, Brady holds 8 percent of voting power, and Alex holds 1 percent of voting power in the club. They would like to call a special meeting of the club to discuss renovation of some of its facilities. Who amongst them can call such a meeting? A. Brady and Alex B. Alex and Tom C. Alex, Tom, and Brady D. Tom and Brady

D. Tom and Brady

A shareholder's preemptive right allows him to: A. increase his proportionate voting power. B. maintain his dissenters' right. C. increase the value of his shares. D. maintain his proportionate share of dividends.

D. maintain his proportionate share of dividends.

Under the Model Business Corporation Act (MBCA), shareholders have a qualified but not absolute right to inspect: A. the articles of incorporation and bylaws. B. an alphabetical listing of the shareholders entitled to notice of a meeting. C. the number of shares owned by the shareholders. D. shareholder minutes more than three years old.

D. shareholder minutes more than three years old

The typical dissolution of a corporation requires approval of the: A. board of directors. B. creditors of the company. C. merger company. D. shareholders.

D. shareholders

Provided that most of the directors of a corporation are independent, if shareholders bring a derivative action against the directors, the burden of proving that bringing the action is in the best interest of the corporation lies on the: A. company secretary. B. secretary of state. C. board of directors. D. shareholders.

D. shareholders.

When the board of directors of a parent corporation approves its merger with its subsidiary and sends a copy of the merger plan to the subsidiary's shareholders, such a merger is called a(n): A. semi-merger. B. half-merger. C. incomplete merger. D. short-form merger.

D. short-form merger

Gnossis Company has 15,000 outstanding common shares and a total equity of $250,000. Gnossis has an additional 30,000 common shares that are authorized, but not issued or outstanding. Gnossis has $225,000 in excess liquidity that it does not need to pay its currently maturing obligations. Gnossis has paid all currently due dividends to preferred shareholders. What is the maximum share dividend that Gnossis may make to its common shareholders?

Gnossis may give its common shareholders 30,000 shares or a 200 percent share dividend. Under the Model Business Corporation Act (MBCA), a corporation may affect a share dividend merely by issuing additional authorized shares.

Under the Model Nonprofit Corporation Act (MNCA), a quorum of 10 percent of the votes entitled to be cast on a matter is required for members to proceed further in a meeting.

True

The formula for determining the minimum number of shares required to elect a desired number of directors under cumulative voting is _____ where X = number of shares needed to elect the desired number of directors, S = total number of shares voting at the shareholders' meeting, R = number of director representatives desired, and D = total number of directors to be elected at the meeting. A. X - 1 = (S x R)/(D + 1) B. X = (S x R)/(D - 1) C. X - 1 = (S x R)/(D - 1) D. X = (S x R)/(D + 1)

A. X - 1 = (S x R)/(D + 1)

Amanda is a shareholder of Abec Corporation. She received an illegal dividend from Abec. Must she return that dividend to Abec? A. Yes, but only if she was aware that the dividend was illegal. B. Yes, regardless of whether she was aware that the dividend was illegal. C. No, once a dividend has been distributed, it may not be recalled. D. No, a shareholder has no liability regarding distributions from the corporation.

A. Yes, but only if she was aware that the dividend was illegal.

A voting trust: A. must be available for inspection by shareholders at the corporation's offices. B. need not be made public and may be kept secret from other shareholders. C. is limited in duration to 20 years, but may be extended for another 10-year period. D. will be specifically enforced by the courts if a shareholder refuses to vote as agreed.

A. must be available for inspection by shareholders at the corporation's offices.

The Model Business Corporation Act (MBCA) provides that the _____ right of a shareholder does not exist except to the extent provided by the articles of incorporation. A. preemptive B. information C. dissenters' D. liquidation

A. preemptive

A _____ dividend may be revoked by the board of directors after it has been declared. A. share B. cash C. property D. scrip

A. share

Under the Model Business Corporation Act (MBCA), notice of a(n) _____ meeting of shareholders must list the purpose of the meeting. A. special B. quarterly C. general D. annual

A. special

Shareholders of a corporation brought a class action against the president, alleging that they missed out on dividends and an increase in the value of their shares because the president misappropriated funds of the corporation. This suit was successful and the president paid $10 million in damages. This money will go to: A. the shareholders who brought the class action. B. the treasury of the corporation. C. the state, as a fine. D. the federal government, as a fine.

A. the shareholders who brought the class action.

Camm Corp. has 10,000,000 common shares outstanding. Its four directors are elected by cumulative voting. To elect one director, a shareholder must own at least: A. 5,000,001 shares. B. 2,000,001 shares. C. 2,500,001 shares. D. 5,000,000 shares

B. 2,000,001 shares.

Under the Model Business Corporation Act (MBCA), a corporation that retains at least _____ percent of its business activity and either its income or revenue has not disposed of substantially all its assets. A. 10 B. 25 C. 50 D. 45

B. 25

After dissolution of a corporation and liquidation of its assets, proceeds of the sale of assets is distributed in the following order: A. preferred shareholders, common shareholders, creditors. B. creditors, preferred shareholders, common shareholders. C. common shareholders, creditors, preferred shareholders. D. preferred shareholders, creditors, common shareholders.

B. creditors, preferred shareholders, common shareholders.

Klingon Corporation has only one class of shares, its common shares. Klingon has assets of $200,000 and liabilities of $160,000. It has $40,000 of excess liquidity that it does not need to pay currently maturing obligations. What is the maximum property dividend that Klingon may pay to its common shareholders? A. $60,000 B. $10,000 C. $40,000 D. $30,000

C. $40,000

Tracy is attending the annual general meeting of shareholders of Acor Corporation. Seven directors are going to be elected from twenty nominees during the meeting through cumulative voting. One thousand shares will be voted. What is the minimum number of shares that Tracy needs to have to be able to elect three directors? A. 374 B. 375 C. 376 D. 377

C. 376

Which of the following is correct concerning the election of directors? A. Straight voting is the cleanest way to allocate equity ownership of the corporation among shareholders. B. In cumulative voting, each share has one vote for each new director to be elected. C. Cumulative voting can prevent harmful coalitions in close corporations. D. Under straight voting, the voting power of minority shareholders is increased

C. Cumulative voting can prevent harmful coalitions in close corporations.

The Model Business Corporation Act (MBCA) does not recognize: A. mergers. B. acquisitions. C. consolidations. D. joint ventures

C. consolidations

A share split within the same class of shares generally: A. increases the net value of the shares following the split. B. decreases the net value of the shares following the split. C. has no effect on the net value of the shares following the split. D. reduces the capital surplus and increases the number of shares authorized.

C. has no effect on the net value of the shares following the split.

AceCom Corporation issues dividends to its 30 shareholders. Each shareholder is well aware that the corporation will be insolvent and unable to pay its creditors following the dividend distribution. Efone is one such creditor. Under the Model Business Corporation Act (MBCA), primary liability to Efone: A. does not lie with the shareholders because they can never be held liable to creditors of the corporation. B. lies with the shareholders because they received the distribution from the corporation with knowledge of the impending insolvency. C. lies with the directors because they authorized the unlawful distribution of dividends. D. does not lie with the directors because they placed the interests of the shareholders above everything else.

C. lies with the directors because they authorized the unlawful distribution of dividends.

Henry brought a lawsuit against NewAge Inc., claiming that the CEO of NewAge had misappropriated funds last year, as a result of which NewAge ended the year in the red. However, Henry was not a shareholder of NewAge last year and his only motive of buying NewAge shares was to bring this lawsuit in order to gain out-of-court settlements for himself. This kind of lawsuit is known as a: A. double derivative suit. B. derivative action. C. strike suit. D. class action

C. strike suit.

Corporation law authorizes a shareholder to bring a class action on behalf of the corporation and for its benefit.

False

The first corporation is liable for its debt, even after a merger.

False

The per share value of the shares of a minority shareholder of a corporation is greater than the per share value of the shares of a majority shareholder.

False

A shareholder must repay an illegal distribution if he/she had knowledge of the illegality when he/she received the distribution

True

Only those shareholders who sign a shareholder voting agreement are bound by it.

True