Chapter 21

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

a. Duty of Loyalty b. Duty of Care

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. preferred stock d. bonds

a. common stock

In the late 1960s, a shareholder of the company that owned the Chicago Cubs baseball team sued the company because the directors refused to install lights in Wrigley Field. The court decided that the directors a) had not acted with any rational purpose and were liable to its shareholders for damages caused by their actions. b) had the right to make decisions for the team without any concern for the desires of the shareholders. c) had a rational purpose for not installing lights and were not liable for doing anything improper. d) were not protected by the business judgment rule.

c) had a rational purpose for not installing lights and were not liable for doing anything improper.

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 a) he has a proper purpose. b) he is a controlling shareholder. c) he owns at least 1 percent of the company or $2,000 of stock. d) he is an employee of Temperan

a) he has a proper purpose.

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

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

The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance their expansion plans. The executives a) can sell as many shares as the market will bear. b) cannot sell that many shares unless they were authorized initially in the corporate charter. c) can sell the shares only if the shares have a par value which is close to the current market price. d) are limited by the number of shares authorized in the corporate charter, but this number can be increased by amending the charter and paying a fee.

d) are limited by the number of shares authorized in the corporate charter, but this number can be increased by amending the charter and paying a fee.

Sara decided to incorporate her business under the name Gomo, Inc. Before Gomo was incorporated, Sara signed a contract in the name of Gomo, Inc. to lease a store front. Sara did not tell the other party that Gomo was not yet formed. Sara is personally liable on the lease. True False

True Promoters are personally liable for contracts they sign before the corporation is formed unless the corporation adopts the contract and the third party agrees to a novation or it is clear that the parties to the contract did not intend the promoter to be liable.

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

a. The election of the board of directors b. The adoption of corporate bylaws

For the business judgment rule to apply, the manager must a) prove he or she was aware of the decision being made. b) be trying to resolve a conflict of interest. c) have exercised extraordinary care in resolving the situation. d) have acted in the best interests of the corporation.

d) have acted in the best interests of the corporation.

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

a. the charter (also called the articles of incorporation) d. the bylaws

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

b. dividend.

Oil Co. was a controlling shareholder of Pogo, a company that drilled for oil and gas in the Gulf of Mexico. When some additional leases became available, Oil Co. purchased all of them for itself. How could Oil Co. avoid liability? I. By first offering the leases to Pogo's board of directors II. By first offering the leases to Pogo's other shareholders III. By proving that Pogo could not afford to pay for the additional leases a. I b. II c. III d. Either I or II e. I, II, or III

c. III

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

c. a foreign corporation.

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

a. making a full disclosure of potential conflicts of interest

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

b. at regular meetings. c. at special meetings.

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

c. in good faith and for a proper purpose.

A business corporation can be incorporated under either state law or federal law. True False

False

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

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

A public company instituted a clawback policy. What does this mean? a) At least once every three years, companies must take a nonbinding 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.

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

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

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

d. Articles of Incorporation

A corporate stockholder is entitled to which of the following rights? a. Elect officers b. Receive annual dividends c. Approve dissolution d. Prevent corporate borrowing

b. Receive annual dividends

If a manager violates the business judgment rule, which of the following answers will not protect him? a. The disinterested members of the board approved the transaction. b. The transaction was of minor importance to the company. c. The disinterested shareholders approved the transaction. d. The transaction was entirely fair to the corporation.

b. The transaction was of minor importance to the company.

The president of R. Hoe & Co., Inc., refused to call a special meeting of the shareholders even though 55 percent of them requested it. One purpose of the meeting was to reinstate the former president. Do shareholders have the right to make these two requests? a. Yes to both b. No to both c. The shareholders have the right to call a meeting but not to reinstate the president. d. The shareholders have the right to reinstate the president but not to call a meeting.

c. The shareholders have the right to call a meeting but not to reinstate the president.

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

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

CPA QUESTION Generally, a corporation's articles of incorporation must include all of the following except the: a. name of the corporation's registered agent. b. name of each incorporator. c. number of authorized shares. d. quorum requirements.

d. quorum requirements.

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

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

"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 adding 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.

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

a. With the state

The duty of care: a. is not a requirement of the business judgment rule. b. protects directors who make an uninformed decision if it was entirely fair to the company. c. protects a decision that has a rational business purpose, even if the activity was illegal. d. will not protect directors who make a decision that harms the company.

b. protects directors who make an uninformed decision if it was entirely fair to the company.

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

c. the business and affairs of the corporation.