Chapter 43: Management of Corporations (SmartBook Assignment)

In the context of election of directors in a corporation, __________ voting may give certain classes of shareholders the right to elect a specified number of directors.

class

A shareholder litigation committee is a board committee in a corporation that _________.

consists of disinterested directors

When a director seeks indemnification for a _________ fine, the corporation must establish a third requirement—that the director had no ___________ cause to believe that her conduct was unlawful. (Choose two correct answers)

criminal reasonable

In a corporation, directors are individuals who ____________.

do not have any personal liability for the torts and contracts of the corporation

Directors and officers are in positions of trust; they are entrusted with property belonging to the corporation and with power to act for the corporation because they owe __________ to the corporation.

fiduciary duties

If a director expresses his or her dissent in a board meeting, he or she __________.

is not held liable if the board of directors exceeds its authority or fails to meet its duty of care or loyalty

A court may order a corporation to indemnify a director when ___________.

it determines that the director meets the standard for mandatory indemnification

A true statement about the duty of care is that ___________.

it does not hold directors and officers to the standard of a prudent businessperson

An aspect of staggered terms for directors is that ___________.

it permits continuity of management of a corporation

The right of appraisal permits a shareholder to ___________.

require the corporation to purchase his or her shares at a fair price

In the context of the total fairness test, match the aspects of total fairness (left column) to their descriptions (right column).

Fair dealing > It requires disclosing material information to directors and shareholders and providing an opportunity for negotiation. Fair price > It requires the consideration of all the factors relevant to the value of the shares, except speculative projections.

Directors and officers owe all but ONE of the following fiduciary duties to the corporation. (Choose one correct answers)

The duty to act outside the objectives and powers of the corporation

In a corporation, a(n) _______ committee is directly responsible for the appointment, compensation, and oversight of independent public accountants.

audit

The Sarbanes-Oxley Act requires that all publicly held firms have ________ committees comprising independent directors.

audit

The Model Business Corporation Act (MBCA) permits a corporation to be managed by the __________ which delegates major responsibility for management to committees of the board.

board of directors

Match the directors of an executive committee in a corporation (left column) to their descriptions (right column).

An inside director > He or she devotes substantially full time to the corporation. An outside director > Choice He or she does not have any affiliation with the corporation to devote his or her full time.

True or false: The authority of a corporation's board of directors includes only the general power to manage or direct the corporation in the ordinary course of its business.

False

In the context of election of directors in a corporation, __________ voting permits shareholders to multiply the number of their shares by the number of directors to be elected and to cast the resulting total of votes for one or more directors.

cumulative

The director's right of inspection is denied when the director has a(n) _________ the corporation, as in the case of a director who plans to sell a corporation's trade secrets to a competitor.

interest adverse to

A transaction is fair if reasonable persons in an arm's-length bargain would have bound a corporation to it. This standard is often known as the __________ standard.

intrinsic fairness

If there are vacancies on the board of directors, a(n) __________ vote of the remaining directors is sufficient to select persons to serve out unexpired terms, even though the remaining directors are less than a(n) __________.

majority; quorum

In the context of the officers of a corporation, the Model Business Corporation Act (MBCA) provides that ___________.

one person may hold several offices, including the offices of president and secretary

Since ______ investors rarely attend shareholder meetings, the management of the corporation must solicit ______ to have a valid shareholder vote.

passive; proxies

An offer to shareholders of a corporation to buy their shares at a price above the current market price is known as a(n) __________ offer.

tender

All of the following parties are helpful in ascertaining and disclosing a directors' conflict of interest except: __________. (Choose one correct answer)

the FTC

All of the following choices are false, except ONE, which describes the ability of corporations to obtain indemnity and insurance under the MBCA and the Model Nonprofit Corporation Act (MNCA): ___________. (Choose one correct answer)

the MBCA does not limit the ability of a corporation to purchase insurance on behalf of its directors.

Traditionally, _____________ has had the authority and the duty to manage a corporation.

the board of directors

An attribute of a corporation's committees of the board of directors is that _______.

these committees can more efficiently handle management decisions than a large board

Under the ____________, a director is entitled to mandatory indemnification of his or her reasonable litigation expenses even if he or she is sued and loses a case.

MBCA

_____________ is an incorrect statement regarding purpose clauses in articles of incorporation. (Choose one correct answer)

Under the MBCA, the inclusion of a purpose clause in the articles is mandatory

The management of a corporation almost always receives enough votes from its proxy solicitation to ensure the reelection of directors because the passive investors follow the ________.

Wall Street rule

The following is an accurate statement regarding committees of the board of directors: __________. (Choose one correct answer)

most publicly held corporations have committees of the board of directors.

For torts, the vicarious liability rule of ___________ applies to corporations.

respondeat superior

Some risks are legally uninsurable as against public policy, including: ____________. (Choose three correct answers)

self-dealing usurpation securities fraud

The Model Business Corporation Act (MBCA) states that ____________.

a corporation has the power to do anything that an individual may do

In the context of the liability of a corporation, the doctrine of respondeat superior provides that ___________.

a corporation is liable for an employee's tort that is reasonably connected to the authorized conduct of the employee

One true statement about permissible indemnification of directors is that ____________. (Choose one correct answer)

a corporation must establish that a director has acted in good faith.

All of the following statements about director or officer liability for the torts or crimes of corporate employees, are true, EXCEPT: ____________. (Choose one correct answer)

a director or officer is usually liable for the torts of employees.

When a group of shareholders is isolated for beneficial treatment to the detriment of another isolated group of shareholders, the disadvantaged group may ___________.

complain of oppression

A compensation committee is a board committee in a corporation that _________.

comprises directors who have no affiliation with the executives or directors whose indemnity is being approved

A director or an officer with a(n) __________ of interest may prefer his or her own interests over those of the corporation.

conflict

A true statement about the imposition of criminal liability on a corporation would be that ________.

courts hold a corporation liable for crimes of its agent or employee committed within the scope of his or her authority.

One true statement about oppression of minority shareholders in a corporation would be that

courts treat oppression of minority shareholders the same way courts treat director self-dealing.

One true statement about conflicting interests in a corporation would be that a __________. (Choose one correct answer)

director or officer has a conflicting interest when he or she deals with his or her corporation.

The business judgment rule provides that ___________.

directors and officers are protected from liability to a corporation for their harmful decisions

The shareholders of a corporation can be harmed when ___________.

directors and officers misuse confidential information that should have been used only for corporate purposes

One true statement about directors' meeting in a corporation is that ____________.

directors are entitled to two-days notice of all special meetings.

The _________ committee in a corporation is usually given authority to act for the board on most matters when the board is not in session?

executive

The rationale for the modern statutory approach to shareholder removal of directors is that shareholders should ___________.

have the power to judge the fitness of directors at any time.

To trigger Unocal protections for the directors, the takeover threat from the outside was both a(n) _______, and a(n) _______ tender offer. (Check TWO correct answers)

highly coercive two-tier

Identify two requirements of the duty of care test of the MBCA, a director or officer should _________ and __________. (Choose two correct answers.)

honestly believe that his or her decision is in the best interests of the corporation. make a reasonable investigation.

One of the requirements for the business judgment rule to be used by directors is the requirement that managers must make a(n) _____ decision, which means a(n) ________. (Choose TWO correct answers)

informed reasonable investigation

A director has the right to ____________ corporate books and records that contain corporate information essential to the director's performance of her duties.

inspect

All of the following protect directors from extensive potential liability except ________ and ________. (Choose two correct answers)

insurance indemnity

An independent director is an individual who ___________.

is not employed by the company

Most corporations have purpose clauses stating that they may engage in any ______ business.

lawful

Generally a corporate officer has ________ on contracts she signs on behalf of the principal, the corporation.

no liability

Courts are especially likely to impose criminal liability on a corporation when the criminal act is requested, authorized, or performed by a(n) ___________.

officer

Correctly identify two types of individuals who have confidential access to nonpublic information about a corporation: __________ and __________. (Choose two correct answers.)

officers directors

The Model Business Corporation Act (MBCA) and several state corporation statutes require a minimum of _______ director(s) in close corporations with a single shareholder-manager.

one

Under the Model Business Corporation Act, the indemnification for a director who loses a lawsuit is known as __________ indemnification.

permissible

During directors' elections, the person who is designated to vote for a shareholder is also called a(n) ___________.

proxy

A corporation should have a shareholder __________ requirement, which usually requires that __________ or more of the shares be voted for a shareholder vote to be valid. (Choose two correct answers)

quorum 50%

Outsiders who attempt to acquire control of publicly held corporations are called ____________.

raiders

One of the requirements for the business judgment rule to be used by directors is managers must have a(n) _______ for believing that the decision is in the _______ of the corporation. (Choose TWO correct answers)

rational basis best interests

Unlike the secretary of a corporation, a treasurer has the authority to ___________.

receive payments to the corporation and to disburse corporate funds for authorized purposes

Even if a transaction is unfair to a corporation, unanimous approval of an interested person transaction by informed shareholders conclusively ___________.

releases an interested director or officer from liability

The task of determining whether a corporation should sue someone who has allegedly harmed the corporation is given to a(n) _____ committee.

shareholder litigation

If the directors' actions show opposition to the _________ in order to preserve their jobs, they will __________ to the corporation. (Choose two correct answers)

tender offer not be liable

The primary source of a corporation's powers is ___________.

the corporation statute of the state in which it is incorporated

The quorum requirements for directors' meeting are that: _________ and _________. (Choose two correct answers.)

the quorum requirement ensures that the decision of a board will represent the views of a substantial portion of its directors. a quorum is a majority of the number of directors.

According to the ultra vires doctrine, any act not permitted by the corporation statute or by the corporation's articles of incorporation is ___________ due to lack of ___________. (Choose one correct answer)

void; capacity

Identify the true statements about the authority of a corporation's board of directors. (Check all that apply.)

The board may adopt and amend bylaws. The board may declare dividends and repurchase shares.

The _________ permits the directors to fill vacancies on the board.

MBCA

List in order, from the beginning, the steps in the proxy solicitation process: ____________.

1. the public ownership of a corporation's shares must exceed 50 percent. 2. the management of a corporation must solicit proxies if it wishes to have a valid shareholder vote. 3. shareholders who will not attend a shareholder meeting must be asked to appoint someone else to vote their shares for them. 4. each shareholder must be given a proxy form to sign. 5. the proxy must designate a person who may vote the shares for a shareholder.

Match the officers of a corporation (left column) to their descriptions (right column).

A president > Chairs shareholder meetings and directors' meetings A secretary > Keeps the minutes of directors' and shareholder meetings and retains custody of the corporate seal A vice president > Lacks authority by virtue of his or her office A treasurer > Binds the corporation by his or her receipts, checks, and indorsements

Identify three individuals who would be classified as officers of a corporation. (Choose three correct answers.)

A treasurer The president A secretary

Which of the following is an incorrect statement regarding compliance with the business judgment rule?

Board members must not receive compensation from the corporation.

___________ have a duty to act within the authority conferred on her by the articles of incorporation, the bylaws, and the board of directors.

Both an officer and a director

Identify three true statements about a director. (Choose three correct answers.)

He or she is not an agent of the corporation merely by being a director. He or she is denied the right of inspection when he or she has an interest adverse to the corporation. He or she has the right to inspect corporate books and records that contain corporate information.

Two true statements about the removal of directors from a corporation would be that: __________ and __________. (Choose two correct statements)

Modern corporation statutes permit shareholders to remove directors with or without cause. A director elected by cumulative voting may not be removed if the votes cast against his removal are sufficient to elect him to a board.

In the context of the tests for freeze-outs, the __________ test requires that a freeze-out accomplish some legitimate business purpose and not serve the special interests of majority shareholders or managers.

business purpose

Identify three characteristics of independent directors. (Choose three correct answers)

They do not have a material relationship with the corporation. They do not have family members who are employed by the company where they work. They do not have a controlling interest in the company's substantial business partners.

Identify two true statements about nonprofit corporations. (Choose two correct statements.)

They may purchase, hold, and sell real property. They may sue or be sued.

In a corporation, a(n) _____ committee reviews and approves the stock options, bonuses, salaries, and other benefits of high-level corporate executives.

compensation

Having a pre-existing ___________ plan, as in the Paramount case, will provide a basis for determining whether there is a threat to the company's policies.

acquisition and expansion

To comply with the Unocal test and avoid liability when opposing a takeover of the corporation, the board of directors must do any of the following BUT: ___________. (Choose one correct answer)

agree to resign if the takeover of the corporation is successful

The following is a true statement about the election of a director in a corporation __________. (Choose one correct answer)

any individual may serve as a director of a corporation.

Unlike in a freeze-out merger, in a reverse share split ___________.

articles are amended to reduce the number of outstanding shares by a multiplier

An officer or director has a duty to act within the authority conferred on her by any of the following except the: _____________.

articles of confederation

If a director is entitled to mandatory indemnification under the MBCA, in the event the corporation refuses to indemnify said director, the director may: ________.

ask a court to order indemnification

A director who attends a board meeting is deemed to have __________ to any action taken at the meeting, unless he or she __________.

assented; dissents

Historically, an act of a corporation beyond its powers was a nullity, as it was ultra vires, which is Latin for ___________.

beyond the powers

The ___________ rule will not apply when directors make a decision to oppose a tender offer before they have carefully studied it.

business judgement

The duty of care of directors and officers in a corporation is sometimes expressed as the ____________ rule.

business judgement

The Unocal Corp. v. Mesa Petroleum Co. case involved application of the _________ to a board's decision to block a(n) ________ tender offer by allowing the board to make a tender offer for its own shares that excluded the raider.

business judgement rule hostile

Complying with the intrinsic fairness standard is not much different than complying with the ___________.

business judgment rule