Chapter 47 Revised

In closely-held corporations, the same persons are often simultaneously shareholders, directors, and officers.

True (837)

Shareholder votes are normally taken at either annual or special meetings.

True (837)

As a general rule, the only business that can be conducted at a special meeting of shareholders is that for which prior notice was given.

True (838)

Cumulative voting applies only to the election of directors and to no other corporate matter.

True (838)

Unless otherwise provided in the articles of incorporation, each outstanding share is entitled to one vote on each matter presented at either an annual or a special shareholders meeting.

True (838)

In most corporations, public and closely-held alike, corporate officers are elected by the shareholders.

False (837)

The duty of loyalty may be breached, and a conflict of interest may be revealed, by the sale of corporate property, to a director at less than a fair market value price.

True (843, 845)

A shareholder voting agreement is simply a contractual arrangement between two or more shareholders regarding how their shares will be voted for certain corporate matters.

True (839)

A corporation's board of directors has the ultimate responsibility to manage the affairs of the corporation.

True (840)

Cumulative voting is the usual method of shareholder voting for the election of directors.

False (838 straight voting)

As a general rule, modern corporation law provides that a corporation's articles can never permit more than one vote for any share.

False (838)

A voting trust is often used by directors to maintain control of a corporate board.

False (839) [used by shareholders]

A preemptive right gives a shareholder the right to purchase additional shares of previously authorized but unissued stock.

False (839) right to purchase additional shares of newly authorized shares

Most states have enacted legislation to limit the personal liability of corporate directors for money damages. These statutes usually include all but which of the following types: A. financial means test B. "charter option" provisions in the articles of incorporation C. "self-executing" statutes that are free standing D. statutes specifically limiting the amount of money damages E. only b and c, above

A. financial means test

Most states make preemptive rights mandatory in order to avoid dilution of a shareholder's voting or financial interest in a corporation.

False (840)

The management responsibilities of a shareholder include: A. voting for the board of directors B. voting on mergers and other fundamental changes to the corporation C. voting to pay dividends D. A,B, and C E. A and B only

E. A and B only

Collectively, the shareholders and the directors of a corporation are known as its "management."

False (837) Officers and Directors

Corporate officers are usually appointed and removed by the shareholders.

False (842 Board of Directors)

The "duty of care" responsibility imposed upon corporate officers and directors makes them absolutely liable for every mistake or error in judgment committed by them, whether intentional or unintentional.

False (843 does not under the "business judgment rule")

Most director liability statutes are of the "self-executing" variety.

False (845 Charter option statutes)

Corporate officers and directors are generally free to compete with their corporation in business transactions involving the scope of their corporate responsibilities as long as that competition is reasonable.

False (846)

Although shareholders generally do not have a fiduciary duty or obligation to the corporation in which they own shares, a controlling shareholder does have such a duty to both the corporation and to its minority shareholders.

True (849)

Which of the following statements concerning directors is/are correct? A. under modern statutes, vacancies on the board caused by death or resignation are filled by the remaining board B. a director elected to fill a vacancy generally serves a full two-year term C. under modern statutes, directors can only be removed "for cause" D. a special meeting of the board can only be held in the state of incorporation E. under modern statutes, a board quorum is one-quarter of the duly elected directors

A. under modern statutes, vacancies on the board caused by death or resignation are filled by the remaining board

Tiffany owns 200 shares of Delta Corporation which is getting set to elect three members, A, B, and C, to its board. If cumulative voting is available to Tiffany, which of the following statements is correct? A. Tiffany must allocate at least one vote to each candidate for election B. Tiffany can allocate no more than 200 votes to each candidate for election C. Tiffany must allocate at least 201 votes to two of the three candidates D. Tiffany has 600 votes which she can allocate any way she choses E. a and d, above

D. Tiffany has 600 votes which she can allocate any way she choses

A proxy is generally effective for: A. thirty days B ninety days C. six months D. eleven months E. one year

D. eleven months

If Barbara owns 90% of a corporation's stock (which has a fair market value of $180,000), and sells that stock for $220,000, it might be argued that the $40,000 difference is a: A. windfall B. control premium C. conflict of interest D. fraudulent transaction E. none of the above

B. control premium

Controlling shareholders: A. generally have unrestricted use of corporate assets in a closely-held corporation B. have a fiduciary duty to minority shareholders C. have no fiduciary duty to minority shareholders D. are automatically directors of the corporation E. c and d, above

B. have a fiduciary duty to minority shareholders

Authority given by an owner of registered securities to someone else to cast that owner's votes at a shareholder's meeting is called a: A. prospectus B. cumulative transfer C. proxy D. trust conveyance E. none of the above

C. proxy

In order to be entitled to vote, a shareholder must have his or her name registered on the books of the corporation no later than the: A. conversion date B. registration date C. record date D. callable date E. Default date

C. record date

Which of the following is true about the required notice for shareholder's meetings? A. the notice can be oral or written, but is required only for special meetings B. the notice can be oral or written and is required for both regular and special meetings C. the notice must be written, but is required only for special meetings D. the notice must be written and is required for both regular and special meetings E. the notice must be written, but is required only when unusual items will be on the agenda of the meeting

D. the notice must be written and is required for both regular and special meetings

A finding of negligent management might include: A. careless selection or supervision of employees B. reasonable care in the exercise of management responsibilities C. inadequate consideration of significant corporate decisions D. the exercise of fiduciary care E. A and C, above

E. A and C, above

Which of the following statements is correct? A. shareholders determine executive compensation B. the board of directors makes basic policy decisions for the corporation C. shareholders determine when and if dividends will be paid D. directors select, supervise, and remove corporate officers E. b and d, above

E. b and d, above

As a general rule, only the directors of a corporation have the power to amend, adopt, or repeal bylaw provisions.

False (837) [the power to amend, adopt, or repeal bylaws may be reserved to the shareholders]

Most modern state statutes provide that the quorum at a shareholder's meeting cannot be less than one-half of the shares entitled to vote.

False (838 1/3rd)

Treasury shares are not entitled to vote at special shareholders meetings but are entitled to vote at annual meetings.

False (838 not entitled at all)

As a general rule, the only business that can be conducted at an annual meeting of shareholders is that for which prior notice was given.

False (838)

Except for instances of death or incapacity, once given by a shareholder, a proxy cannot be revoked.

False (839 generally revocable)

Directors, but not officers, have a fiduciary duty to their corporation.

False (843 and 845; both do)

The corporate opportunity doctrine permits a corporate officer or director to take personal advantage of an opportunity that might otherwise be of particular interest to their corporation.

False (846)

Under common law principles, a shareholder may inspect the books of the corporation for any "proper purpose" intended to protect the shareholder's interest in the corporation.

True (840)

In the absence of classification, all directors are elected each year.

True (841)

Under modern corporation law, a corporation can lawfully have a board consisting of only one director.

True (841)

Directors may form committees to perform board functions between meetings of the full board.

True (842 executive committee)

Corporate officers are generally considered to be agents of the corporation.

True (842)

A corporate director is usually immune from personal liability for a transaction that results in a loss, so long as it can be shown that he or she exercised good business judgment.

True (843)