Exam 1

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Michelle and Nicole do business as One World Realty, Inc. Michelle acts on the corporation's behalf in a deal with Property Acquisition Company, but fails to account to One World for the profit received from the deal by taking the money for herself. To her firm, Michelle is:

liable for the breach of loyalty.

Generally, the liability of shareholders is:

limited to their investment in the stock of the corporation.

Chip is a director of Diners Restaurants, Inc. Chip would breach his duty of loyalty if he:

secretly buys a controlling interest in Gulpin Foods Corporation, a competing firm.

In the articles of incorporation of Bright Lights Company, a Georgia corporation, 1,000 shares of common stock are "authorized." Which statement is true?

A maximum of 1,000 shares of common stock

Earth Conserve, Inc. was formed in the State of Georgia, but given the expansion of its business, Earth Conserve wants to do business in Alabama. When Earth Conserve was formed in the State of Georgia what formation document did it file with the Georgia Secretary of State and what document does it need to file with the Alabama Secretary of State to conduct business in Alabama?

Articles of Incorporation and Certificate of Authority, respectively.

Which statement below is false?

Corporate governance requirements are primarily set at the federal level

Which statement below is false?

Corporate governance rules are often stacked in favor of shareholders which is an explanation for there being a minimum amount of shareholder change at the publicly-traded company level.

Dale is CEO of Let's Make Some Money, Inc. However, David, Dietrich, and Daniel are not officers of Let's Make Some Money, Inc. Dietrich is the CEO of Integrity Corporation. If Dale, David, Dietrich, and Daniel are on the board of directors of Let's Make Some Money, identify any inside director.

Dale.

Which statement below is true?

During his discuss, Dr. Flavio Villanustre mentioned that the weakest link in the security chain is Humans.

As a shareholder of a company in order to have your vote counted, you must always attend the shareholders' meeting at which the item being voted on is presented.

False

In the U.S. lawmakers and policymakers are considered to be proactive in establishing laws and regulations, and thus, laws and regulations are always ahead of technology so ethics is not important in the technology space.

False

Security is the same as privacy. Dr. Flavio Villanustre discussed this in his talk.

False

Systematic Risk and Moral Hazard deal with the concept of "too big to fail." Moral hazard means the possibility of one firm's bankruptcy causing a chain reaction through an economy. Systematic risk addresses the concept of the greater insulation of a decision maker from the bad outcomes of a decision could result in the greater likelihood of future uncalculated risks by such decision maker.

False

The (a) Securities Act of 1933 governs the periodic reporting obligations of public companies; (b) Securities and Exchange Commission (the "SEC") is the only regulatory agency addressing matters related to securities laws; and (c) the Securities Exchange Act of 1934 regulates the registration and public sale of securities.

False

The duty of care that directors and officers owe to the corporation requires that directors and officers act in their own best interests and ignore getting expertise when lack knowledge about a matter.

False

Typically, publicly-traded companies do not have any independent directors on its board, and the tenure of the members of the board of directors has no impact on the governance of the company and thus the shareholders and other stakeholders of a company.

False

Atlas Food Systems & Services, Inc., incorporated in South Carolina, has three (3) shareholders. John James owns 10% of the capital stock. Jerry Jones and Michelle Lee, collectively own 90% of the capital stock and individually 45% each. Collectively, Jerry and Michelle are what type of shareholders?

Majority shareholders

Which committee of the board of directors generates names for board nomination and proposes that slate to the full board of directors for board of director recommendation to the shareholders for vote?

Nominating and Governance committee

Which point below is false?

Power and moral overconfidence of a corporate executive are never causes of corporate governance issues.

Herbalife, the nutritional supplements company, is under attack by the activist hedge fund manager William A. Ackman. Ackman is an investor in Herbalife. Ackman is pressuring Herbalife to increase its share buyback plan, which Herbalife recently agreed to do. Herbalife indicated that it would increase its share buyback plan by $500 million. The actions of Ackman are called what type of corporate governance monitor.

Shareholder activism

Express Financial Services, Inc. is a global banking organization, incorporated in the State of Georgia. In determining Express's appetite (i.e. tolerance) for corporate strategic activities, including all financial and lending risk, what group has this ultimate responsibility?

The board of directors of Express.

Which statement below is true?

The board of directors of a corporation is responsible for establishing a board membership and leadership succession plan.

Dale, David, Daphane, and Deloris are members of the board of directors of Integral Corporation. What constitutes a quorum for the board of directors of Integral Corporation?

The minimum number of directors of Integral who must be present for the board to validly transact business.

Which statement below is false?

The only stakeholders that should be concerned about good corporate governance are the shareholders because good corporate governance has no impact on other stakeholders like employees and the community.

A reason that the world may look different to Congress than the ordinary citizen is that Congressional members hear from constituents, industry groups, and citizens' groups about their applicable interests that other citizens may or may not care about, and the Congressional members must balance all of the interests heard by each group to make a decision on legislative action or inaction.

True

An integrated disclosure system is the concept behind most U.S. securities laws.

True

In the 2012 Wal-Mart Shareholders' Meeting that we viewed, the Chairman of the Board of Directors of Wal-Mart, Rob Walton, gave the unofficial totals of the items voted on. He provided this information at the close of the Shareholders' meeting, and indicated that the 8-K would be filed with the Securities and Exchange Commission within the week with the official totals.

True

InterBel Telephone Company, a Georgia corporation, includes in its Articles of Incorporation filed with the Georgia Secretary of State that the purpose of the organization is to "provide telephone service to homes and businesses in the State of Georgia." The first year of InterBel's operation, the company engaged in the business of providing telephone service to homes and businesses in the State of Georgia. Given the large reduction in revenue for landline services because of wireless devices, InterBel changed its business strategy to buying and selling wireless cell towers and related operations. However, InterBel made no amendments to its purpose stated in the Articles of Incorporation. In changing its business activity, InterBel committed an ultra vires act.

True

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what he believes is the firm's best interest, and without violating any duties owed to it. If, despite these circumstances, Luke makes a business decision that has a negative result for Motor Parts, under the business judgment rule he is immune from liability.

True

The SEC receives no taxpayer dollars as it is funded by fees Congress allows the SEC to collect on securities transactions. More than two-thirds of this budget goes to duties such as conveying data to investors and crafting policy. Only a small amount of the SEC budget goes to enforcement which is a contributing factor in the SEC's problem in curtailing "bad" capital markets' behavior.

True

The board of directors of Baltimore Gas and Electric Company ("BGE") recommended the sale of all of the capital stock of BGE to Potomac Electric Power Company ("PEPC"). After engaging in full due diligence of this potential stock sale (the "BGE/PEPC Transaction"), comprising of bringing in experts to assess all aspects of the BGE/PEPC Transaction, including, but not limited to, the intrinsic value of BGE, the BGE board of directors provided the BGE shareholders full disclosure of the BGE/PEPC Transaction and recommended that the BGE shareholders approve the BGE/PEPC Transaction. The BGE shareholders approved the BGE/PEPC Transaction. Based only on the facts provided above (making no assumptions in answering this question), the BGE board met its fiduciary obligation and is thus protected by the business judgment rule.

True

Dependable Appliances, Inc., is a private, for-profit corporation that (a) was formed for the purpose of manufacturing and distributing a newly patented kitchen appliance for a profit; (b) is owned by five shareholders; (c) is subject to double taxation; and (d) has made no public offering of its shares. Dependable is:

a C corporation.

Gulpin Foods Corporation is a corporation formed under the corporate law of the State of Georgia. It also is a publicly-traded corporation with its shares traded on the NYSE (like Coca-Cola). Mandatory standards for the activities of members of the board of directors include:

all of the above.

Farley and Gregor want to market a new line of fishing gear. To avoid income taxes at the Corporate level and anticipating never to have more than 100 shareholders but to make a corporate profit with distributions to shareholders, they should form:

an S corporation.

"Piercing the corporate veil" occurs when a court:

disregards the corporate entity and holds the shareholders personally liable.

CVS decides as a corporate strategy to stop selling cigarettes and all tobacco products in its stores nationwide as a way to promote healthy lifestyles for consumers. Ultimate responsibility for this strategic analysis and decision rests with:

the CVS board of directors.

Ira and Jay are the shareholders and directors of Custodial Care Corporation. Lisa and Mary are Custodial's officers. As with other corporations, the responsibility of strategic management (i.e. governance) of Custodial rests with:

the board of directors.

Prospective Enterprises (PE) employs Quinn, as its Chief Operating Officer. In such capacity, Quinn is to evaluate, negotiate and lead the purchase of property for a possible com¬mercial development. Quinn secretly, personally, buys some of the property and sells it to PE at a profit. Quinn has breached

the duty of loyalty.


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