Legal Environment of Business - Chapter 39

Which of the following references shares that have a fixed face value noted on the stock certificate? A. No par value shares B. Par-value shares C. Watered stock D. Fixed price stock

B. Par-value shares

Which of the following gives preference to shareholders to purchase shares of a new issue of stock? A. Superior rights B. Preemptive rights C. Selective rights D. Acknowledgement rights

B. Preemptive rights

Which of the following, is an authorization of a shareholders to allow someone else to vote in their place? A. Acknowledgment B. Proxy C. Voting trust certificate D. Permissive voucher

B. Proxy

Which of the following are sent to shareholders prior to an annual meeting containing proposals made by shareholders? A. Meeting agenda B. Proxy materials C. Corporate materials D. Meeting proposals

B. Proxy materials

Which of the following owns a corporation? A. Directors B. Shareholders C. Officers D. Promotors

B. Shareholders

What remedy, will be imposed on Wendy, if any, for her home kite sales? A. Nothing because Wendy did not engage in any wrongdoing. B. She will be required to cede to the corporation all the profits she earned as a result of the breach. C. She will be required to cede to the corporation any profits she earned as a result of the breach unless she can prove by a preponderance of the evidence that the corporation lost no sales as a result of her actions. D. She will be required to cede to the corporation half of any profits she earned as a result of the breach.

B. She will be required to cede to the corporation all the profits she earned as a result of the breach.

How are directors typically chosen after the incorporation process? A. By majority vote of officers B. By a two-thirds vote of shareholders C. By majority vote of shareholders D. The president appoints them

C. By majority vote of shareholders

How long is the usual term for directors? A. Three years B. Two years C. One year D. Six months

C. One year

Prior to incorporation, how are directors chosen? A. Prior to incorporation, directors may only be named through the incorporators appointing them. B. Prior to incorporation, directors may only be named by the corporate articles appointing them. C. Prior to incorporation, either the incorporators appoint directors or the corporate articles name them. D. Prior to incorporation, either the incorporators appoint directors or the shareholders choose them by majority vote.

C. Prior to incorporation, either the incorporators appoint directors or the corporate articles name them.

If corporate directors fail to sue when the corporation has been harmed by an individual, another corporation or a director, individual shareholders can file what kind of lawsuit on behalf of the corporation? A. Shareholder's action suit B. Shareholder's direct suit C. Shareholder's derivative suit D. Investigative action

C. Shareholder's derivative suit

Which duty, if any did Wendy violate? A. She did not commit any violation. B. She violated the duty of care. C. She violated the duty of loyalty. D. She violated the duty of understanding.

C. She violated the duty of loyalty.

Which of the following is false regarding officers of the corporation? A. Officers are executive managers. B. Officers run the day-to-day business of the corporation. C. The rules of agency do not apply to the work of officers. D. In most cases an individual may serve as both a director and an officer.

C. The rules of agency do not apply to the work of officers.

Which of the following is false regarding the liability of directors and officers for criminal behavior in the U.S.? A. Directors and officers can be held personally responsible for their own crimes. B. Directors and officers can be held personally responsible for the crimes of other employees within the organization when they have failed to adequately supervise the employee's behavior. C. According to the responsible person doctrine, an officer can be held criminally liable for conduct of an employee if the court determines that a reasonable person would have known about and could have prevented the illegal activity. D. A court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.

D. A court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.

Which of the following are outside directors who have business contacts with the corporation? A. Approved directors B. Associated directors C. Inside directors D. Affiliated directors

D. Affiliated directors

For which of the following may a director be removed? A. At the will of the president. B. In the discretion of the shareholders upon majority vote. C. In the discretion of the directors upon a majority vote. D. For cause.

D. For cause.

In which of the following objectionable activities was Wendy involved, if any, in selling the kites? A. She was not involved in any objectionable activities. B. She prevented profit maximization. C. She committed corporate profit reduction. D. She prevented corporate opportunity.

D. She prevented corporate opportunity.

Which of the following was the result in State of Wisconsin Investment Board v. William Bartlett, the case in the text in which a shareholder sought an injunction blocking the merger of the pharmaceutical company in which it owned shares, Medco, with another pharmaceutical company? A. That the injunction would be granted because the plaintiff's allegations demonstrated that the Medco board failed to inform itself of all material facts concerning the proposed merger. B. That the injunction would be granted because the plaintiff's allegations established that the board failed to act in good faith and in the honest belief that the merger was in the best interests of the company. C. That the injunction would be granted because the plaintiff's allegations established that the board willingly left themselves uninformed in order to serve their own self-interest. D. That the injunction would be denied because the plaintiff's allegations of self-interest did not meet the threshold necessary to rebut the presumption of the business judgment rule.

D. That the injunction would be denied because the plaintiff's allegations of self-interest did not meet the threshold necessary to rebut the presumption of the business judgment rule.

Which of the following is not a right of corporate directors? A. The right of compensation B. The right of participation C. The right of inspection D. The right of obedience

D. The right of obedience

A board of directors may take no action that benefits a director in his or her personal capacity. True False

False

Shareholders are directly responsible for the daily management of a corporation True False

False

Directors who are also officers or employees of the corporation are called ___________ directors.

Inside

A _________________________ is the term for the minimum number of directors which must be present for decisions made at the meeting to be valid.

Quorum

Directors and officers have a fiduciary duty of care. True False

True

Each director has one vote True False

True

The business judgment rule does not apply when a director has an interest in a decision made by the board of directors. True False

True

Stock issued below its fair market value is known as ______________ stock?

Watered