BLAW CHT 18
66. Don is a shareholder of Energy Renew Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Don files a suit on its behalf. Don's suit is a. a preemptive right. b. a shareholder's derivative suit. c. the duty of a majority shareholder. d. unethical and illegal.
ANSWER: b
42. Burgers & Brew Inc. prepares its articles of incorporation. The articles are likely to include a. the corporation's name. b. the number of shares the corporation is authorized to issue. c. all of the choices. d. the corporation's registered agent.
ANSWER: c
44. Pipe Inc.'s stated purpose is to install plumbing. Pipe contracts with Quality Contracting to pour a new building's foundation despite lacking the skill and license to do such work. This is most likely a. an ultra vires act. b. within the corporation's express powers. c. within the corporation's implied powers. d. allowable and proper as an act to profit corporate shareholders.
ANSWER: a
45. EZ Hauling holds itself out to customers as being a corporation but makes no attempt to incorporate. In this circumstance, EZ Hauling is most likely a. a corporation by estoppel. b. a de facto corporation. c. a de jure corporation. d. ultra vires.
ANSWER: a
48. Kay and Leo form Metro Delivery Inc. Responsibility for all policymaking decisions necessary to the management of corporate affairs rests with Metro's a. board of directors. b. officers. c. incorporators. d. shareholders.
ANSWER: a
54. Orin is a corporate officer for Pacific Trade Inc. In this capacity, Orin a. authorizes major corporate policy decisions. b. manages corporate day-to-day operations. c. makes executive personnel decisions. d. makes and announces financial decisions.
ANSWER: b
43. Paper & Scissors Inc. wants to incorporate. The primary document needed to incorporate a business is a. the website of the secretary of state of the state of incorporation. b. the minutes of the first organizational meeting. c. the articles of incorporation. d. the bylaws.
ANSWER: c
40. Oil Industries Inc. is a private, for-profit corporation that is owned by five shareholders who are members of the same family. Po, the majority shareholder, misappropriates company funds. The shareholders whose interests are injured by Po's misconduct should a. have their shares appraised and be paid the fair market value for them. b. promote the transferability of the company's shares to outside persons. c. reorganize the firm into a sole proprietorship or partnership. d. hold a special shareholders' meeting to elect new directors.
ANSWER: a
51. Owen is a director of Packaging Company. As a director, Owen's rights include a right to a. access the corporation's books, records, facilities, and other property. b. subordinate the corporation's welfare to his personal interest. c. use confidential corporate information for personal advantage. d. self-dealing.
ANSWER: a
55. Roz, a director of Soy Inc., is specially trained in petroleum trading. Soy's board approves several deals in which the company pays too much for soybeans. Roz approves all the deals without first reviewing them. Roz is most likely liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty. d. none of the choices.
ANSWER: a
56. Buck is a director on the board of Construction Corporation. The board delegates work to Don, Construction's president, and other corporate officers. Buck fails to reasonably supervise the work. He is most likely liable for a. negligence or mismanagement. b. breach of the business judgment rule. c. breach of the duty of loyalty. d. none of the choices.
ANSWER: a
47. Ruiz owns Solar Corporation. Ruiz commingles his personal interests with the corporation's interest to the extent that the firm has no separate identity. This most likely warrants a. an adoption of new corporate bylaws. b. a recognition of de facto corporate status. c. a pierce of the corporate veil. d. a fundamental change to the articles of incorporation.
ANSWER: c
52. As a director of InstaTalk Inc., Jim has a right of inspection. This right can be restricted by a. the corporate articles. b. the bylaws. c. an act of the board. d. none of the choices.
ANSWER: d
58. Gil is an officer for HVAC Corporation. Due to Gil's choice of a certain supplier, HVAC's costs are somewhat higher than they might have been if a different supplier had been chosen. Gil is most likely liable for breach of a. breach of trust and confidence. b. breach of the business judgment rule. c. negligence or mismanagement. d. none of the choices.
ANSWER: d
64. Ned and Olga are shareholders of Pizza Pies Inc. Ned's written authorization to Olga to vote Ned's shares at a shareholders' meeting is a. a fundamental change. b. a cumulative vote. c. a proxy. d. a quorum requirement.
ANSWER: c
38. AI Medical, Inc., is a private, for-profit corporation that is owned by six shareholders who are not members of the same family but are personally known to one another. They also serve as the directors and officers. To prevent a majority shareholder from dominating the firm, the corporation may a. require more than a majority of directors approve any board action. b. depart from all formalities required by traditional corporate law. c. reorganize into a sole proprietorship or partnership. d. hold special shareholders' or directors' meetings on an annual basis.
ANSWER: a
39. Spices & Seasonings Inc. is a private, for-profit corporation that is owned by eight shareholders who are not members of the same family but are personally known to one another. To avoid management problems caused by sharing control with someone the shareholders do not know or like, the firm could a. restrict the transferability of its shares to outside persons. b. depart from all formalities required by traditional corporate law. c. reorganize into a sole proprietorship or partnership. d. hold special shareholders' or directors' meetings on an annual basis.
ANSWER: a
57. Kathy is a director of Line Production Inc. As a director, with respect to the corporation, Kathy is expected to subordinate a. her personal interests to the corporation's welfare. b. the corporation's welfare to her personal interests. c. her knowledge and training in the corporation's interest. d. her business judgment in the shareholders' interests.
ANSWER: a
70. Doris wants to form a new firm—eBeats—to market a new app. Fees are required to form all of the following business organizations except a. a sole proprietorship. b. a corporation. c. a limited partnership. d. a limited liability company.
ANSWER: a
37. Integrated Devices, Inc., is a private, for-profit corporation that is owned by seven shareholders who are members of the same family. Integrated is a. an S corporation. b. a close corporation. c. a benefit corporation. d. a public corporation and a private corporation.
ANSWER: b
46. Welding Corporation makes a good faith attempt to incorporate but there is a defect in its incorporation. Welding undertakes business as a corporation. In this circumstance, the firm's existence may be challenged by a. any third party. b. the state. c. a director, officer, or shareholder. d. any corporation with which it does business.
ANSWER: b
49. Global Enterprises Inc. competes in many product, service, and geographic markets. Global's board consists of a large number of directors. The firm faces myriad complex business issues. To avoid its governance from becoming unwieldy, the company can delegate some of its functions to a. its incorporators. b. an executive committee. c. its shareholders. d. a quorum.
ANSWER: b
60. Daisy is a director of Extraction Corporation. She opposes an offer to merge Extraction with Fill Inc. because she would lose her board position. Daisy is most likely liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty. d. none of the choices.
ANSWER: c
50. Oversight Inc.'s board of directors votes to empower corporate officers to make decisions regarding ordinary, daily corporate affairs within well-defined guidelines. With respect to these affairs, Oversight's board a. is relieved of its responsibility. b. retains its responsibility. c. shares the responsibility. d. was never responsible.
ANSWER: b
53. Blue Sky Drones Inc. has three directors, a president, two vice presidents, a secretary, and a treasurer. Carol is a Blue Sky director. In most states, Carol can also hold a corporate office a. if she was one of the firm's incorporators. b. under any circumstances. c. if she resigns as director. d. if the shareholders consent.
ANSWER: b
63. Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes. His best defense against liability for these mistakes is a. business success insurance. b. the business judgment rule. c. the duty of loyalty. d. none of the choices.
ANSWER: b
67. Huan is a shareholder of Insulation Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Huan files a suit on its behalf. Any damages recovered by the suit will go to the firm's a. shareholders, excluding Huan. b. treasury. c. directors. d. shareholders, including Huan.
ANSWER: b
69. Avery wants to go into business as Boom! to make and market fireworks. When deciding which form of business organization would be most appropriate, Avery would normally take into account all of the following except a. the liability of the owners. b. the forms of competitors' business organizations. c. tax considerations. d. the need for capital.
ANSWER: b
41. Health Food Inc. coordinates the purchase, sale, and delivery of organic products. The stated corporate purpose is to make a profit and to have a material positive impact on society and the environment. Health Food is a. a nonprofit corporation. b. not a corporation. c. a benefit corporation. d. a private corporation.
ANSWER: c
61. Ben is a director of Creation Corporation, an architectural firm. Without informing Creation, Ben goes into business with Design, Inc., a Creation competitor. Ben is liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty. d. none of the choices.
ANSWER: c
62. Roy is a director of Sales Service Inc. Sales enters into a contract with TeleCenter Corporation in which Roy has a personal interest. Roy must a. apply the "don't ask, don't tell" rule of personal conduct. b. use the situation to his personal advantage. c. make a full disclosure of the conflict of interest. d. none of the choices.
ANSWER: c
65. Erin, a shareholder of Finance Inc., demands the right to inspect corporate books and records to determine whether management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin's challenge, a court is most likely to hold that her request constitutes a. harassment. b. unreasonable access to trade secrets and other confidential information. c. a proper purpose. d. potential abuse.
ANSWER: c
68. Brad is a shareholder of Cloud Servers Inc. He will be deemed to have a fiduciary duty to Cloud and its minority shareholders if he has a sufficient number of shares to a. assert a preemptive right. b. bring a shareholder's derivative suit. c. exercise actual control over the corporation. d. participate in a cumulative vote.
ANSWER: c
36. Nevis and Olsen want to do business as a corporation—Pastries & Pies Inc. The procedure for forming this firm is prescribed by a. city or county codes. b. none of the choices. c. federal administrative rules. d. state law.
ANSWER: d
59. Paul is a director on the board of Quality Tire Corporation. As a director, Paul may not a. act in accord with his own knowledge and training. b. use prudent business judgment in the conduct of corporate affairs. c. delegate work to corporate officers. d. engage in self-dealing.
ANSWER: d