BUAD 2301 EXAM 4

9. To qualify as a professional corporation, Medical Clinic, P.C., a. must be a corporation formed by professionals. b. must grant all shareholders voting rights. c. must have at least thirty-five shareholders. d. all of the choices.

A

Bev is a shareholder of All-Terrain Vehicle Company. As a shareholder, Bev does not have a. a right to compensation. b. dividend rights. c. inspection rights. d. preemptive rights.

A

Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delite's a. board of directors. b. incorporators. c. officers. d. shareholders.

A

Catalina promises high returns to Darby and other investors, who then agree to trust their funds to Catalina. She uses these funds to pay previous investors. This is a. a Ponzi scheme. b. a stock option. c. an accredited investor. d. a tombstone ad.

A

Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. Refer to Fact Pattern 42-2A. Under the Securities Exchange Act of 1934, Fay is most likely a. liable for insider trading. b. not liable because Fay did not prevent others from profiting. c. not liable because Fay did not solicit information from Dhani. d. not liable because Fay does not work for Eureka.

A

Fresh Fruits & Veggies, Inc., wants to make an initial public offering of securities. Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. 46. Refer to Fact Pattern 42-1A. Fresh decides to sell its new securities via the Internet. This offering a. will avoid the payment of commissions to brokers or underwriters. b. is an investment scam. c. is a Ponzi scheme. d. constitutes insider trading.

A

Gladys is a shareholder of Frozen Yogurt, Inc. As a shareholder, Gladys must approve a. amending the bylaws. b. declaring a corporate dividend. c. hiring a chief executive officer. d. issuing additional shares.

A

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is a. adopting Java's bylaws. b. agreeing on Java's purpose. c. drafting Java's articles. d. obtaining a charter for Java.

A

Hobie, the chief executive officer of Ideal Gamers, Inc. (IGI), intentionally understates the amount of IGI's debts in information provided to investors as part of an issue of IGI stock. Jack buys the stock and suffers a loss. Hobie may be subject to a. government prosecution and Jack's suit. b. neither government prosecution nor Jack's suit. c. only government prosecution. d. only Jack's suit.

A

Kirk is the chief financial officer of Lemon Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Kirk must personally a. certify that the statements are accurate. b. delegate the responsibility for preparing the statements. c. deliver the statements to the appropriate SEC officer. d. prepare the statements.

A

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what Luke believes is the firm's best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule Luke is a. immune from liability. b. liable only to the extent that Luke gains as a result. c. liable only to the extent that Motor Parts suffers as a result. d. wholly liable.

A

Mari buys 500 shares of common stock in National Livestock Traders, Inc. As a shareholder of record, Mari owns a proportionate interest in terms of a. control, earnings, and net assets. b. control only. c. earnings and net assets only. d. neither control nor earnings and net assets.

A

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is a. a fiduciary. b. a forum. c. a proxy. d. a quorum.

A

Quixotic Company claims to be a corporation but it is not. Rachel signs a contract with Quixotic that is not performed. In Rachel's suit against Quixotic, a court will likely recognize the firm as a. a corporation by estoppel. b. a de facto corporation. c. a de jure corporation. d. an ultra vires corporation.

A

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which a. governs Spex. b. is governed by the Spex incorporators. c. is governed by the Spex officers. d. is governed by the Spex shareholders.

A

RingTone Corporation is a public company whose securities are traded among investors. Under the Securities Act of 1933, a security is a. almost any stake in the ownership or debt of a company. b. an investment that is guaranteed to make a profit. c. only such common forms of debt and equity as bonds and stocks. d. whatever a company represents to the public as a security.

A

Thor Power Products Corporation permits the election of its directors by cumulative voting. This a. allows minority shareholders to be represented on the board. b. assures directors that they will be selected by their peers. c. guarantees Thor's executive officers of the final choice. d. insures against persons who may "cloud" the corporate direction.

A

VeriVisual Company makes HD 3D film and video equipment. VeriVisual is like most corporations in that its officers are hired by the firm's a. board of directors. b. incorporators. c. other officers. d. shareholders.

A

Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares of EPC stock. One week later, EPC announces that it will merge with a competitor, Fuel Oil Company, and the price of EPC stock increases. One month later, Della sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Della would not be liable if, after buying the stock, she had waited a. less than fourteen days to sell it. b. more than six months to sell it. c. ninety days to sell it. d. two months to sell it.

B

Celfone Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain a. a copy of prospectuses to be provided to investors. b. a description of securities being offered for sale. c. a record of pre-registration sales in securities. d. a sample of advertising to be used to attract investments in Celfone.

B

Eager Beaver Corporation fails to hold a meeting to adopt bylaws. Under this circumstance, Eager Beaver will still be treated as a legal corporation in those states that recognize the common law doctrine of a. corporation by estoppel. b. de facto corporation. c. de jure corporation. d. ultra vires.

B

Frawsty Corporation distributes beverages in the greater Northwest. Frawsty's board of directors can delegate some of its functions to a. Frawsty's incorporators. b. Frawsty's officers. c. Frawsty's shareholders. d. no one.

B

Frida, Gayla, and Hart occupy the positions of director on the board of Integral Components Corporation. With respect to these directors, a quorum is the minimum number a. who must be at odds in a dispute to call for its resolution. b. who must be present to validly transact business. c. whom the shareholders may remove from office at any one time. d. whose positions must be vacant to warrant an election.

B

Frothy Beverage Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Frothy is required to a. contribute to the operations of national stock exchanges. b. disclose financial and other information about its securities. c. engage in market surveillance to deter undesirable practices. d. solicit proxies for voting.

B

Gillian is a director of Fizzy Soda Company. As a director, Gillian can act as an agent to bind Fizzy a. in all circumstances. b. in no circumstances. c. to any contract in which Fizzy does not have a conflict of interest. d. to any contract that represents a corporate opportunity for Gillian.

B

Mountaintop Clearview Corporation authorizes Niles, its employee, to oversee its timber operation. In the course of his employment, Niles disposes of the operation's waste illegally. Orson is a Mountaintop shareholder. 3. Refer to Fact Pattern 39-1A. With respect to Mountaintop and Niles, liability for this crime most likely rests with a. neither Mountaintop nor Niles. b. Mountaintop and Niles. c. Mountaintop only. d. Niles only.

B

Omega Corporation makes and markets digital timers, clocks, and related products. Like other business corporations, Omega issues securities to a. increase its market share. b. obtain financing. c. reduce its production costs. d. safeguard its facilities.

B

Rico, an engineer for Shur-2-Gro Seed Corporation, learns that Shur-2-Gro has developed a corn hybrid to triple the output of any farm. Rico buys 20,000 shares of Shur-2-Gro stock. He tells Taylor, who buys 15,000 shares. After the new hybrid is announced publicly, the price of Shur-2-Gro stock increases. Rico and Taylor sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on a. none of these parties. b. Rico and Taylor only. c. Rico only. d. Rico, Shur-2-Gro, and Taylor.

B

Ruben is a shareholder of Speed Bikes Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm's behalf. 38. Refer to Fact Pattern 40-1A. Ruben's suit is a shareholder's a. indemnification suit. b. derivative suit. c. proxy suit. d. preemptive suit.

B

Ruben is a shareholder of Speed Bikes Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm's behalf. Refer to Fact Pattern 40-1A. Any damages recovered by Ruben's suit will normally go to a. Ruben. b. SBC. c. SBC's directors. d. the state in which SBC is incorporated.

B

To raise $12 million to expand operations, Star Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. Star plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an "exempt" transaction a. as is. b. if all of the investors are also given certain material information. c. if the offering is also made available to the general public. d. under no circumstances.

B

Clark is a shareholder of Bedrest Mattress Company. Clark will be deemed to have a fiduciary duty to Bedrest and its minority shareholders if he has a. preferred stock. b. a right of first refusal. c. a sufficient number of shares to exercise de facto control. d. watered stock.

C

Convenience Mart, Inc., is a closely held corporation. Convenience Mart is a. eligible to make public offerings of securities. b. exempt from filing a certificate of incorporation. c. generally allowed to restrict the transfer of its stock. d. taxed in the same manner as a partnership.

C

Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. 53. Refer to Fact Pattern 42-2A. If Dhani is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of Eureka stock was a. a forward-looking forecast. b. not material. c. not yet public. d. not yet true.

C

Digitech is a foreign corporation, which means that Digitech a. is an alien corporation. b. is chartered in a foreign country. c. may be required to obtain a certificate of authority to do business. d. may do business only in foreign countries.

C

Discount Factory Outlets, Inc., issues bonds. Bonds a. are issued by businesses only. b. are sometimes referred to as "stock with preferences." c. have maturity dates. d. require periodic interest payments from their owners.

C

Flux Corporation is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, Flux is subject to the direct corporate governance requirements of a. any other public company with which Flux exchanges shares. b. any state in which Flux does business. c. the federal government. d. the state in which Flux incorporated.

C

Fresh Fruits & Veggies, Inc., wants to make an initial public offering of securities. Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. Refer to Fact Pattern 42-1A. If Fresh is exempt from the federal registration requirement, Fresh is a. automatically exempt from any state registration requirement. b. not subject to any state securities laws. c. not necessarily exempt under a state registration requirement. d. automatically subject to all state registration requirements.

C

Heidi and Ian are directors and shareholders of Globe Software, Inc. Heidi's written authorization to Ian to vote Heidi's shares at a Globe shareholders' meeting is a. a violation of the duty of loyalty. b. a preemptive right. c. a proxy. d. a quorum.

C

In all states, Exercise & Fitness Club Company and other corporations can pay dividends from a. gross profits. b. net profits. c. retained earnings. d. surplus.

C

Ivy and Justin want to form and do business as Kayak Adventures Corporation. A corporation can be owned by a. natural persons only. b. artificial persons only. c. artificial or natural persons. d. neither "artificial" nor "natural" persons.

C

Lex, a salesperson for Macro Corporation, learns that Macro will increase the dividend it pays to shareholders. Lex buys 1,000 shares of Macro stock. When the price increases, Lex sells his shares for a profit. Lex would not be liable for insider trading if the information about the dividend was a. material when he sold the stock. b. public after he bought the stock. c. public before he bought the stock. d. too speculative when he bought the stock.

C

Melba and Leon are directors of Fresh Foods, Inc. The right of Melba and Leon to be notified of special meetings of the board is the right to a. compensation. b. indemnification. c. participation. d. self-dealing.

C

Mountaintop Clearview Corporation authorizes Niles, its employee, to oversee its timber operation. In the course of his employment, Niles disposes of the operation's waste illegally. Orson is a Mountaintop shareholder. Refer to Fact Pattern 39-1A. Liability for Niles's act most likely rests with Orson to a. no extent. b. the proportionate extent of the number of shares Orson owns. c. the amount of Orson's investment in the firm. d. the full extent.

C

Ridgeline Sports Gear, Inc., is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 16(b) of the act covers a. the declaration of dividends by Ridgeline's board of directors. b. the later re-registration of Ridgeline's securities. c. the short-swing activities of Ridgeline's insiders. d. the solicitation of proxies from Ridgeline's shareholders.

C

Stan incorporates his scientific products business as Tech Precision Supply, Inc. This firm could have perpetual existence in a. a few states. b. all states. c. most states. d. no states.

C

Start-Up Corporation substantially complies with all conditions precedent to incorporation. Start-Up has a. corporate existence by estoppel. b. de facto existence. c. de jure existence. d. ultra vires existence.

C

Boutique Corporation would like to change its corporate status to avoid income taxes at the corporate level. To qualify, the shareholders must not be a. corporations. b. estates. c. individuals. d. partnerships.

D

Fiona owns one share of stock in GR8 Boards Corporation, as evidenced by a stock certificate. Fiona loses the certificate. Her ownership of the stock is a. forfeited immediately. b. forfeited within ten days of a third party's claim to ownership. c. forfeited within thirty days if she cannot find the certificate. d. not affected.

D

Flo-Thru Plumbing Corporation is poised to issue securities that, under the Securities Act of 1933, are "exempt." This means that the securities can be sold a. on the basis of a material omission or misrepresentation. b. on the basis of nonpublic information. c. within any six-month period by certain insiders. d. without being registered.

D

Jim and Kiley are architects and members of J&K, P.C., a professional corporation. Jim supervises Luc, an employee of the firm. As a member, Jim a. is personally liable for any tort committed by Kiley. b. has limited liability for any of Kiley's acts of malpractice. c. has no liability for any torts committed by Kiley or Luc. d. may be personally liable for malpractice committed by Luc.

D

Lon and Merry act as the incorporators for NuGame Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of NuGame's a. board of directors. b. incorporators. c. officers. d. shareholders.

D

New Discoveries Corporation, and its officers, directors, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to a. only the purchase or sale of a security by an investment company. b. only the purchase or sale of a security involving short-swing profits. c. only the purchase or sale of a security involving a tipper and tippee. d. the purchase or sale of any security.

D

Players Video Game Centers, Inc., wants to issue stock of $1 million in a single offering. Players must provide all investors with material information about itself, its business, and its securities if a. all investors are accredited. b. under any circumstances. c. any investors are accredited. d. any investors are unaccredited.

D

Reba is a director of Quantum Mechanix Corporation. Reba's rights, as a director, do not include a right to a. indemnification. b. inspection. c. participation. d. self-dealing.

D

Skyla and Terry want to form and do business as Unique Boutique Corporation. Most statutes governing the formation and use of corporations are guided by a. city or county corporate codes. b. the Entrepreneur's Corporate Handbook. c. the federal Administrative Procedure Act. d. the Revised Model Business Corporation Act.

D

Start-Up Enterprises, Inc., completes its registration process and begins advertising the availability of its new issue of securities. Start-Up places a tombstone ad in the financial papers. This ad tells prospective investors a. about investing. b. about the company. c. where to buy the securities. d. where to obtain a prospectus.

D

Suki is a registered agent for Trans-state Trucking, Inc. (TTI), which incorporated in Utah. As a registered agent, Suki a. agreed to buy stock in TTI before it existed. b. applied to Utah on behalf of TTI to obtain its corporate charter. c. does business for TTI in Utah. d. receives legal documents on behalf of TTI.

D

The first step in the incorporation procedure is to a. file the articles of incorporation. b. hold the first organizational meeting. c. secure a corporate name. d. select a state in which to incorporate.

D

Wild & Scenic River Tours, Inc., is a corporation. Wild & Scenic has the implied power to a. issue stocks and bonds. b. execute contracts and negotiable instruments. c. buy and sell (or lease) property. d. perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

D