Business Law 35

Assume that 12,000 shares are represented at a shareholder meeting. How many votes are normally necessary to carry a motion? a. 6,001. b. 4,001. c. 10,000. d. 8,001.

a. 6,001. Correct. A simple majority is necessary to carry a motion ((12,000 / 2) + 1).

The great majority of corporations are: a. closely held corporations. b. publicly held corporations. c. nonprofit corporations. d. limited liability companies.

a. closely held corporations. Correct. The majority of corporations are closely held corporations. See "Corporate Governance" in Chapter 35.

The type of authority that arises from acts of the corporation that lead third parties to believe reasonably and in good faith that an officer has the requisite authority is: a. actual express authority. b. actual implied authority. c. apparent authority. d. ratification.

c. apparent authority. Correct. The type of authority that arises from acts of the corporation that lead third parties to believe reasonably and in good faith that an officer has the requisite authority is apparent authority. See "Authority of Officers 35-6c."

If a shareholder sues in a derivative suit, the judgment will be paid to: a. the shareholders as a dividend. b. the shareholder brining the suit. c. the corporate treasury. d. the board of directors.

c. the corporate treasury. Correct. A judgment from a derivative suit is paid to the corporate treasury. See "Shareholder Suits 35-2b."

Evelyn is a shareholder of Peaceful Corporation. One day, Evelyn seeks to inspect the books and records of Peaceful Corporation. Officers for Peaceful Corporation, however, resist Evelyn's request on grounds that her request is not a proper purpose. Which of the following is an example of an improper purpose that would prevent Evelyn from inspecting the company's books and records. a. Obtaining a list of shareholders in order to offer Peaceful Corporation for sale. b. Obtaining information for use by a competing company. c. Obtaining information solely to abuse board members with whom Evelyn does not like. d. All of the above.

d. All of the above. Correct. All of the examples are improper purposes.

A proxy, voting trust, and shareholder agreement are similar in: a. duration. b. revocability. c. degree of formality required. d. All of these are correct.

d. All of these are correct. Correct. Proxy, voting trust, and shareholder agreement are all similar in duration, revocability, and degree of formality required. See "Concentrations of Voting Power 35-1f."

All of the following would constitute a "fundamental change" to the corporation EXCEPT: a. an amendment to the articles of incorporation. b. a merger. c. a stock dividend. d. selling off 70% of the business assets.

c. a stock dividend. Correct. A stock dividend is not considered a fundamental change. See "Approval of Fundamental Changes 35-1e."

Rick is the president of Dabbling Software, Inc. Tim is a director of Dabbling Software, while Roman is an individual shareholder. Juan and Marc own 20 percent of the shares combined in Dabbling Software, Inc. Assuming that no special provision in the articles of incorporation apply, who may call a special shareholder meeting? a. Juan and Marc. b. Tim. c. Roman. d. Rick.

a. Juan and Marc. Correct. Assuming no special provision in the articles of incorporation, special shareholder meetings may be called by holders of at least 10% of shares.

The shareholders of Druid Corporation agree in writing to vote for the removal of all of its board of directors. This is also known as: a. a shareholder voting agreement. b. a proxy. c. a voting trust. d. cumulative voting.

a. a shareholder voting agreement. Correct. If shareholders agree in writing to vote in a specified manner for election or removal of directors, this is known as a shareholders voting agreement.

Theodore, as treasurer of Komand Corporation, had the duty to invest corporate earnings as he deemed best for the company. When Komand Corporation went public, the new board decided that a committee of the officers would make such investment decisions. If Theodore thereafter unilaterally contracted to purchase investment securities with corporate earnings as he had done many times before, such contract would be valid: a. under apparent authority if the seller knew of Theodore's past transactions. b. since Theodore had implied authority. c. since Theodore would have express authority. d. because of ratification if the board did not know of his actions.

a. under apparent authority if the seller knew of Theodore's past transactions. Correct. Apparent authority arises from a corporation's actions the leads third parties to believe in good faith an officer has the authority to act.

Shareholders normally have the right to do all but which one of the following? a. Elect directors. b. Elect the officers. c. Approve the sale of a major division. d. Meet at least once a year.

b. Elect the officers. Correct. Shareholders do not have the right to elect the officers. See "Voting Rights of Shareholders 35-1."

Gerhardt is the president of the Pacer Bicycle Company. He also serves as a director of the Flexible Tire Company. It occurs to Gerhardt that both companies could benefit from a contract in which Flexible agrees to supply Pacer with tires for its bicycles. If Gerhardt wishes to negotiate a contract between Pacer and Flexible, which of the following is correct? a. The contract will be void as a conflict of interest. b. Under the RMBCA, the contract is permitted if it is fair and reasonable to both corporations, Gerhardt fully discloses all information relating to the transaction, and the contract is approved by either the board of disinterested directors or the shareholders. c. The contract is a clear conflict of interest and will be avoidable by either company even with disclosure. d. All of these are correct.

b. Under the RMBCA, the contract is permitted if it is fair and reasonable to both corporations, Gerhardt fully discloses all information relating to the transaction, and the contract is approved by either the board of disinterested directors or the shareholders. Correct. Under the RMBCA, the contract is permitted if it is fair and reasonable to both corporations, Gerhardt fully discloses all information relating to the transaction, and the contract is approved by either the board of disinterested directors or the shareholders.

The minimum number of board members necessary to be present at a meeting in order to transact business is known as: a. a plurality. b. a quorum. c. the entire board of directors. d. a minority.

b. a quorum. Correct. The minimum number of board members necessary to be present at a meeting in order to transact business is known as a quorum. See "Quorum and Voting 35-1b."

Zoe Style Corporation's board decided on the following actions: (1) to amend the articles of incorporation to change the number of shares necessary to establish a quorum; (2) to merge with Altitude Style Incorporated; (3) to declare stock dividends; and (4) to sell 40 percent of Zoe Style Corporation's business assets. Which of the following action is not considered a fundamental change? a. amending the articles of incorporation to change the number of shares necessary to establish a quorum. b. declaring stock dividends. c. selling 50 percent of Zoe Style's business assets. d. merging with Altitude Style Incorporated.

b. declaring stock dividends. Correct. A stock dividend is not considered a fundamental change.

Bill is a member of the board of directors of Telmar Corp. He would like to have the corporation lend him some money so that he can begin another business venture. Which of the following is correct regarding loans of a corporation to one of its directors? a. The Model Act does not permit a corporation to lend money to its directors without authorization in each instance by its shareholders. b. The Sarbanes-Oxley Act prohibits any publicly held corporation from making personal loans to its directors, with limited exceptions. c. All of these are correct. d. None of these are correct.

c. All of these are correct. Correct. The Model Act does not permit a corporation to lend money to its directors without authorization in each instance by its shareholders and the Sarbanes-Oxley Act prohibits any publicly held corporation from making personal loans to its directors, with limited exceptions.

The right of a shareholder to examine the books and records of the corporation may be denied if the shareholder: a. seeks information to determine the financial condition of the corporation. b. desires to know the value of shares. c. seeks information to embarrass or cause loss to the corporation. d. desires the names and addresses of other shareholders.

c. seeks information to embarrass or cause loss to the corporation. Correct. The right of a shareholder to examine the books and records of the corporation may be denied if the shareholder seeks information to embarrass or cause loss to the corporation. See "Right to Inspect Books and Records 35-2a."

Arthur is a shareholder of Rowson, Inc. He has evidence to suggest that its president/CEO has allowed the corporation to engage in acts that are ultra vires. Based upon this evidence, Arthur contacts an attorney and sues the corporation on behalf of the corporation. The lawsuit Arthur has filed is known as: a. a class suit. b. a direct suit. c. an unauthorized suit. d. a derivative suit.

d. a derivative suit. Correct. A derivative suit is a cause of action brought by shareholder on behalf of the corporation to enforce right belonging to it.

If shareholders agree in writing to vote in a specified manner for election or removal of directors, this is known as: a. a proxy. b. cumulative voting. c. a voting trust. d. a shareholder voting agreement.

d. a shareholder voting agreement. Correct. If shareholders agree in writing to vote in a specified manner for election or removal of directors, this is known as a shareholders voting agreement. See "Concentrations of Voting Power 35-1f."

Assuming no special provision in the articles of incorporation, special shareholder meetings may be called by: a. the president of the company. b. any individual director. c. any individual shareholder. d. holders of at least 10% of shares.

d. holders of at least 10% of shares. Correct. Assuming no special provision in the articles of incorporation, special shareholder meetings may be called by holders of at least 10% of shares. See "Voting Rights of Shareholders 35-1."

If Eilene, a shareholder, sues in a derivative suit, the judgment will be paid to: a. the board of directors. b. Eilene directly. c. the shareholders as a dividend. d. the corporate treasury.

d. the corporate treasury. Correct. A judgment in a derivative suit would be paid to the corporate treasury.