LENB 3135 Chapter 18 Study Questions

As a director and officer of Max Transport, Inc., Max would most likely be considered to have breached his duty of loyalty if he: a. personally takes advantage of a business opportunity that the officers and directors of Max Transport voted against b. suggests to the other members of the board that the company should purchase a new line of trucks c. becomes a director of CineMax, a chain of multiplex theaters d. buys stock in Arnold's Transport, Inc., a competing trucking firm

d. buys stock in Arnold's Transport, Inc., a competing trucking firm

Sophie and Tiny incorporate their beverage-container business as U-Twist Products, Inc. The first board of directors may be appointed by the firm's: a. officers. b. employees. c. shareholders. d. incorporators.

d. incorporators

Shareholders have a right to inspect the corporate records for a proper/any/any commercial purpose.

A proper

Corporations do/do not enjoy many of the same rights and privileges under state and federal law that people enjoy.

Do

Individual corporate directors do/do not have the ability, as agents of the corporation, to bind the corporation.

Do not

True/False Partners in a partnership have limited liability

False

True/False: A close corporation cannot operate as an S corporation

False

True/False: A sale of all of a corporation's assets requires the approval of the state

False

True/False: Directors are hired by the shareholders through an interview process

False

True/False: Shareholder approval is required when a corporation buys all of the assets of another company

False

A shareholder must/need not have a stock certificate to prove ownership of the stock.

Need not

True/False: A close corporation may restrict the right of a shareholder to transfer stock

True

True/False: Any person who buys common stock acquires voting rights in a corporation

True

True/False: Corporate officers and directors owe no duty to individual shareholders

True

Acme Co. has just completed the incorporation process and received its articles of incorporation from the state. At the first organizational meeting of the new company, the officers' most important task is to: a. adopt bylaws b. determine the details of the stock sale c. create a hiring policy d. amend the articles of incorporation

a. Adopt bylaws

The Revised Model Business Corporation Act states that unless a corporation's articles or bylaws provide otherwise, the compensation for directors is set by the: a. directors themselves b. shareholders c. chief executive officer d. corporate officers

a. directors themselves

James Johnson, Sarah Johnson and Joseph Johnson created a close corporation for their family business. They did not hold regular corporate meetings, but did maintain separate corporate books. Sarah, who managed the corporation, used a company car as her personal vehicle. After several years of doing business with no problems, they found themselves in the position of not being able to pay their debts. If their creditors asked the court to pierce the corporate veil and hold James, Sarah and Joseph personally liable for the debts, the court would probably: a. not hold them liable unless there was some evidence of fraud or wrongdoing b. hold them liable because they did not observe all the corporate formalities c. not hold them liable because corporate meetings are not required for close corporations d. hold them liable because Sarah used company property for personal use

a. not hold them liable unless there was some evidence of fraud or wrongdoing

Officers and directors have a special relationship with the corporation and its shareholders and are called: a. responsible parties. b. fiduciaries. c. registered agents. d. managers.

b. Fiduciaries

The directors of Sports Color, Inc., vote to refuse to declare a dividend. The shareholders should: a. return treasury shares in exchange for a dividend b. file an action to require the directors to declare a dividend c. demand that a court oust the directors d. overrule the directors and vote to declare a dividend themselves

b. File an action to require the directors to declare a dividend

Galen and Leslie are directors, but not officers, of Tropical Travels, Inc. Tropical Travels becomes embroiled in a controversy over airline kickbacks. As directors, Galen and Leslie can be named in any lawsuit that may result from the company's actions. Because of their right of: a. compensation, they have been adequately paid in the event that they require legal representation b. indemnification, the company may reimburse them for legal fees and judgments c. participation, they will be allowed to participate fully in the legal proceedings d. inspection, they have access to all the company documents that are necessary for the legal proceedings

b. Indemnification, the company may reimburse them for legal fees and judgments

Which of the following is not a factor that leads courts to pierce the corporate veil? a. Personal and corporate interests are commingled to such an extent that the corporation has no separate identity b. The articles of incorporation were incorrectly filed c. The corporation is formed to evade an existing legal problem d. The corporation is set up never to make a profit

b. The articles of incorporation were incorrectly filed

Cara and Dru are officers of EZ Trucking Corporation. As corporate officers, the rights of Cara and Dru are: a. the same as those of the directors b. determined by their employment contracts c. the same as those of the shareholders d. specified in state corporation statutes

b. determined by their employment contracts

Cohen, Stracher & Bloom, P.C., a law firm organized as a professional corporation under New York law, entered into a lease agreement with We're Associates Co. for office space. The lease was signed for We're Associates by one of the partners of that company and for the law firm by Paul Bloom, the vice president of the firm. Bloom, Cohen, and Stracher were the sole officers, directors, and shareholders of the professional corporation. The law firm became delinquent in paying its rent, and We're Associates brought an action to recover approximately $9,000 in lease payments and other charges due under the lease. The complaint was filed against the professional corporation and each individual shareholder. The individual shareholders moved to dismiss the actions against them individually. The court most likely: a. did not grant the motion, because a professional corporation is similar to a partnership, and its members retain similar liabilities b. granted the motion, because shareholders in professional corporations are individually liable only for claims brought about by the rendering of their professional services c. did not grant the motion, because shareholders in professional corporations retain more liability than shareholders in other corporations d. granted the motion, because only one of the attorney/shareholders signed the lease agreement; he could not bind all three of them individually

b. granted the motion, because shareholders in professional corporations are individually liable only for claims brought about by the rendering of their professional services

The constitutional rights enjoyed by corporations are: a. nonexistent. Only individuals working for corporations have constitutional rights b. the same as many of those held by natural persons c. identical to those held by natural persons d. greater than those held by natural persons

b. the same as many of those held by natural persons

The reason that most states either permit or require cumulative voting when electing directors is to: a. allow directors to have greater input in to the election process b. allow minority shareholders to control the election process c. allow minority shareholders a chance at electing a director d. reduce fraud among voters

c. Allow minority shareholders a chance at electing a director

To encourage shareholders to pay attention to the board's actions, when a shareholder's derivative suit is won, the damages: a. are paid to the shareholders, but only up to 50% of the damages b. are fully paid to the shareholders who brought the suit c. are paid in to the corporation's treasury

c. Are paid in to the corporation's treasury

Keenan wants to incorporate his business. He buys business cards and labels with the name "Keenan's Kwips, Inc." on them and begins selling gag gifts. Keenan follows the rules for incorporation in his state, including a statement that he is the sole shareholder, and he is granted a certificate of incorporation. Keenan's business is probably a: a. de facto corporation b. corporation by estoppel c. de jure corporation d. public corporation

c. De jure corporation

Today most state corporate statutes are at least partially based on the a. Restatement of Corporate Law b. Sherman Antitrust Act c. Revised Model Business Corporation Act d. Clayton Act

c. Revised Model Business Corporation Act

Owners of which form(s) of business have unlimited liability for debts of the business? a. Partnership b. Sole proprietorship c. Sole proprietorship and partnership d. Corporations

c. Sole proprietorship and partnership

A major power held by shareholders is the power to: a. declare dividends b. appoint corporate officers c. amend the articles of incorporation or the corporate bylaws d. manage and supervise daily operations of the corporation

c. amend the articles of incorporation or the corporate bylaws

Piercing the corporate veil means: (Pick Two) a. requiring the shareholders and officers to post bond before entering into any contracts on behalf of the corporation. b. dividing the corporation in half. c. disregarding the corporate entity and holding the shareholders personally liable for corporate debts and obligations. d. adding new obligations to the duties of the officers.

c. disregarding the corporate entity and holding the shareholders personally liable for corporate debts and obligations d. adding new obligations to the duties of the officers

Stan is a registered agent for Transport, Inc., which incorporated in Utah. As a registered agent, Stan: a. does business for Transport in Utah b. agreed to buy stock of Transport before it existed c. receives legal documents on behalf of Transport d. applied to Utah on behalf of Transport to obtain its corporate charter

c. receives legal documents on behalf of Transport

Connie Fernandez owns 100 shares of Prodigy Corporation, which is 2 percent of the total shares. The corporation has given shareholders preemptive rights. Prodigy Corporation issues 1,000 new shares of stock. Before Prodigy Corporation can offer the new stock to any outside buyers, Fernandez can purchase: a. up to 200 shares, which is twice her number of shares b. as many shares as she wants c. up to 20 shares, which is 2 percent of the new issue d. up to 100 shares, which is her current holding

c. up to 20 shares, which is 2 percent of the new issue

Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be: a. suspect and voidable b. invalid and unenforceable c. valid and enforceable d. oppressive and irresponsible

c. valid and enforceable