Quiz #11

If a board of directors declares a dividend to "pay back" investors but that dividend would cause them to have to miss paying several bills as they become due, the members of that board will be personally responsible for any loss to the corporation.

True

One of the hallmarks of the corporate form is that shareholders may lose their investment in the corporation but no more than that.

True

Sections 302 and 404 of the Sarbanes-Oxley Act require high-level managers and many senior officers to establish and maintain an effective system of internal controls.

True

Securities generally are defined as any instruments representing corporate ownership (stock) or debts (bonds).

True

State securities laws generally do not provide for the registration of securities offered or issued because that is governed by federal law.

True

The 1934 Securities Exchange Act provides for the regulation and registration of securities exchanges, brokers, dealers, and national securities associations, such as the National Association of Securities Dealers (NASD).

True

The most common remedy for an ultra vires act is an injunction.

True

To pierce the corporate veil is to expose the shareholders to personal liability.

True

Today, every state has its own corporate securities laws that regulate the offer and sale of securities within its borders.

True

When a violation of Section 16(b) occurs, a corporation can bring an action to recover the short-swing profits.

True

Insider trading involves individuals who are:

insiders within publicly traded companies, including officers, directors and majority shareholders.

The Howey test is a test _______________________.

involving definition of an investment contract

The SEC is NOT responsible for:

issuing government bonds.

The Securities Exchange Act applies to companies that have assets in excess of _________________ and five hundred or more shareholders.

$10 million

The business judgment rule states that directors and officers:

are immune from liability for bad business judgments as long as they exercised reasonable care.

An important structure in corporate governance is the board of directors, because the board makes major decisions about the future of the corporation.

True

Bonds normally have a fixed payment and a maturity date when the principal is returned to the bondholder.

True

Corporate officers are hired by the directors.

True

Directors and officers may be liable for the actions of corporate employees under their supervision as well as for their own torts and crimes.

True

Directors are hired by the shareholders through an interview process.

True

SEC Rule 10b-5 applies only to cases that involve the trading of securities on organized exchanges, such as the New York Stock Exchange.

False

When Craig sells securities in his company, he deliberately overstates the value of the company in the prospectus and begins selling the shares one week before the effective date of the registration. What is Craig subject to?

Prosecution by the Department of Justice and liable for fines and damages if investors are harmed by his acts.

The _____________ Committee of the board of directors oversees the corporation's accounting and financial reporting processes, including the corporation's internal controls.

Audit

Corporations _________________ enjoy many of the same rights and privileges under state and federal law that people enjoy.

Do

__________________law corporation statutes set up the legal framework for corporate governance.

State

When a company distributes a portion of its income or profits in cash, property or stock to its shareholders in proportion to their shares, it is called:

a dividend.

The reason that most states either permit or require cumulative voting when electing directors is to:

allow minority shareholders a chance at electing a director.

A corporation is a legal entity:

created by state statute.

The purpose of regulating securities was to accomplish all of the following except:

curb highly profitable transactions.

Examples of exempt securities under the Securities Act of 1933 are __________________.

bonds issued by the American Red Cross

Congress passed the Sarbanes-Oxley Act in__________.

2002

A corporate director who sits on more than one board is engaging in illegal activity.

False

A corporation normally has a fifty-year existence.

False

In order to improve corporate governance, most large corporations have eliminated the use of outside directors.

False

Preemptive rights are not important in close corporations because all of the shareholders are family or close friends.

False

There is no difference between a public corporation and a publicly held corporation.

False

What happens when the Internet is used for the delivery of a prospectus?

The same rules apply that apply to the delivery of a paper prospectus.

A corporation automatically will be taxed under subchapter C unless it elects to become an S corporation.

True

Effective corporate governance is essential in large corporations because corporate ownership (by shareholders) is separated from corporate control (by officers and managers).

True

Shareholders have a right to inspect the corporate records for______________ purpose.

a proper

Individual corporate directors ___________ have the ability, as agents of the corporation, to bind the corporation.

do not

Officers and directors have a special relationship with the corporation and its shareholders and are called:

fiduciaries.

One of the key advantages of the corporate form of business is __________________.

limited liability of ownership

A shareholder________________ have a stock certificate to prove ownership of the stock.

must

Liability under Section 16(b) is strict liability, which means that:

neither scienter nor negligence is requi

In order for shareholders to exercise control, a ____________________ must be present, either in person or through proxies.

quorum

The articles of incorporation must include information such as the name, number of shares, and the name of its __________________ , or person designated to receive legal documents on its behalf.

registered agent

The Securities Act of 1933 was designed to:

require disclosure of all relevant information concerning the issuance of securities to the public.

Blue sky laws are:

state laws regulating intrastate sales of securities.

Acts that are beyond the express or implied powers of a corporation are called _____________ acts.

ultra vires

If a corporation issues stock from less than the fair market value, that stock is called:

watered stock