BLAW Chapter 34 Exam 2

rights of directors

1. right to participation 2. right of inspection 3. right to indemnification

majority shareholder

A ___ is regarded as having a fiduciary duty to the corporation and to the minority shareholders.

corporate employees

Directors and officers may be held liable for the crimes and torts committed by ___ under their supervision

committees of directors

The boards of large publicly held corporations typically create ___ and delegate certain tasks to them

conflicts of interest

The duty of loyalty involves ___

C) the business judgement rule

What principle protects corporate directors and officers from liability for bad decisions if they are made as honest mistakes rather than in negligence? A) no-fault liability B) reasonable culpability C) the business judgement rule D) duty of judgement

D) making a full disclosure of potential conflicts of interest

Which of the following is a duty of both corporate directors and corporate officers? A) purchasing stock in the company B) working at least forty hours per week for the corporation C) limiting political endorsements to only candidates that the corporation supports D) making a full disclosure of potential conflicts of interest

shareholders

___ approve fundamental changes affecting the corporation

shareholders

___ are empowered to amend the articles of incorporation and bylaws

committees

___ focus on individual subjects, thus increasing the efficiency of the board

shareholders

___ have the power to elect or remove members of the board of directors

quorum

a ___ exists when shareholders holding more than 50% of the outstanding shares are present. Must be present for shareholders yo act during a meeting

duty of care

act in good faith and in the best interests of the corporation

$1000

all shareholders who own stock worth at least ___ are eligible to submit proposals for inclusion in corporate proxy materials

agents

corporate and managerial officers often act as ___ of the corporation

executive committee

handles interim management decisions between board meetings

stock certificate

in the past, shareholders had a right to a ___ that evidenced ownership of a specified number of shares in the corporation

corporations

most ___ have a president, Vice President, secretary, and treasurer

quorum

normally, a majority of the board of directors constitutes a ___

preferred stock

owners of ___ are usually denied the right to vote

audit committee

responsible for the selection, compensation, and oversight of the independent public accountants that audit the firm's financial records. Required by the Sarbanes-Oxley Act

annually

shareholder meetings must occur at least ___

mergers, dissolution

shareholders approve ___ or the ___ of the corporation

assets

shareholders approve the sale of the corporation's ___

one-year

the board of directors usually serves for a ___ term

broad

the business judgement rule provides ___ protections

quorum

the minimum number of members of a body of officials or other group that must be present in order for business to be validly transacted

preemptive rights

the shareholder receives a preference over all other purchasers to subscribe to or purchase a share of a new issue of stock

When the business judgement rule applies

1) The director took reasonable steps to become informed about the matter. 2) The director has a rational basis for the decision 3) There was no conflict of interest between the director's personal interest and the interest of the corporation.

C) the corporation itself D) the stockholders

A corporate officer, as an agent of the corporation, has a duty of loyalty to make decisions that will benefit: choose 2 answers A) a charitable organization B) a subsidiary corporation C) the corporation itself D) the stockholders

C) dividend

Along with a claim on assets, shareholders may also receive a portion of profits the company pays out in the form of a: A) proxy B) capital gain C) dividend D) reinvestment

duties and liabilities of directors and officers

Duty of care Duty to make informed and reasonable decisions Duty to exercise reasonable supervision

A) unpaid amounts on the shares held by that shareholder

In ordinary circumstances, when the corporate veil has not been pierced, a shareholder may be liable for: A) unpaid amounts on the shares held by that shareholder B) the actions of the board of directors C) a portion of the settlement in a class-action lawsuit D) a portion of corporate fines for environmental violations

board of directors duties

Policymaking decisions Selects and removes corporate officers Determines capital structure of corporation Declares dividends

corporate officers

The board of directors can normally remove ___ at any time with or without cause

recorded minutes

The board of directors conducts business by holding formal meetings with ___

B) making financial decisions about when to declare dividends C) making personnel decisions on the executive level and setting compensation for officers D) authorizing corporate policy decisions such as pursuing new product lines

The management responsibilities of the board of directors of a corporation include: choose 3 answers A) serving on an audit committee to supervise the accountants who audit the company's financial records B) making financial decisions about when to declare dividends C) making personnel decisions on the executive level and setting compensation for officers D) authorizing corporate policy decisions such as pursuing new product lines

A) the board of directors selects and removes the corporate officers D) directors make policy decisions necessary for the management of the company

What is the role of directors in a corporation? choose 2 answers A) the board of directors selects and removes the corporate officers B) the directors are trustees, holding title to the corporate property for the benefit of the corporation C) each individual director has the authority to act as an agent for the corporation to make contracts D) directors make policy decisions necessary for the management of the company

B) running a small side business that competes with the corporation D) using information that is not public knowledge to make a profit on purchases or sales of the company's stock

Which of the following actions show a failure to uphold the duty of loyalty expected of corporate directors? choose 2 answers A) retiring before age 65 B) running a small side business that competes with the corporation C) serving on a board of directors for one of the corporations' suppliers D) using information that is not public knowledge to make a profit on purchases or sales of the company's stock

B) opportunity to inspect corporate books and records C) transferable ownership D) voting on matters such as election of directors and proposals for mergers or liquidation

Which of the following are rights of common shareholders? choose 3 answers A) priority for having debts paid from the liquidating company's assets B) opportunity to inspect corporate books and records C) transferable ownership D) voting on matters such as election of directors and proposals for mergers or liquidation

10, 60

a corporation must notify its shareholders of the date, time, and place of an annual or special shareholders' meeting at least ___ days, but not more than ___ days before the meeting date

for cause

a director can be removed ___, that is, for failing to perform a required duty

outside director

a director who does not hold a management position

inside director

a director who is also an officer of the corporation

dividend

a distribution of corporate profits or income ordered by the directors and paid to the shareholders in proportion to their shares in the corporation

shareholder's derivative suit

a suit brought by a shareholder to enforce a corporate cause of action against a third person. Written demand is required, and damages recovered go into corporate funds

office

an individual can hold more than one ___

A) proposals for fundamental changes affecting the company such as mergers or liquidation

common shareholders have the right to vote on: A) proposals for fundamental changes affecting the company such as mergers or liquidation B) price of stock C) compensation for the officers D) when to pay dividends

resolutions

corporate business matters are presented in the form of ___, which shareholders vote to approve or disapprove

full disclosure

corporate director's fiduciary duty requires them to make a ___ of any potential conflicts of interest that might arise in any corporate transaction

business judgement rule

corporate directors and officers are not liable to the corporation or its shareholders for honest mistakes of judgement or bad business decisions made in good faith

board of directors

corporate officers and other executive employees are hired by the ___

employment contracts

corporate officers and other high-level managers are employees of the company, so their rights are defined by ___

nominal

directors are often paid at least ___ sums

illegal

dividends are ___ if they are improperly paid from an unauthorized account, or if their payment causes the corporation to become insolvent

inspection

shareholders in a corporation enjoy both common law and statutory ___ rights

urgent matters

special shareholder meetings can be called when dealing with ___

shares

stockholders can either vote in person or appoint another person as their agent to vote their ___ at the meeting

statutory

subject to ___ limitations, the number of directors is set forth in the corporation's articles or bylaws

dates

the ___ of regular meetings are usually established in the articles or bylaws or by board resolution, and ordinarily no further notice is required

owner, shareholder

the acquisition of a share of stock makes a person an ___ and ___ in a corporation

proxy

the agent's formal authorization to vote the shares

shareholder's

the board of directors cannot attempt to manipulate the election in order to reduce the ___ influence, however, if it does, the ___ can challenge the election in court

formed

the board of directors is initially created when the corporation is ___

board of directors

the ultimate authority in any corporation

inside, outside

typically, a corporation's board of directors includes both ___ and ___ directors

cumulative voting

voting method designed to allow minority shareholders to be represented on the board of directors

dividend

when directors fail to declare a ___, shareholders can ask a court to compel the directors to do so