BEC SU 1.1

A corporation comes into being when the corporate bylaws are filed with the secretary of state of the relevant state. (True/False)

False. A corporation comes into being when the articles of incorporation are filed with the secretary of state of the relevant state.

Directors govern the internal structure and operation of the corporation. (True/False)

False. Bylaws (not directors) govern the internal structure and operation of the corporation. The board establishes and implements corporate policy including selection and removal of officers; determination of capital structure; adding, amending, or repealing bylaws; initiation of fundamental changes; declaration of dividends; and setting of management compensation.

Corporations are formed under the federal laws of incorporation. (True/False)

False. Corporations are formed under the laws of the state of incorporation.

Directors cannot be held personally liable for failure to disclose conflicts of interest to the corporation. (True/False)

False. Directors owe a fiduciary duty to the corporation and its shareholders. Under the duty of loyalty, they can be held personally liable for failure to disclose conflicts of interest to the corporation.

Either management or the board may decide to declare and distribute dividends. (True/False)

False. Only the board may decide to declare and distribute dividends.

Shareholders may not change, even by unanimous agreement, the provisions otherwise applicable to corporate governance. (True/False)

False. Shareholders may change, by unanimous agreement, the provisions for corporate governance. This flexibility may allow a close corporation to function more nearly as a partnership without loss of corporate status.

The chief executive officer (CEO) of a corporation is appointed by the common shareholders and is responsible for carrying out the entity's day-to-day operations. (True/False)

False. The CEO of a corporation is appointed by the board of directors, not the common shareholders, to carry out the entity's day-to-day operations.

The articles of incorporation must contain a provision stating its purpose and powers. (True/False)

False. The articles of incorporation may contain optional provisions, such as purpose and powers of the corporation, internal management, and any subject required or allowed to be addressed in the bylaws.

Governance of a corporation helps ensure that an entity effectively and efficiently directs its activities toward meeting the objectives of its management. (True/False)

False: Governance is the combination of people, policies, procedures, and processes that help ensure that an entity effectively and efficiently directs its activities toward meeting the objectives of its stakeholders, not its management

All major corporate decisions are made or approved by the board. (True/False)

True. All major corporate decisions are made or approved by the board, whereas the day-to-day operations are management's responsibility.

The board is permitted to remove an officer. (True/False)

True. As one of its duties, the board is permitted to select and remove officers.

A director who has a corporate opportunity must give the corporation the right of first refusal. (True/False)

True. In carrying out a director's fiduciary duty to the corporation, a director who has a corporate opportunity must give the corporation the right of first refusal.

Management is responsible for the preparation and fair presentation of the financial statements. (True/False)

True. Management is responsible for the preparation and fair presentation of the financial statements and the design, implementation, and maintenance of internal control relevant to their preparation and fair presentation.

Officers are agents of the corporation. (True/False)

True. Officers are agents of the corporation and as such may enter the corporation into legally binding contracts.

A director may rely on information presented by officers whom the director reasonably believes to be competent in the matters presented. (True/False)

True. The business judgment rule protects an officer or director from personal liability for honest mistakes of judgment if (s)he acted in good faith; was not motivated by fraud, conflict of interest, or illegality; and was not grossly negligent. To avoid personal liability, a director may rely on a professional specialist or an officer believed to be competent in the area.

There are two types of shareholders: common and preferred. Preferred shareholders do not usually have voting rights. (True/False)

True. There are two types of shareholders. The common shareholders have contributed the basic capital for the corporation to carry its business. The preferred shareholders may receive dividends and liquidation distributions before common shareholders, but they usually do not have voting rights.

The shareholders' participation in corporate policy and management includes meeting annually and electing directors. (True/False)

True: Shareholders meet annually and elect directors. Additionally, shareholders indirectly control the actions of the corporation by their power to remove any and all directors. Shareholders also must approve fundamental corporate changes.