BLAW Exam 2
The board approves a proposed amendment to deny existing preemptive rights to Class A preferred, and to issue stock in a new Class D preferred that would be accorded liquidation preference after all other classes of preferred stock. Preferred Classes B and C would remain the same. Which of the following would be true? a. A majority of Class A, B, and C shareholders all together would be needed to pass the amendment. b. Class B and C shareholders would not be entitled to vote at all. c. Class A and C shareholders would vote together. d. Only Class B and C shareholders vote.
a. A majority of Class A, B, and C shareholders all together would be needed to pass the amendment.
Andy is Debbie's agent and commits fraud against Grocery Brothers, Inc. while acting within his apparent and actual authority. Which of the following correctly states Andy's liability in this situation? a. Andy is liable for both the tort and the crime. b. Andy is generally liable for the crime but not the tort, assuming that the tort was committed to advance the interests of the principal. c. Andy is generally liable for the crime but not the tort. d. Andy is not liable for the tort or the crime, assuming both were committed to advance the interests of the principal.
a. Andy is liable for both the tort and the crime.
If Barker Co. buys 51% of the shares of Carter Co.: a. Barker Co.'s board would have to approve the sale. b. both sets of shareholders would have to approve the sale. c. both boards would have to approve the sale. d. Carter Co.'s board would have to approve the sale.
a. Barker Co.'s board would have to approve the sale.
Carlos is a promoter of Debonair Enterprises, Inc. To whom, if any, does Carlos owe a fiduciary duty? a. Carlos owes a fiduciary duty to any other promoters of Debonair Enterprises. b. Carlos owes a fiduciary duty to Debonair Enterprises only. c. Carlos does not owe a fiduciary duty to any party. d. None of these are correct.
a. Carlos owes a fiduciary duty to any other promoters of Debonair Enterprises.
In which of the following scenarios is the agent exposed to the least risk of liability? a. Disclosed principal and authorized contract. b. Undisclosed principal and authorized contract. c. Partially disclosed principal and authorized contract. d. Authorized receipt of money from third person remitted to disclosed principal.
a. Disclosed principal and authorized contract.
Fred is Wilma's agent. Wilma is in the cake baking business. Without Wilma's knowledge, Fred began going to different civic events and publicly, yet falsely, criticizing the quality of cakes produced by Wilma's competitors. Several attendees at the events remarked that they would never shop in Wilma's business again due to Fred's behavior. Which duty has Fred violated? a. Duty of Good Conduct b. Duty to Compensate. c. Duty to Indemnify. d. None of these answers are correct.
a. Duty of Good Conduct
Wilma wishes to hire an agent. Though she believes that she can trust someone, based upon their reputation, she wants to know what the legal obligations are of an agent as a fiduciary. Which of the following is a legal obligation a fiduciary owes to the principal? a. Good faith and utmost loyalty to the principal. b. Duty to compensate c. Duty to self-deal. d. None of these answers are correct.
a. Good faith and utmost loyalty to the principal.
Baxter agrees with Morry to enter into the management of a new apartment building. Morry appoints Baxter as his manager for one year. During the course of the construction, Baxter decides to use funds specified for the construction of a garage that Baxter alone has been interested in completing. Morry is very angry on learning of Baxters' actions and terminates the agency. Baxter insists that the agency cannot be terminated in this manner. Is Baxter correct? a. Morry has the power to terminate the agency. b. Morry cannot terminate the agency under any circumstances. c. only Baxter can terminate the agency. d. Morry can terminate the agency, but only after the term has expired.
a. Morry has the power to terminate the agency.
Barney is Betty's gratuitous agent. One day, Barney tells Betty: "I'm through with you. I'm no longer your agent." After the statement, is Barney Betty's agent? a. No, Barney, as Betty's agent, renounced his agency and ended the relationship. b. Yes, because Betty must agree. c. Yes, because Barney is contractually obligated to be Betty's agent. d. None of these answers are correct.
a. No, Barney, as Betty's agent, renounced his agency and ended the relationship.
Denali, Inc. is seeking to pay out dividends to all of its shareholders and seeks advice on the customary type of dividend to pay out to its shareholders. What advice would you give Denali, Inc.? a. Pay shareholders cash dividends. b. Pay shareholders stock dividends. c. Pay shareholders property dividends. d. Pay shareholders liquidating dividends.
a. Pay shareholders cash dividends.
The Porter Corporation has $100,000 in equity and $150,000 in liabilities. If the board of directors seek to declare dividends, which of the following is true under the cash flow test? a. The board cannot declare dividends because doing so would make Porter Corporation insolvent. b. The board can declare dividends, so long as it receives the state's permission. c. The board can declare dividends, so long as it issues new stock. d. None of these are correct.
a. The board cannot declare dividends because doing so would make Porter Corporation insolvent.
George holds a valid durable power of attorney for his father, who is incapacitated. Which of the following events will terminate the durable power of attorney. a. The death of his father. b. Insolvency of his father. c. A subsequent durable power of attorney granted by this father. d. None of these are correct
a. The death of his father.
Which of the following will terminate a valid durable power of attorney after the principal is incapacitated?
a. The death of the principal.
Michael is truck driver employed by Simmons Construction Corporation. While operating the truck during business hours, Michael negligently crashes into Peter. Is Simmons Construction Corporation liable? a. Yes, Simmons Construction Corporation is liable under the doctrine of respondeat superior. b. Yes, Simmons Construction Corporation is liable under the corporation de facto doctrine. c. No, only Michael is liable. d. All of these are correct.
a. Yes, Simmons Construction Corporation is liable under the doctrine of respondeat superior.
A promoter of a corporation has a fiduciary duty to: a. any other promoters of that corporation. b. only the corporation. c. no one. d. None of these are correct.
a. any other promoters of that corporation.
James, a promoter of Unobtainium Corporation, has a fiduciary duty to: a. both the other promoters and the initial shareholders of Unobtainium Corporation. b. any other promoters of Unobtainium Corporation. c. the initial shareholders of Unobtainium Corporation. d. only Unobtainium Corporation.
a. both the other promoters and the initial shareholders of Unobtainium Corporation.
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.
The Ajax Corporation issues bonds that pay a minimum of 6% interest but that can pay more if corporate earnings reach certain specified levels. The holder of the bond may exchange it for stock of the corporation. This bond would be a: a. convertible bond. b. callable bond. c. secured bond. d. income bond.
a. convertible bond.
All states impose a "cash flow test" on the payment of dividends or other distributions. The "cash flow test" is also known as the: a. equity solvency test. b. balance sheet test. c. surplus test. d. net assets test.
a. equity solvency test.
If Sean, a shareholder, dissents to a corporate merger, his appraisal remedies will be: a. fair value of the shares as of the time immediately before the action to which he objects is taken. b. average purchase price for the shares during the preceding 30 days. c. None of these are correct. d. fair value of his shares as of the day the corporation agrees to purchase the shares.
a. fair value of the shares as of the time immediately before the action to which he objects is taken.
The concept of a combination that makes a publicly held corporation a private one and includes cash-out contributions and management buyouts is a: a. going private transaction. b. long-form merger. c. merger. d. None of these are correct.
a. going private transaction.
The board of directors cannot declare dividends when the corporation: a. is insolvent. b. is merging with another corporation. c. is the subject of a takeover bid. d. issues new stock.
a. is insolvent.
An agent is liable for harm caused to third persons as follows: a. liable for both the tort and the crime. b. generally liable for the crime but not the tort, assuming that the tort was committed to advance the interests of the principal. c. generally liable for the crime but not the tort. d. not liable for the tort or the crime, assuming both were committed to advance the interests of the principal.
a. liable for both the tort and the crime.
DWS, Inc. and MGM, Inc. combine their corporations into DWS, Inc. This combination is known as: a. merger. b. consolidation. c. compulsory share exchange. d. short-form merger.
a. merger.
A corporation's proportional distribution of additional shares of the corporation's capital stock to its shareholders is a: a. stock or share dividend. b. stock split. c. redemption. d. All of these are correct.
a. stock or share dividend.
The consolidation of AB Corporation and ZX Corporation requires the affirmative majority vote of: a. the boards of directors and shareholders of both corporations. b. the boards of directors of both corporations, but not the shareholders. c. the shareholders of both corporations, but not the boards of directors. d. the directors and shareholders of one of the corporations, but not both corporations.
a. the boards of directors and shareholders of both corporations.
If Alfred seeks to find out what the par value of his stock in Denim Corporation, Alfred wants to know: a. the minimum price at which Denim Corporation may sell the stock at issuance. b. the amount for which the stock in Denim Corporation must be traded. c. the worth of the stock in Denim Corporation. d. the maximum price at which the stock in Denim Corporation may be sold at issuance.
a. the minimum price at which Denim Corporation may sell the stock at issuance.
Whether a corporation is a de facto corporation may be challenged by: a. the state in which the business attempted to incorporate. b. an individual. c. another corporation. d. All of these are correct
a. the state in which the business attempted to incorporate.
Yukon Corporation purchases 1,000 shares of its own stock from Jones at a price of $50 a share. These shares, which are now issued but not outstanding, are known as: a. treasury shares. b. no par value stock. c. preemptive shares. d. preferred stock.
a. treasury shares.
A power of attorney is a formal manifestation that states an agent's authority. The agent is known as the:
attorney in fact
Assume that 12,000 shares are represented at a shareholder meeting. How many votes are normally necessary to carry a motion? a. 8,001. b. 6,001. c. 4,001. d. 10,000.
b. 6,001.
Which of the following is the basic governing document of a corporation? a. A subscription. b. Articles of incorporation. c. A promoter's contract. d. A certificate of authority.
b. Articles of incorporation.
Belle was seriously ill and feared that she might lapse into a coma or somehow become unable to speak or act for herself in her medical emergency. She is aware that agents ordinarily lose their authority to act for principals who become mentally disabled. She nevertheless desires to have her husband Alan make medical decisions and speak on her behalf. She is particularly concerned about existing on life support in a persistent and incurable vegetative state. Is there any action that she might take to enable Alan to act for her? a. Belle can sign a power of attorney authorizing Alan to act for her. b. Belle can sign a durable power of attorney with specific power to make decisions on her behalf. c. Belle can handwrite her instructions and keep them in her Bible. d. Belle can change her Last Will and Testament to communicate her wishes.
b. Belle can sign a durable power of attorney with specific power to make decisions on her behalf.
Which of the following is a major duty, which the agent owes to the principal?
b. Duty to act in good faith and with loyalty.
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.
Wilma employs Fred to purchase her a site suitable for her new cake business. Fred owns the perfect location and sells it to Wilma for a fair price, but does not tell Wilma that he had own the land. Which statement is correct? a. Fred has not violated his fiduciary duty to Wilma. b. Fred has violated his duty not to self-deal with Wilma. c. Fred has violated his duty to compete. d. None of these answers are correct.
b. Fred has violated his duty not to self-deal with Wilma.
Donna is the principal and Mandy is her agent. If Mandy acquires knowledge or or notice of any fact, which situation will Donna be bound by such knowledge or notice of fact? a. Mandy is colluding with a third party. b. Mandy is acting with apparent or actual authority. c. Mandy is acting adversely to Donna's interest. d. None of these are correct.
b. Mandy is acting with apparent or actual authority.
Barbara, a self-made millionaire, wants to start a corporation exclusively for charitable and educational purposes. What type of corporation should Barbara form? a. Profit corporation. b. Non-profit corporation. c. Benefit corporation. d. None of these are correct.
b. Non-profit corporation.
The owner of a business with a buyer terminates an agency without giving notice of the termination to vendors who have dealt with the agent. Is it reasonable for the vendors to expect that the agent still has the authority to make contracts that will bind the business? a. The vendors are reasonable in doing business with the agent until a new agent is hired. b. The vendors are reasonable in doing business with the agent until they are notified of the termination of the agency. c. The vendors are unreasonable in doing business with the agent under any circumstance. d. None of these are correct.
b. The vendors are reasonable in doing business with the agent until they are notified of the termination of the agency.
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.
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. an unauthorized suit. b. a derivative suit. c. a class suit. d. a direct suit.
b. a derivative suit.
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.
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 proxy. b. a shareholder voting agreement. c. cumulative voting. d. a voting trust.
b. a shareholder voting agreement.
The principal is bound by knowledge or notice of any fact that is acquired by an agent while acting within the scope of: a. collusion with a third party. b. apparent or actual authority. c. acting adversely to the principal's interest. d. None of these are correct.
b. apparent or actual authority.
B Corporation consolidates with ZX Corporation to form A-Z Corporation. The debts of AB Corporation are: a. assumed by the stockholders of AB Corporation. b. assumed by A-Z Corporation. c. discharged by the process of consolidation. d. discharged by the issuance of new stock in A-Z Corporation.
b. assumed by A-Z Corporation
The most customary type of dividend is a: a. stock dividend. b. cash dividend. c. property dividend. d. liquidating dividend.
b. cash dividend.
The combination of two or more corporations into a new corporation is known as: a. merger. b. consolidation. c. compulsory share exchange. d. short-form merger.
b. consolidation.
Will is Ralph's agent. Will contracts with Polo, a third party, but such agreement exceeds Will's actual and apparent authority. What is the effect of Will's contract with Polo? a. binds the Ralph but not Will. b. does not bind Ralph. c. binds the Ralph and Will. d. None of these are correct.
b. does not bind Ralph.
If an agent exceeds his actual and apparent authority, the contract: a. binds the principal but not the agent. b. does not bind the principal. c. binds the principal and the agent. d. None of these are correct.
b. does not bind the principal.
Minority shareholders of ABC Corporation dissent to the corporation's merger with J Corporation. If the appraisal remedy is granted, the shareholders will be paid the: a. stated value of their shares. b. fair value of their shares. c. accounting book value of their shares. d. par value of their shares.
b. fair value of their shares.
Liquidation of a corporation: a. is carried out by a court-appointed receiver in any liquidation. b. is carried out by the board of directors, serving as trustees, in a voluntary liquidation. c. results in paying first stockholders with a liquidation preference, then outside creditors, then expenses of liquidation. d. is set up to protect stockholders and the board of directors, but not creditors.
b. is carried out by the board of directors, serving as trustees, in a voluntary liquidation.
Par value: a. indicates the worth of the stock at issue. b. is the minimum price at which the corporation may sell the stock at issuance. c. represents the maximum price at which the stock may be sold at issuance. d. represents the amount for which the stock must be traded.
b. is the minimum price at which the corporation may sell the stock at issuance.
The combination of two or more corporations' total assets, title to which is vested in one of them, known as the surviving corporation, is a: a. dissolution. b. merger. c. liquidation. d. consolidation.
b. merger
Wyatt, the sole stockholder of International Travel Corporation, wrongfully used the corporation to avoid a personal liability. A court's disregarding the corporate entity and holding Wyatt personally liable is called: a. diversity of interest. b. piercing the corporate veil. c. ultra vires. d. limited liability.
b. piercing the corporate veil.
A(n) __________ is a general invitation to all of the shareholders of a target company to sell their shares for a specified price. a. compulsory share exchange b. tender offer c. management buyout d. None of these are correct.
b. tender offer
DayDreaming, Inc. issued a general invitation to all of the shareholders of Napping Corporation to sell their shares for a specified price. This is known as a: a. compulsory share exchange b. tender offer c. management buyout d. None of these are correct.
b. tender offer
The possible consequences of a defective incorporation include all of the following except: a. the state may bring an action against the association for involuntary dissolution. b. the association always being liable for an obligation. c. the associates are held personally liable to a third party. d. a third party asserts it is not liable to the association.
b. the association always being liable for an obligation.
A principal is bound by a statement made by an agent if: a. is contradicted by the principal. b. the statements were made by an agent while transacting business within the scope of agency authority. c. made after performance of the transaction concerned. d. None of these are correct.
b. the statements were made by an agent while transacting business within the scope of agency authority.
The directors of Premier Glass Company authorize the issuance of 100 shares of common stock for $25 per share to Justin for property the directors value at $2,500. The valuation: a. if incorrect, whether or not made in good faith, subjects Justin to liability for the difference between the valuation and the actual worth of the property. b. under the Revised Act, depends on the directors' determination of the consideration's "adequacy." c. is, in all jurisdictions, a matter of opinion on the part of the directors and their valuation is conclusive. d. if fraudulent, subjects the directors to liability to Premier for the difference between the fraudulent valuation and the actual worth of the property.
b. under the Revised Act, depends on the directors' determination of the consideration's "adequacy."
Which of the following is correct regarding a foreign corporation? a. A foreign corporation is incorporated in a foreign country. b. Failure to obtain a certificate of authority to transact business in the state impairs the validity of a contract entered into by the corporation. c. A foreign corporation transacting business within a particular state without having first qualified cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority. d. All of these are correct.
c. A foreign corporation transacting business within a particular state without having first qualified cannot use the state court to maintain a lawsuit until the corporation obtains a certificate of authority.
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.
The use of cash-out combinations has raised questions concerning both their purpose and their fairness to minority shareholders. In this context, fairness includes: a. fair dealing. b. fair price. c. All of these are correct. d. None of these are correct.
c. All of these are correct.
If the agent is authorized to sell certain property of her principal for $1,000 and sells it for $1,500. Which of the following is the best description of her violation if she keeps the money?
c. An agent has a duty not to acquire any financial or material benefits in connection with transactions conducted on behalf of the principal.
State laws that regulate the issuance and sale of securities are known as: a. the Uniform Commercial Code. b. the MBCA. c. Blue Sky Laws. d. None of these are correct.
c. Blue Sky Laws.
Which of the following is correct with regard to common stock? a. The Revised Act has eliminated the terms "preferred" and "common." b. The articles of incorporation must provide for contractual rights for common stock. c. Common stock does not have any special contract rights or preferences. d. None of these are correct.
c. Common stock does not have any special contract rights or preferences.
Deer Haven, Inc. is a corporation incorporated in Arkansas and has its principal office in San Antonio, Texas. Which of the following is true of Deer Haven, Inc.'s citizenship status? a. Deer Haven, Inc. is a citizen only of Arkansas, for the purpose of determining diversity of citizenship. b. Deer Haven, Inc. is a citizen under the privileges and immunities clause of the Fourteenth Amendment. c. Deer Haven, Inc. is a citizen of Arkansas and Texas, for the purpose of determining diversity of citizenship. d. Deer Haven, Inc. is a citizen only of Texas, for the purpose of determining diversity of citizenship.
c. Deer Haven, Inc. is a citizen of Arkansas and Texas, for the purpose of determining diversity of citizenship.
Which of the following is NOT a characteristic of the corporate form of doing business? a. Limited liability. b. Perpetual existence. c. Informal organization. d. Transferability of corporate shares.
c. Informal organization.
Claire opened Claire's Beauty Parlor in her home. She solicited funds to begin the business from Jack, who believed that the business was incorporated. Claire had, in fact, never filed the papers. One day, Claire fell asleep while giving a customer a permanent and the solution caused her customer severe burns. The customer sued the Beauty Parlor for $500,000, an amount enormously in excess of the business assets. Under the Revised Act, what would be the result? a. Both would be personally liable since there was no corporation formed. b. Claire and Jack would not be personally liable. c. Jack would not be personally liable, but Claire would. d. Claire would not be personally liable, but Jack would.
c. Jack would not be personally liable, but Claire would.
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. Rick. b. Roman. c. Juan and Marc. d. Tim.
c. Juan and Marc.
Under the Revised Act, Lupita owns common stock in XeroSum Corporation. Lupita believes that her common stock is preferred stock. Which of the following is correct with regard to Lupita's common stock? a. The Revised Act has eliminated the terms "preferred" and "common." b. The articles of incorporation must provide for contractual rights for common stock. c. Lupita's common stock does not have any special contract rights or preferences. d. None of these are correct.
c. Lupita's common stock does not have any special contract rights or preferences.
The incorporators would typically do which of the following? a. Purchase outstanding shares. b. Assemble the assets. c. Sign the charter. d. All of these are correct.
c. Sign the charter.
Which of the following determines when to declare dividends and in what amount? a. The stockholders. b. The officers of the corporation. c. The board of directors. d. The state in which the corporation was chartered.
c. The board of directors.
Which of the following is NOT a basis for involuntary dissolution? a. A proceeding by the secretary of state, if it is established that the corporation failed to pay its franchise tax. b. The directors are deadlocked and the shareholders cannot break the deadlock. c. The shareholders dissent to a merger and are asserting their appraisal rights. d. None of these are correct.
c. The shareholders dissent to a merger and are asserting their appraisal rights.
Las Palmas, Inc. has failed to pay its franchise tax and the secretary of state has initiated a proceeding against it; its board of directors is in a deadlock and the shareholders cannot end the deadlock; and the shareholders of Las Palmas, Inc. dissent to a plan to merge with Palm Trees Corporation and are seeking to invoke their appraisal rights. Which of the following is a ground for the involuntary dissolution of Las Palmas, Inc.? a. The proceeding by the secretary of state, if it is established that Las Palmas, Inc. failed to pay its franchise tax. b. The board of directors is deadlocked, and the shareholders cannot break the deadlock. c. The shareholders dissent to a merger with Palm Trees Corporation and are asserting their appraisal rights. d. None of these are correct.
c. The shareholders dissent to a merger with Palm Trees Corporation and are asserting their appraisal rights.
__________, usually called debentures, have only the obligation of the corporation behind them. a. Secured bonds b. Income bond c. Unsecured bonds d. None of these are correct.
c. Unsecured bonds
Andy Roust hired Clear-it, Inc., a demolition company, to level an old building on a busy downtown lot. Clear-it, Inc. was given full rein to decide on the amount of explosives needed and the placement of the charges. Security for the site on the day of the explosion was contracted out to a private security firm. When the appointed day arrived, the building was brought down. However, the building fell in a slightly different direction than that anticipated by Clear-it, Inc. Numerous pieces of adjoining property, both real and personal, were severely damaged. Roust claims that the use of an independent contractor such as Clear-it, Inc. has insulated him from liability. Is Roust liable for the acts of the independent contractor? a. No, Roust isn't liable because he didn't know there was any danger. b. No, Roust isn't liable because Clear-it was an independent contractor. c. Yes, Roust is liable because of the inherently dangerous nature of the work. d. Yes, Roust is liable because it was his building.
c. Yes, Roust is liable because of the inherently dangerous nature of the work.
Is the agent subject to liability to her principal for breach of the duty of obedience if she sells the principal's product on credit in violation of explicit instructions?
c. Yes, and she is liable to the principal for any amounts that the purchaser doesn't pay.
The president of Hi-Glow Cosmetics sends his top chemist to Hi-Glow's competitor's labs to steal its formula for shiny lipstick. The chemist gets caught and is sent to jail. Can Hi-Glow be found to be criminally liable? a. Yes, under the doctrine of ultra vires. b. Yes, under the doctrine of ultra vires and since the president authorized the crime. c. Yes, since the president authorized the crime. d. No, because a corporation cannot go to jail.
c. Yes, since the president authorized the crime.
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.
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.
An agent's authority can terminate by:
c. both acts of the parties and by operation of law.
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. merging with Altitude Style Incorporated. b. amending the articles of incorporation to change the number of shares necessary to establish a quorum. c. declaring stock dividends. d. selling 50 percent of Zoe Style's business assets.
c. declaring stock dividends.
The Revised Act was amended in 2002 to provide: a. conversion procedures permitting a corporation to change its state of incorporation, thus allowing a foreign business to become a domestic business. b. domestication procedures permitting a foreign partnership or LLC to become a domestic business corporation. c. domestication procedures permitting a domestic business corporation to become a foreign business corporation. d. merger procedures to convert partnerships or LLCs into business corporations.
c. domestication procedures permitting a domestic business corporation to become a foreign business corporation.
Use of "Evans & Hall, Ltd." as a corporate name would be: a. impermissible because it includes surnames. b. permissible because the selection of a corporate name is purely up to the organizers of the corporation. c. permissible as long as it is distinguishable from the name of any domestic corporation or any foreign corporation authorized to do business within the state. d. impermissible because it does not clearly designate that the organization is a corporation.
c. permissible as long as it is distinguishable from the name of any domestic corporation or any foreign corporation authorized to do business within the state.
Eddie's Furniture Company is Roger's employer. If Roger negligently commits a tort against Sandra while in the course and scope of his employment, and Eddie's Furniture Company is held vicariously liable, what theory would the court apply to hold Eddie's Furniture Company liable? a. imperious liability. b. gregarious liability. c. respondeat superior. d. virtual superior.
c. respondeat superior.
The rule of law imposing vicarious liability on an innocent employer for the wrong of an employee is known as: a. imperious liability. b. gregarious liability. c. respondeat superior. d. virtual superior.
c. respondeat superior.
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.
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.
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. since Theodore would have express authority. b. since Theodore had implied authority. c. under apparent authority if the seller knew of Theodore's past transactions. d. because of ratification if the board did not know of his actions
c. under apparent authority if the seller knew of Theodore's past transactions.
The 1999 Amendments to the Revised Act eliminate the appraisal remedy for: a. an amendment abolishing a preferential right of the shares. b. an amendment altering a preemptive right. c. virtually all charter amendments. d. no charter amendments.
c. virtually all charter amendments.
Agency is a consensual relationship that the principal and agent may form by:
contract or agreement.
Allen owns 200 of the 1,000 shares outstanding of General Myopics. GM plans to issue 1,000 new shares. If Allen has preemptive rights, he may buy: a. 200 shares at the same price he paid for the other stock. b. 200 shares at a discount of 10%. c. all 1000 shares before anyone else. d. 200 shares at the new stock price.
d. 200 shares at the new stock price.
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 information for use by a competing company. b. Obtaining a list of shareholders in order to offer Peaceful Corporation for sale. c. Obtaining information solely to abuse board members with whom Evelyn does not like. d. All of the above.
d. All of the above.
Fred is Wilma's agent. Fred has violated his fiduciary duty to Wilma, and Wilma sues him. What type of action may Wilma bring against Fred, depending on the facts of the breach? a. Breach of Contract b. An action in tort for losses. c. An action to recover restitution. d. All of these answers are correct.
d. All of these answers are correct.
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.
Courts have responded by piercing the veil when the shareholders have: a. not followed the formalities of corporate procedures. b. not provided an adequate financial basis for the business. c. used the corporation to defraud. d. All of these are correct.
d. All of these are correct.
Shareholders of Tridential, Inc. are worried that the court will "pierce" its corporate veil and hold the shareholders liable. Which of the following factors will a court consider in deciding whether to pierce Tridential, Inc.'s corporate veil? a. Tridential, Inc. did not follow the formalities of corporate procedures. b. Tridential, Inc. did not provide an adequate financial basis for the business. c. Tridential, Inc. did used the corporation to defraud others. d. All of these are correct.
d. All of these are correct.
What are the principal sources for corporate financing? a. Debt. b. Equity investment securities. c. Retained earnings. d. All of these are correct.
d. All of these are correct.
Bill is Hillary's agent. Bill wants to know what his liability is to Mike, a third party. Which of the following statements is correct? a. As an agent, Bill can never unintentionally make himself liable. b. As an agent, Bill is never liable to the third party. c. As an agent, Bill is always liable to the third party. d. As an agent, Bill's liability depends on the existence of authority and the manner of executing the contract.
d. As an agent, Bill's liability depends on the existence of authority and the manner of executing the contract.
Robert approaches you and seeks to form a corporation. He asks you which document should he create to govern the corporation. What do you tell him? a. Create a subscription. b. Create a certificate of authority. c. Create a promoter's contract. d. Create articles of incorporation
d. Create articles of incorporation
Sammy is an agent for an undisclosed principal and makes a contract with Dana Construction Company on behalf of the undisclosed principal. What is Sammy's liability in this scenario? a. Sammy has no personal liability on the contract. b. Sammy is liable only to the principal on the contract. c. Sammy is liable only to the third party on the contract. d. Sammy is personally liable to both the principal and the third person on the contract
d. Sammy is personally liable to both the principal and the third person on the contract
Wellness4All Corporation is in liquidation. Which of the following statements is correct? a. The liquidation is carried out by a court-appointed receiver. b. The liquidation results in paying first stockholders with a liquidation preference, then outside creditors, then expenses of liquidation. c. The liquidation is set up to protect stockholders and the board of directors, but not creditors. d. The liquidation is carried out by the board of directors, serving as trustees, in a voluntary liquidation.
d. The liquidation is carried out by the board of directors, serving as trustees, in a voluntary liquidation.
Alan is an agent for Ebony Property Company. While in the course of his work for Ebony Property Company, Alan commits a tort against Susan. Which of the following correctly states Ebony Property Company's liability? a. Ebony Property Company is solely liable. b. Ebony Property Company is not vicariously liable. c. Vicarious liability cannot be imposed on Ebony Property Company because Alan, as an agent is not an employee. d. Vicarious liability could be imposed on Ebony Property Company.
d. Vicarious liability could be imposed on Ebony Property Company.
Patrick, a shareholder in Denali, Inc., thinks that the company is doing well, but wants to know when and who decided when to declare dividends and how much, and he seeks your advice. What advice would you give Patrick to answer his questions about dividends? a. File a request with the state in which the corporation was chartered. b. Petition the officers of the corporation to declare dividends. c. Ask his fellow stockholders to declare dividends. d. Wait for the board of directors to declare dividends.
d. Wait for the board of directors to declare dividends.
Mary is Eddie's principal. When does Mary owe Eddie a duty of compensation? a. If Eddie breaches his duty of obedience. b. If Eddie breaches his duty of loyalty. c. So long as Eddie's agency is a gratuitous one. d. When Eddie renders authorized services.
d. When Eddie renders authorized services.
Bob worked as the agent of Anne. Anne was in the business of buying antique watches and selling them to the public. She became so successful at this that people began to become reluctant to sell to her, feeling that if she was buying the watch, it probably could be sold for more. Anne instructed Bob to purchase several watches but not to reveal that the purchases were being made on her behalf. Bob contracted to buy several watches and gave his own check as down payment to keep Anne's identity concealed. Although Anne had authorized the contracts, she reneged on the contracts. Bob thereupon told the seller what had happened and stopped payment on the down payment check. The seller of the watches sued Anne on the bounced check and for breach of contract. Bob was sued on the same causes of action. Is Bob liable? a. No, Bob isn't liable because he stopped payment of his check. b. No, Bob isn't liable since he was working as an agent. c. No, Anne is the only liable party. d. Yes, Bob is liable since he contracted in his own name.
d. Yes, Bob is liable since he contracted in his own name.
Priscilla was the agent in charge of distribution and collections for the Savvy Cheese Shopper. Rex operated a grocery store and purchased cheese products from Savvy. Priscilla made false invoice sheets, showing delivery to Rex of greater quantities than Rex actually had ordered or received. Priscilla collected from Rex on the basis of these increased amounts, and then kept for herself the difference between the increased amounts and the amounts that should have been charged. When Rex learned of this, he sued Savvy for the excess payments he had made. Savvy denied that Priscilla was its agent in making excess collections. Will Rex win? a. No, Savvy isn't liable because they didn't know of the fraud. b. No, Savvy isn't liable since they didn't authorize these transactions. c. No, Priscilla is the only liable party. d. Yes, Rex will win since Savvy should have better controls over their agents.
d. Yes, Rex will win since Savvy should have better controls over their agents.
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.
If The Raintree Company has accumulated earnings each year but the directors have not declared dividends for five years, the shareholders may: a. override the board by a two-thirds vote. b. petition a court of law for redress. c. do nothing but sell their stock. d. ask for an injunction requiring a dividend to be declared.
d. ask for an injunction requiring a dividend to be declared.
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.
An agent making a proper contract with a third person on behalf of an undisclosed principal: a. has no personal liability on the contract. b. is liable only to the principal on the contract. c. is liable only to the third party on the contract. d. is personally liable to both the principal and the third person on the contract.
d. is personally liable to both the principal and the third person on the contract.
All of the following are characteristics of a corporation EXCEPT: a. it has perpetual existence. b. it is a legal entity of its own. c. it is able to be sued and to sue. d. it is usually managed by its owners.
d. it is usually managed by its owners.
The management of Corporation A forms Corporation B in which the management owns some stock and institutional investors own the rest. Corporation B issues bonds to institutional investors to raise cash, with which it purchases the assets or stock of Corporation A. The assets of Corporation A are used as security for the bonds issued by Corporation B. This action by management is best described as a: a. compulsory share exchange. b. short-form merger. c. cash-out combination. d. leveraged buyout.
d. leveraged buyout.
The liability of a buyer for the purchase price of goods is: a. terminated when the order is placed. b. terminated when the buyer gave the buyer's agent purchase price. c. not terminated until the buyer pays twice for the object. d. not terminated by the fact that the buyer gave the buyer's agent the purchase price to remit to the seller.
d. not terminated by the fact that the buyer gave the buyer's agent the purchase price to remit to the seller.
A corporation is considered a citizen: a. of the state in which it has its principal office, for the purpose of determining diversity of citizenship. b. of the state of its incorporation, for the purpose of determining diversity of citizenship. c. under the Fourteenth Amendment privileges and immunities clause. d. of the state in both where it has a principal office and its incorporation.
d. of the state in both where it has a principal office and its incorporation.
All of the following are contractual duties owed by a principal to an agent, except:
d. self-dealing.
A principal has a duty to compensate his or her agent if:
d. the agent rendered authorized services.
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.
The liability of the agent to the third person depends on: a. agents can never unintentionally make themselves liable. b. agents are never liable to the third party. c. agents are always liable to the third party. d. the existence of authority and the manner of executing the contract.
d. the existence of authority and the manner of executing the contract.
When a tort or crime is committed by an agent acting in the course of his work for the principal: a. the principal is solely liable. b. the principal is not vicariously liable. c. vicarious liability cannot be imposed on the principal because an agent is not an employee. d. vicarious liability could be imposed on the principal.
d. vicarious liability could be imposed on the principal.
A(n) __________ is a written instrument that expresses the principal's intention that the agent's authority will not be affected by the principal's subsequent incapacity or that the agent's authority will become effective upon the principal's subsequent authority.
durable power of attorney
