BLAW Exam 3 pt. 2

Bay City Merchants Corporation has six shareholders, four of whom are members of the same family. All of Bay City's shareholders agree in writing to operate without shareholders' meetings. Under the Revised Model Business Corporation Act, this most likely warrants a. no penalties or sanctions. b. the imposition of a fine on Bay City. c. the imprisonment of Bay City's shareholders. d. the piercing of Bay City's corporate veil.

A

Boats & Yachts Corporation is a public company, which California regulates and in which Dorian invests. The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to a. public companies. b. private investors. c. state regulators. d. the Securities and Exchange Commission.

A

Cattle Ranch Company offers its stock for sale only in a single state. The law in Cattle Ranch's state is like the law in most states. Cattle Ranch's offer is sub¬ject to state securities statutes that include a. antifraud and disclosure provisions. b. antifraud provisions only. c. disclosure provisions only. d. neither antifraud nor disclosure provisions.

A

Char and Doug are officers of Eden Cruise & Travel Corporation. As cor¬porate officers, the rights of Char and Doug are a. determined by their employment contracts. b. specified in state corporation statutes. c. the same as those of the directors. d. the same as those of the shareholders.

A

Deepwater Dredging & Excavation holds itself out to others as being a corporation but makes no attempt to incorporate. Estuary Marina signs a contract with Deepwater that is not performed. Estuary Marina files a suit against the firm. The court will likely hold that Deepwater is a. a corporation by estoppel. b. an alien corporation. c. an S corporation. d. ultra vires.

A

Dhani, an accountant for Eureka! Inc. learns of undisclosed com¬pany plan¬s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re¬veals the company plans to Fay, who tells Geoff. Both Fay and Geoff buy 100 shares. Geoff knows that Fay got her informa¬tion from Dhani. When Eureka! publicly an¬nounces its new laptop, Dhani, Fay, and Geoff sell their stock for a profit. B12. Refer to Fact Pattern 42-1B. Under the Securities Ex¬change Act of 1934, Fay is most likely a. liable for insider trading. b. not liable because Fay did not prevent others from profiting. c. not liable because Fay did not misappropriate any information. d. not liable because Fay does not work for Eureka!

A

Dionne is an officer of Event Ticketing, Inc. As an officer, with respect to the corporation, Dionne is a. a fiduciary. b. a forum. c. a proxy. d. a quorum.

A

Farrah and Grant are shareholders of Hong Kong Restaurants, Inc. As shareholders, they must approve a. conducting a merger. b. deciding to pursue new business opportunities. c. none of the choices. d. negotiating a contract between management and labor.

A

Fleet Delivery Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is "exempt." This enables Fleet to a. reduce the compliance costs by not requiring an auditor report. b. buy and sell the securities without liability for "recaptures." c. make forward-looking financial forecasts without liability. d. withhold inside information from accredited investors.

A

Global Trade Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that Global Trade must a. file a registration statement with the SEC. b. issue the securities through an online registration site. c. refrain from issuing the securities to unregistered investors. d. register the securities with a national stock exchange.

A

Godwin is a director on the board of Health Insurance Corporation. On the receipt of notice of a board meeting, Godwin attends the meeting and takes part in the discussion of business matters and votes on corporate issues. Godwin is entitled to be notified of, and to take part in, these meetings a. under the director's right to participation. b. under the director's right to compensation. c. under the director's right to indemnification. d. only on his own initiative.

A

HVAC Heating & Air Conditioning, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that HVAC's financial results are accurate and timely, the firm's senior officers must set up and maintain a. internal "disclosure controls and procedures." b. external "release and reveal timetables." c. personal "peruse and review liability policies." d. public "information and discussion forums."

A

Lovey is a shareholder of Made-2-Order Manufacturing Corporation with preemptive rights. With these rights, Lovey can a. buy a prorated share of a new issue of stock before other buyers. b. choose to have Made-2-Order act exclusively in a certain area. c. "preempt" managerial decisions that affect shareholders. d. sell a prorated share of a new issue of stock before other sellers.

A

Memphis Music Makers Inc.'s stated purpose is to sell musical instruments. If chief executive officer Neal contracts with Open Season Firearms in Memphis Music's name to sell a shotgun, he has likely committed a. an ultra vires act. b. a de facto act. c. a de jure act. d. a legal act.

A

Merina and Nelli form Orchids, Inc. Ultimate responsibility for pol¬icy decisions necessary to the management of corporate affairs rests with Orchids's a. board of directors. b. incorporators. c. officers. d. shareholders.

A

Rafi, a director of Super Service Station Corporation, does not attend a board meet¬ing for three years. During that time, Twyla, Super's president, makes improper loans that cost the company $100,000. Rafi is most likely a. liable for negligence or mismanagement. b. liable for violation of the business judgment rule. c. not liable because missing meetings is an honest mistake. d. not liable because missing meetings is only poor judgment.

A

Refer to Fact Pattern 42-1B. Under the Securities Ex¬change Act of 1934, Geoff is most likely a. liable for insider trading. b. not liable because Geoff is only a tippee, not a tipper. c. not liable because Geoff is too far down the chain of disclosure. d. not liable because Geoff traded on the basis of a material fact.

A

Riverwalk Restaurants Corporation is a noninvestment company that wants to is¬sue stock of $3 million in a twelve-month period. Riverwalk, with less than $20 mil¬lion in annual sales, qualifies as a small business issuer. Before Riverwalk sells the stock, it must provide investors with a. an offering circular. b. a notice of the issue. c. a red herring prospectus. d. a tombstone ad.

A

Rollo is the chief executive officer of Specialty Magazines, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Rollo must a. certify that the reports are complete and accurate. b. designate a corporate official to assume liability for inaccuracies. c. do nothing. d. read the reports and be prepared to answer questions about them.

A

To raise capital to form Business Apps Corporation with Cris, Dona sells bonds and stock in other companies, and plans to register an initial public of-fer¬ing under the Securities Act of 1933. SEC Rule l0b-5 covers a. just about any form of securities. b. only bonds. c. only securities registered under the Securities Act of 1933. d. only stock.

A

Alain is chairman of the board of Barber & Beauty Supply Corporation. Consuela, a consumer, is injured while using a Barber & Beauty product. She sues Barber & Beauty and Alain individually. The corporation may pay Alain's legal fees under a. under the director's right to participation. b. under the director's right to compensation. c. under the director's right to indemnification. d. only on the firm's own initiative

C

As part of a stock offering for Designer Studio Corporation, the firm's accountant Evelyn intention¬ally misrepresents material facts in the pro-spectus. Flores buys the stock unaware of the misrepresentation and suf¬fers a loss. Evelyn may be subject to a. a fine and damages only. b. a fine and imprisonment only. c. a fine, imprisonment, and damages. d. damages only.

C

Cotton Products Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933 a. imposes increased responsibility on chief corporate executives. b. prevents insiders from trading among themselves. c. requires disclosure. d. creates a "safe harbor" for companies to make forward-looking statements.

C

Demario and Evander want to form and do business as a corporation—Farm-2-Fork Restaurant Inc. A corporation is a. a natural being. b. a tangible thing. c. an artificial person. d. ultra vires.

C

Eloise is a director for Frozen Yogurt Company. Eloise is also a director for Gelato Desserts, Inc. When the board of Frozen Yogurt considers entering into a contract with Gelato Desserts, Eloise must a. resign from one of the boards. b. resign from both boards. c. make a full disclosure of any conflict of interest. d. use her best business judgment in voting on the proposed deal.

C

Equestrian Stables Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Equestrian Stables is most likely a. a corporation by estoppel. b. a de facto corporation. c. a de jure corporation. d. ultra vires.

C

Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 mil¬lion and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to a. Fresh Fruit and Gourmand Pastries. b. Fresh Fruit only. c. Gourmand Pastries only. d. neither Fresh Fruit nor Gourmand Pastries.

C

Household Products Corporation wants to make an offering of securities to the pub¬lic. This offering is not exempt from registration under the Se¬curities Act of 1933. Before Household Products sells its securities, it must provide in¬vestors with a. a forward-looking financial forecast. b. an investment contract. c. a prospectus. d. samples of its products.

C

Hudson and Ilka want to market a new line of kayaks and related gear under the brand name Journeys as a corporation—Journeys Inc. To avoid income taxes at the corporate level, they should form a. a C corporation. b. a close corporation. c. an S corporation. d. a private corporation.

C

Lewis is a director of Mines & Refineries, Inc. Using information that is not available to the public, Lewis makes a profit trading in Mines & Refineries stock. Lewis is most likely li¬able for breach of a. no duty or rule b. the business judgment rule. c. the duty of loyalty. d. the duty of care.

C

Like the bylaws of other corporations, the bylaws of Equipment Leasing, Inc., a. establish the operating name of the corporation. b. establish the value and classes of corporate stock. c. were adopted at its first organizational meeting. d. were submitted for approval to the public official in charge.

C

Misha and Nguyen are shareholders of Outsourcing Solutions, Inc. Misha's written authorization to Nguyen to vote her shares at a shareholders' meeting is a. a violation of the duty of loyalty. b. a preemptive right. c. a proxy. d. a quorum.

C

OnSpec, Inc., and its officers, directors, and share¬holders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of securities involving a. corporate insiders. b. misappropriation. c. short-swing profits. d. tippers and tippees.

C

Rhys owns Solar Fuel Corporation. Rhys uses Solar Fuel's funds to pay his personal expenses, creates Thermal Power Corporation to engage in the same business as Solar Fuel, transfers Solar Fuel's assets to Thermal Power, and petitions Solar Fuel into bankruptcy. This most likely warrants a. a bonus to Rhys for financial maneuvers. b. a discharge for Solar Fuel in bankruptcy. c. a pierce of the corporate veil. d. a review of Thermal Power's articles of incorporation.

C

Tucker is a director of USA Auto Parts, Inc. Under the standard of due care owed by di¬rectors of a corporation, Tucker's decisions must be a. unwavering and unquestionable. b. arguable and defensible. c. informed and reasonable. d. perfect and unassailable

C

Aviators Source Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Aviators Source's board could transact its business is a. all of the directors authorized in the articles or bylaws. b. a majority of the number authorized in the articles or bylaws. c. any odd number. d. one.

B

Blair and Chanel are holders of common stock in Discount Retail Stores, Inc. Like other holders of common stock, they have a residual position in the overall financial structure of Discount Retail, because they a. are guaranteed to receive more than the amount of their investment. b. are the last to receive returns for their investment. c. have priority to the firm's assets if it becomes in¬solvent. d. reside in the state of the firm's incorporation.

B

Bread & Brews, Inc., files its articles of incorporation with the appropriate government agency. Least likely to appear in the articles is the name of a. each of the corporation's incorporators. b. each of the corporation's shareholders. c. the corporation. d. the corporation's initial registered agent.

B

Dollars & Sense, Inc., is incorporated in the state of New Jersey and is doing busi¬ness in the state of New York. In New York, Dollars & Sense is properly referred to as a. a domestic corporation. b. a foreign corporation. c. an alien corporation. d. a public corporation.

B

Kelly transfers shares of stock that she owns in Lone Starz Company to Max. A shareholders' meeting takes place before Max's ownership is entered in Lone Starz's stock book. A vote at the meeting can be cast by a. Kelly and Max. b. Kelly only. c. Max only. d. neither Kelly nor Max

B

Mieko is a shareholder of Natural Gas, Inc. Natural Gas uses cumulative voting to elect directors. This means that the number of Mieko's votes is determined by the number of a. years that Mieko has been a shareholder. b. members of the board to be elected multiplied by the total number of voting shares that Mieko holds. c. shareholders present at the shareholders' meeting. d. shareholders' meetings that Mieko has attended

B

Miracle Mobile Devices, Inc., is a private, for-profit corporation that (1) was formed for the purpose of manufactur¬ing and distributing a newly pat¬ented tablet, (2) is owned by five share¬holders, (3) is subject to double taxation, and (4) has made no public offering of its shares. Miracle is a. an S corporation. b. a close corporation. c. a nonprofit corporation. d. a professional corporation

B

Orsa is a shareholder in Pickles & Preserves Corporation. In some states, Orsa may be liable to the firm's creditors for unpaid corporate debts if she a. accepts a dividend knowing that it was paid from retained earn¬ings. b. receives shares issued by the firm for less than fair-market value. c. fails to fulfill her fiduciary duty to the majority shareholders. d. sells her shares.

B

Qiara is a holder of preferred stock in Rio Grande Irrigation & Development, Inc. Qiara has priority over holders of Rio common stock as to a. nothing. b. payments of dividends. c. the date on which Rio must repurchase the shares. d. upward changes in the market price of the shares.

B

Renee is a director of Sharp Focus Lens Corporation. With respect to Sharp Focus, Renee can access the corporation's books and records. Renee has this access under a. the director's right to participation. b. the director's right of inspection. c. the director's right to indemnification. d. the articles of incorporation or corporate bylaws

B

Rico does not work for Street Bikes Company, but wrong¬fully obtains inside information concerning the firm. Based on the in¬forma¬tion, Rico buys and sells Street Bikes stock for personal gain. The Securities and Exchange Commission prose¬cutes Rico, arguing that he is liable because he stole in-formation right¬fully belonging to another. This argument is a. the blue-sky theory. b. the misappropriation theory. c. the free-writing prospectus theory. d. the tipper/tippee theory.

B

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. initial board of directors. b. incorporators. c. first officers. d. preferred shareholders.

B

The abbreviation "P.A." in the name "Conrad & Drake, Accountants, P.A." means that this organization is a. a private association. b. a professional association. c. a public association. d. a publicly administered corporation.

B

Urban Commerce, Inc., issues bonds, which are also known as a. cumulative investments. b. fixed-income securities. c. equity securities. d. preferred stock.

B

Bonds & Stocks Corporation, and its officers, directors, and sharehold¬ers, buy and sell securities. SEC Rule 10b-5 applies to the purchase or sale of a. a security by a financial corporation only. b. a security involving a corporate insider only. c. a security involving short-swing profits only. d. any security

D

Boutique Bodega Corporation would like to change its corporate status to that of an S corporation to avoid in¬come taxes at the corporate level. To qualify, the shareholders must not be a. corporations. b. estates. c. individuals. d. partnerships.

D

Grain Mills Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates a. the declaration of dividends by Grain Mills's board of directors. b. the later re-registration of Grain Mills's securities. c. the short-swing activities of Grain Mills's insiders. d. the solicitation of proxies from Grain Mills's shareholders.

D

Guitar Factory Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by a. market professionals to explain to all investors. b. government regulators to disclose to the general public. c. sophisticated investors only. d. unsophisticated investors.

D

Kiefer, Lori, and Moira are shareholders of Nationmade Flags & Banners 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. invalid and unenforceable. b. oppressive and irresponsible. c. suspect and voidable. d. valid and enforceable.

D

Neci and Olwen want to form and do business as a corporation—Pastries & Pies Inc. A corporation is a legal entity created and recognized by a. a central federal administrative agency. b. a city or county clerk's office. c. an artificial legal person. d. state law.

D

Orel incorporates his business as Posts & Wire Corporation in Texas. He and his group of shareholders intend to make a profit from their sales of fencing materials. Posts & Wire is a. a nonprofit corporation. b. not a corporation. c. an alien corporation. d. a private corporation.

D

Reed owns one share of stock in SK8 Boards Corporation, as evidenced by a stock certificate. Reed loses the certificate. Reed's ownership of the stock is a. forfeited immediately. b. forfeited within ten days of a third party's claim to ownership. c. forfeited within thirty days if she cannot find the certificate. d. not affected

D

Space Trips Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. Space Trips is charged with violating the Securities Act of 1933. Space Trips's best defense is a. the investors were not aware of the misrepresentations. b. the issuer reasonably believed the misstatements were true. c. the offering was made available to the general public. d. the untrue statements were not material.

D

Tech Personnel, Inc., is a corporation. Tech Personnel's implied powers enable it to a. none of the choices. b. depart significantly from traditional corporate formalities. c. bind the corporation to an action that will greatly affect its purpose. d. borrow funds and lend funds.

D

The shares of Home Mortgage Corporation are publicly traded in securities mar¬kets. Home Mortgage Corporation is a. a close corporation. b. a privately held corporation. c. a public corporation. d. a publicly held corporation

D