Business Law II Chapter 36 Management Structure of Corporations
Most states, as well as the Revised Act, hold that the test for the duty of diligence requires a director or officer to discharge corporate duties: a. in good faith. b. with a high degree of care. c. without a conflict of interest. d. through a named attorney or legal firm. e. All of the above.
A
Tunso Corp. has 1,000 shares of stock outstanding that are permitted to vote for directors. If Tunso Corp. permits cumulative voting, a minority shareholder would need to vote how many shares to elect one of three directors? a. 251 b. 501 c. 201 d. 334
A
Which of the following is not imposed by the business judgment rule regarding the liability of officers and directors? a. Strict liability. b. Informed decisions. c. Decisions in good faith without conflict of interest. d. Reasonable business judgment.
A
A director may make business decisions in reliance on information provided to him without incurring liability for negligence as long as: a. he notifies the preparer of the information. b. he reasonably believes that the information is reliable. c. he conducts his own independent investigation. d. he is given a sworn affidavit by the preparer.
B
An officer or director's responsibility to exercise ordinary care and prudence in discharging duties is the: a. duty of good faith. b. duty of diligence. c. fiduciary duty. d. duty of obedience..
B
Assume there are no provisions in the corporation's articles of incorporation or bylaws regarding quorum requirements. If there are 13 total directors of General Grain Corporation and the minimum number of directors are present to transact business, how many votes normally would be necessary for those present to approve an action as a board? a. 7 b. 4 c. 6 d. 11
B
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
Shareholders normally have the right to do all but which one of the following? a. Elect the directors. b. Elect the officers c. Approve the sale of a major division. d. Meet at least once a year.
B
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
Under the MBCA, a quorum of shareholders at an annual meeting may be not less than what percentage of the shares entitled to vote? a. 10 b. 33 1/3 c. 66 d. 50
B
Zeelon Corporation stock may be summarized as follows: 100,000 authorized 90,000 issued 75,000 outstanding 15,000 treasury stock How many shares or proxies will have to be present for a quorum (assuming no special provision and that the Revised Act is not in effect)? a. 45,001 b. 37,501 c. 30,001 d. 50,001
B
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
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 60% of the business assets.
C
Assume that 12,000 shares are represented at a shareholder meeting. How many votes are normally necessary to carry a motion? a. 4,001 b. 8,001 c. 6,001 d. 10,000
C
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 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
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
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
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
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
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
With respect to the voting rights of shareholders, unless the articles of incorporation provide otherwise, a shareholder is entitled to: a. vote only at annual shareholder meetings. b. one vote for every two shares of stock owned. c. vote only in person and not by proxy. d. vote at annual and special shareholder meetings with one vote for each share of stock he owns.
D
If the board delegates to a committee its duty to select a new company president: a. the members of that committee may be responsible individuals other than board members. b. the committee must be approved by the shareholders. c. the non-committee directors are relieved of liability for acts of the committee. d. the committee may exercise all the authority of the board. e. the committee must consist of board members and may be authorized unless otherwise provided by the articles of incorporation or bylaws.
E
The Revised Act authorizes the articles of incorporation to include a provision eliminating or limiting, with certain exceptions, the liability of a director to the corporation or its shareholders for any action he takes, or fails to take, as director. These limitations or exceptions, for which liability would not be affected, include: a. the amount of any financial benefit the director receives to which he is not entitled, such as a bribe, kickback, or profits from a usurped corporate opportunity. b. an intentional infliction of harm on the corporation or the shareholders. c. liability under Section 8.33 for unlawful distributions. d. an intentional violation of the criminal law. e. All of the above.
E
The board determines corporate policy in a number of areas, including: a. selecting and removing officers. b. determining the corporation's capital structure. c. initiating fundamental changes. d. declaring dividends. e. All of the above.
E
Which of the following is/are director(s) in publicly held corporations? a. Inside. b. Outside. c. Unaffiliated. d. Affiliated. e. Any of the above.
E
Which of the following would be likely to result in liability to a director of a textile company? a. The director sells stock in the textile company before a merger is announced. b. The director uses the corporation's offices to buy and sell his own investment securities. c. The director owns stock in an automobile company. d. The director agrees to hire as president a man he has not personally investigated. e. Both (a) and (b).
E
A proxy is effective until the shareholder revokes it.
F
A quorum will consist of one-half of shares entitled to vote if there are no provisions for any other number in the articles of incorporation.
F
A shareholders' written agreement, unlimited in duration, to vote in a specified manner for the election of directors is a voting trust.
F
Although there has been consideration of a statutory close corporation supplement to the Model and Revised Acts, there has, to date, been nothing officially promulgated.
F
Directors who are also officers or employees of a publicly held corporation are "affiliated directors."
F
Directors, but not officers, may compete with the corporation in their own private business dealings.
F
If Marilyn and George form a corporation under the Revised Act with Marilyn as president and George as treasurer, Marilyn cannot also be corporate secretary.
F
Members of the board of directors may not determine their own compensation
F
One difference between large, publicly held corporations and closely held corporations is that more of the shares of closely held corporations are held by institutional investors.
F
The board of directors generally manages the day-to-day affairs of the company.
F
The board of directors is expected to devote their full time to the corporation's affairs.
F
The business judgment rule would require an officer or director to use the highest duty of care in the execution of his office.
F
The members of the board of directors are essentially trustees of the corporation.
F
Unissued shares and treasury stock must be counted to see if a quorum exists.
F
Voting trusts generally are effective for one year.
F
While officers, as agents of a corporation, owe an agent's duty of obedience, diligence, and loyalty to the corporation, this is not true of directors.
F
A proxy is revocable to the same extent as an agency.
T
A quorum of shares must be present at the shareholders' meeting, either in person or by proxy, to make effective decisions.
T
A shareholder may bring a direct suit to enforce a claim that she has against the corporation, based on her ownership of shares.
T
A voting trust permits a concentration of corporate control in one or more persons.
T
An officer can be removed for no reason if the board decides to do so
T
As the shareholders' elected representatives, the board of directors are delegated the power to direct the business of the corporation.
T
Directors are elected at the annual meeting of shareholders.
T
In most states and under the Model Act, cumulative voting is permissive and not mandatory.
T
In most states, a corporation may, with shareholder approval, limit the liability of directors for some breaches of the duties which they owe to the corporation.
T
In some jurisdictions, if Marge, a vice president, made a contract on behalf of Barker Corporation when it was not within her authority, she is liable if she negligently exceeded her authority.
T
Jack has been on the board of his brother's company for three years but has never attended a board meeting. He may be liable for failing to act.
T
Notice of a shareholder's meeting may be waived in writing.
T
Some publicly held corporations have used supermajority shareholder voting requirements to defend against hostile takeover bids.
T
The 1969 amendments to the MBCA included liberalizing provisions for closely held corporations.
T
The 2002 Sarbanes-Oxley Act created a five-person Accounting Oversight Board with authority to review and discipline auditors.
T
The Revised Act requires that demand be made upon the board of directors to enforce the corporate right at issue as a prerequisite to bringing a derivative suit.
T
The Statutory Close Corporation Supplement has relaxed most of the non-essential corporate formalities.
T
The articles of incorporation, incorporation statute, and bylaws set the number of directors.
T
The board of directors appoints the officers of the corporation
T
Under the RMBCA and an increasing number of other statutes, by a majority vote, shareholders may remove the entire board of directors without cause.
T
Under the Revised Act, a closely held corporation may use a shareholder agreement in place of bylaws.
T
Under the Statutory Close Corporation Supplement to the MBCA, a close corporation may operate without a board of directors.
T
Unlike voting trusts, shareholder voting agreements are not limited in duration.
T
The role of shareholders in managing the corporation is generally restricted to: a. election of directors. b. approval of certain extraordinary measures. c. the approval of corporate transactions that are void or voidable unless ratified. d. All of the above. e. None of the above.
D
Restrictions on transfer of shares: a. exist only for closely held corporations to control who may become shareholders. b. are valid under the common law if they are reasonable and adopted for a lawful purpose. c. are valid under the Revised Act if the restriction is conspicuously noted on the stock certificate. d. All of the above. e. Both (b) and (c).
E
Traditionally, statutes generally required at a minimum that the officers consist of: a. one or more vice presidents. b. a president. c. a treasurer. d. a secretary. e. All of the above.
E
What are some of the areas where the board determines corporation policy? a. Selecting and removing officers. b. Determining the corporation's capital structure. c. Initiating fundamental changes and declaring dividends. d. Setting management compensation. e. All of the above.
E
What are some of the matters involving fundamental changes in the corporation? a. Amendments to articles of incorporation. b. Sale or lease of all or substantially all of the corporate assets not in the regular course of business. c. Mergers, consolidations, compulsory share exchanges. d. Dissolution. e. All of the above.
E
A shareholder would have all of the following rights EXCEPT the right to: a. inspect the corporate records in order to discover customer lists to share with a competitor. b. see corporate financial statements in order to value his share for future sale. c. bring suit against the corporation to require payment of his declared dividend. d. bring suit on behalf of the corporation to recover improper dividends.
A
The RMBCA states that "all corporate powers shall be exercised by or under the authority of, and the business and affairs of a corporation managed under the direction of, its": a. board of directors. b. chief executive officer. c. officers. d. shareholders.
A
The great majority of corporations are: a. closely held corporations. b. publicly held corporations. c. nonprofit corporations. d. limited liability companies
A
Which of the following is untrue about a corporation's ratification of an act of an officer? a. It applies to an authorized act of an officer. b. It relates back to the original transaction. c. It may be either express or implied from the corporation's acceptance of the contract's benefits. d. The corporation must have full knowledge of the facts in order to ratify the act.
A
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. a direct suit. b. a derivative suit. c. a class action suit. d. an unauthorized suit.
B
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. Both (a) and (c) are correct.
B
If Eilene, a shareholder, sues in a derivative suit, the judgment will be paid to: a. the shareholders as a dividend. b. Eilene directly. c. the corporate treasury. d. the board of directors.
C
Special meetings may be called by: a. the board of directors. b. holders of at least 10% of shares. c. Both (a) and (b). d. Neither (a) nor (b).
C
The __________ precludes imposing liability on directors and officers for honest mistakes in judgment if they act with due care, in good faith, and in a manner reasonably believed to be in the best interests of the corporation. a. duty of diligence. b. duty of obedience. c. business judgment rule. d. None of the above.
C
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. the entire board of directors. c. a quorum. d. a minority.
C
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
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
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
With respect to the board of directors of a corporation, which of the following is NOT correct? a. They manage the business and affairs of the corporation. b. They are the shareholders' elected representatives. c. They must always obtain shareholder approval before deciding questions of operating policy. d. They have the authority to delegate power to officers and agents.
C
The remedy for a director's breach of fiduciary duty is: a. a suit in equity by the corporation. b. a derivative suit instituted by a shareholder to require the director to pay to the corporation the profits obtained through the breach. c. a class action suit by the shareholders. d. Both (a) and (b).
D
The Rutherford Corporation, a publicly held company, has employed Duncan, Saindon & Associates, PSC, as their accounting firm to perform audit services. Under the Sarbanes-Oxley Act, the lead auditor of Duncan, Saindon & Associates must rotate every: a. year. b. two years. c. three years. d. five years.
D
In the absence of a specific agreement, shares of stock are not freely transferable.
F
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. Both the Model Act and the Revised Act prohibit loans to directors in all cases. d. Both (a) and (b) are correct.
D
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
One of the fiduciary duties of directors is the duty not to compete with the corporation. They may pursue their own business interest, but they may not: a. use corporate resources. b. hire away personnel for their own business. c. use corporate facilities. d. All of the answer choices are correct.
D
The Revised Act initially permitted loans to directors if each particular loan was approved by: a. a majority of disinterested shareholders. b. the board of directors after determining that the loan would benefit the corporation. c. Neither of the above. d. Both (a) and (b) are correct.
D
Incorporation statutes generally require that each share of stock issued carry voting rights.
F
Only the board of directors may approve fundamental changes in the corporation.
F
A shareholder has no right to dissent from compulsory share exchanges
F
Claude is a shareholder in the Tel Ko Corporation. He learns of insider trading by one of the directors and wants to sue the corporation on behalf of the corporation and its shareholders. A shareholder cannot sue the corporation to enforce a right belonging to the corporation.
F
Directors may vote by proxy when they are not able to be present for a meeting.
F
Ace Corporation requires a quorum of five directors. If Richard, a director, shows up at the meeting for a vote on his favorite topic (dividends) and withdraws thereafter, leaving only four directors, they may not act on any further business.
T
Determining the names of other shareholders in order to communicate with them about corporate affairs is a "proper purpose" for a shareholder to inspect the books and records of a corporation.
T
The issuance of favorably priced shares to management while excluding other shareholders normally will constitute a violation of the fiduciary duty.
T
The officers and the directors are fiduciaries of the corporation, but the business judgment rule may preclude liability on officers and directors for honest mistakes of judgment.
T
To protect a shareholder's interest in the corporation, the law provides shareholders with certain enforcement rights.
T
