chapter 40 legal law final exam

Ordinarily, who is entitled to vote at an annual corporate meeting?

Only persons whose names appear on the corporation's stockholder records as owners are entitled to vote.

As a director and officer of Max Transport, Inc., Max would most likely be considered to have breached his duty of loyalty if he

buys stock in Arnold's transport, Inc., a competing trucking firm.

The directors and officers of Sports Color, Inc., vote to refuse to declare a dividend. Believing that the refusal is unreasonable, the shareholders can:

file an action to require the directors to declare a dividend.

Betty, a corporate director, has engaged in a number of acts that constitute a conflict of interest between her and Global Mfg., Inc. The corporation shareholders want to remove her, and in most jurisdictions can do so:

for cause

Mark is a director of Bromley Corp. Mark also owns a printing company named BooksMark. If Bromley Corp. needs a marketing brochure printed and BooksMark is being considered as the printer for that brochure, Mark must:

fully disclose his interest to the other board members and abstain from voting on the matter.

If a board of directors declares a dividend to "pay back" investors but that dividend would cause them to have to miss paying several bills as they become due, the members of that board will be personally responsible for any loss to the corporation

true

One of the hallmarks of the corporate form is that shareholders may lose their investment in the corporation but no more than that.

true

Nikki and Jim own a corporation together. Nikki owns forty-eight shares of stock and Jim owns fifty-two. They consider themselves investors, so they elect a board of three directors to oversee the business. To ensure that Nikki can elect at least one director, the corporation should:

use cumulative voting

If a corporation issues shares of stock for less than their fair market value, the shares are referred to as:

watered stock

When a company distributes a portion of its income or profits in cash, property or stock to its shareholders in proportion to their shares, it is called

a dividend

Don, Keith, Jack, and Diane are shareholders in a close corporation. Don and Keith, as majority shareholders, owe which of the following duty to Jack and Diane as minority shareholders

a fiduciary duty

Carmen is the vice president for marketing for Nita's Web Design. She also sits on the board of directors. Carmen would be considered:

an inside director

Mandy's Muffins, Inc., makes a profit in 2015. The managers of Mandy's Muffins, Inc., decide to distribute the profits to the corporation's shareholders in proportion to the number of shares held. The profits distributed to the shareholders are known as:

dividends

Directors are hired by the shareholders through an interview process.

false

Preemptive rights are not important in close corporations because all of the shareholders are family or close friends.

false

Shareholders must approve any corporate decision that would cost more than $10,000.

false

Officers and directors have a special relationship with the corporation and its shareholders and are called:

fiduciaries.

Ruis Corporation, a publicly held corporation, has thirty-five members on its board of directors. In order to conduct business efficiently, the chairman of the board is proposing that five committees be created: the executive committee, the human resources committee, the marketing committee, the research and development committee, and the sales committee. Seven members of the board would serve on each committee and each board member would serve on only one committee. This is

illegal, because the Sarbanes-Oxley Act requires all publicly held corporations to have an audit committee.

Galen and Leslie are directors, but not officers, of Tropical Travels, Inc. Tropical Travels, Inc., becomes embroiled in a controversy over airline kickbacks. As directors, Galen and Leslie can be named in any lawsuit that may result from the company's actions. If they have any expenses related to the lawsuit, they may be compensated for those under their right of:

indemnification

Epsilon Corporation has been struggling for a number of years. Zeta Corporation is interested in purchasing and making productive use of Epsilon's assets, but dissolving the corporation. In order for this sale to occur

Epsilon's shareholders must approve it.

Lysco, Inc., gives to all 15,000 of its shareholders the right to purchase newly issued shares of Lysco, Inc., stock in proportion to the percentage of shares they currently own and before anyone else is offered the shares. This right is known as:

a preemptive right

The reason that most states either permit or require cumulative voting when electing directors is to:

allow minority shareholders a chance at electing a director.

The business judgment rule states that directors and officers

are immune from liability for bad business decisions, provided they exercised due care and used their best judgement in guiding corporate management.

To encourage shareholders to pay attention to the board's actions, when a shareholder's derivative suit is won, the damages:

are paid into the corporation's treasury.

Doug is the vice president of product development for a corporation that makes flavored honey. Doug proposes to the board that they approve three new products: chili-flavored honey, seaweed-flavored honey, and black-licorice honey. Doug and his team have market tested the flavors and they received positive reviews from focus groups. The board approves the flavors, which then fail miserably and cost the company thousands of dollars. If some shareholders sue the board for its decision to market the flavors, the board most likely will

not be held responsible because of the business judgement rule.

Genevieve is a member of the board of directors and the chief financial officer of The Shoe Fits, Inc. Under the duty of care that she owes the corporation, Genevieve does not need to:

oversee every aspect of the business, including such things as ordering merchandise and arranging for janitorial services.

Suzy signs a written agreement with Phillip giving him the right to cast her votes for a certain group of people nominated for the board of directors at Syllibar Corporation. This agreement between Suzy and Phillip is known as a:

proxy

A corporate director who sits on more than one board is engaging in illegal activity.

true

Before a shareholder's meeting, a group of shareholders can create a shareholder voting agreement by agreeing in writing to vote their shares together in a specified manner.

true

Corporate officers are hired by the directors

true

Directors and officers may be liable for the actions of corporate employees under their supervision as well as for their own torts and crimes.

true