Corporations
The board of a closely-held corporation authorized repurchasing shares from a shareholder at market value, $20,000. Five years later, the board agreed to issue to the shareholder the same number of shares at that price, though company value had doubled. The charter provides that any increase in stated capital requires shareholder approval and the applicable corporation statute, embracing the legal capital regime, directs that a corporation, when issuing shares, "shall state an amount to be allocated to stated capital." Which of the following is most accurate? a) A shareholder vote on the reissue is not required so long as the board assigns the shares par value of zero. b) A shareholder objecting to the reissue would be most likely to succeed by challenging the business wisdom of the reissue given the corporation's current value. c) A shareholder vote on the reissue is required, assuming that the shares to be issued were not held as treasury stock since the earlier repurchase. d) A shareholder objecting to the reissue would be most likely to succeed by challenging the intrinsic fairness of the reissue given that the transaction involves a shareholder of a closely-held corporation. e) A shareholder vote on the reissue is not required because the legal capital regime is merely an anachronistic relic of a formal era in corporate law.
c) A shareholder vote on the reissue is required, assuming that the shares to be issued were not held as treasury stock since the earlier repurchase.
Which of the following matters regarding shareholder meetings is LEAST accurate: a) The DGCL permits annual meetings to be held outside of DE b) The MBCA & DGCL grant authority to the BoD to determine if the corporation's annual shareholder meeting will be held virtually c) Annual shareholder meetings are held at a time & place specified in the corporation's charter d) Virtual shareholder meetings become increasingly popular during the 2020 proxy season (annual meeting season)
c) Annual shareholder meetings are held at a time & place specified in the corporation's charter *Not consequential enough to be included in the charter; can be found in the bylaws
T/F: All shh voting is done by majority rule
False. The default rule, most common & conventional is majority, but there are other options (plurality, cumulative, etc.)
Under the DGCL, which of the following is least accurate? a) Absent valid contrary provisions, directors are elected by majority voting. b) Absent valid contrary provisions, the quorum for shareholder meetings is a majority of the shares entitled to vote at the meeting. c) The quorum for shareholder meetings may be validly set forth in either the certificate of incorporation or bylaws. d) Other than in director elections, the affirmative vote of a majority of voting shares present at a meeting constitutes the act of the stockholders. e) The quorum for shareholder meetings must be at least 1/3 of the shares entitled to vote at the meeting.
a) Absent valid contrary provisions, directors are elected by majority voting.
Under the DGCL, a board committee may exercise full authority to bind the corporation on all of the following matters except: a) Amending the bylaws. b) Filling board vacancies that arise due to death or retirement. c) Appointing officers. d) Recommending election or removal of given directors. e) Declaring a special shareholder dividend.
a) Amending the bylaws.
Under the MBCA, which of the following is least accurate? a) Directors may be removed by shareholder action taken at a meeting or by unanimous written consent. b) All directors may be removed, with or without cause, unless the articles of incorporation provide for removal only with cause. c) Directors elected by cumulative voting may not be removed, with or without cause, if the shares voted against removal would be enough to elect the director under cumulative voting. d) Directors elected by voting group may be removed, with or without cause, only by the respective voting group. e) Absent cumulative voting, director removal is effective when votes for removal exceed votes against removal.
a) Directors may be removed by shareholder action taken at a meeting or by unanimous written consent.
Which of the following is LEAST accurate? a) Officers are agents of a corporation's shareholders b) The scope of officer authority is often expressed in the bylaws or a board resolution c) It is common for the CEO to also serve as board chair, though this is hotly contested d) It is common for the GC to also serve as secretary e) It is possible for an officer also to be a director as well as a shareholder
a) Officers are agents of a corporation's shareholders
A corporation's board consisted of six nominated by Inson, six by Gel, and one neutral. Amid a dispute about strategy, however, four directors resigned, one Inson, one Gel and the neutral, shifting majority power to Inson. Gel, the incumbent president, calls a special meeting of shareholders to fill the four vacancies with nominees he supports, amend the bylaws to increase board size from 13 to 19 and quorum from 7 to 10, and to remove two of the remaining Inson directors and fill the resulting vacancies. A group of shareholders from the Inson faction objects. Their strongest ground for challenge is: a) The targeted directors were not given notice or an opportunity to be heard. b) President lacks power to call a special meeting of shareholders. c) The shareholders lack power to remove directors between annual meetings. d) The corporation's bylaws do not grant shareholders the power to fill newly created board vacancies. e) The grounds for removal are disagreements about corporate strategy not culpable misconduct like embezzlement or theft of trade secrets.
a) The targeted directors were not given notice or an opportunity to be heard.
Assuming no contrary charter provision, which of the following is least accurate? a) Under both the MBCA and DGCL, issuances of shares with a preference as to periodic dividends or priority upon dissolution must be designated as "preferred stock" and those without any such preferences must be designated as "common stock." b) Under both the MBCA and DGCL, a board of directors may authorize the issuance of corporate shares for any form of consideration deemed beneficial to the corporation, whether tangible or intangible. c) Under both the MBCA and DGCL, a board of directors must determine the amount of consideration to be received by the corporation in exchange for the issuance of shares. d) Under the MBCA, board of director determinations of the adequacy of consideration for the issuance of shares are conclusive in relation to whether shares are validly issued, fully paid, and nonassessable. e) Under the DGCL, absent fraud, the judgment of the directors as to the value of consideration received in exchange for the issuance of shares is conclusive.
a) Under both the MBCA and DGCL, issuances of shares with a preference as to periodic dividends or priority upon dissolution must be designated as "preferred stock" and those without any such preferences must be designated as "common stock."
Concerning preemptive rights, which of the following is least accurate? a) Under the DGCL, shareholders have preemptive rights unless the certificate of incorporation provides otherwise. b) Under the MBCA, shareholders do not have a preemptive right to acquire the corporation's unissued shares except to the extent the charter so provides. c) Preemptive rights entail a reasonable opportunity to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them. d) Shareholders may waive preemptive rights. e) Under the MBCA, preemptive rights do not apply to shares issued as compensation to employees.
a) Under the DGCL, shareholders have preemptive rights unless the certificate of incorporation provides otherwise.
Which of the following is least accurate? Under the MBCA, except as otherwise set forth in a corporation's articles of incorporation, corporations: a) are automatically dissolved upon the death or withdraw of the initial shareholders. b) may engage in any lawful business. c) have perpetual duration. d) have the same powers as individuals do to carry out their businesses. e) offer shareholders the benefit of limited liability.
a) are automatically dissolved upon the death or withdraw of the initial shareholders.
The president of a closely-held corporation who had borrowed money in his individual capacity also signed a guarantee of the loan on purported behalf of the corporation. She later defaulted on the loan, the corporation refused to honor the guarantee and the lender sued the corporation. The guarantee is likely to be (select least accurate): a) valid, given that the corporation's president signed it. b) invalid, if the corporation's board of directors did not authorize it. c) valid, if the corporation's board of directors had previously passed a resolution authorizing senior officers to bind the corporation to guarantees. d) invalid if the corporation took no steps to create the appearance, to a reasonable person, that the president had actual authority to execute guarantees on behalf of the corporation. e) valid or invalid depending on whether signing guarantees for money borrowed by shareholders arises in the usual course of business or not.
a) valid, given that the corporation's president signed it.
Johnson Inc. and Vinson Inc., each owned by a different group of less than 75 individual shareholders, merge under an agreement whereby each constituent corporation has the right to elect four of the eight members of the merged company's board. Each group entered into shareholders' agreements providing that each would vote within the group to choose its director nominees and then all would vote their shares unanimously for their directors. A Johnson shareholder defected, refusing to cast his votes for one of the Johnson group's board nominees. He voted with the Vinson group at a board meeting to fire all Johnson group officers and with the Vinson group at a shareholders' meeting to remove all Johnson group directors. In a lawsuit by the other Johnson shareholders, they are most likely to: a) win because the defecting shareholder breached the shareholders' agreement. b) win because the defecting shareholder breached the duty of loyalty. c) lose because shareholders are free to cast their votes in director elections and removal proposals as they see fit. d) lose because any binding obligations concern only the appointment of officers by the board rather than elections of directors by the shareholders. e) win or lose depending on whether the jointly-owned corporation elected to be treated as a close corporation or not.
a) win because the defecting shareholder breached the shareholders' agreement.
A corporate charter authorizes 1200 common shares. The corporation: on day 1 issued 1200; at the beginning of year 1 repurchased & cancelled 400; & at the beginning of year 2 issued 150. The following are all accurate statements of the corporation's duly-authorized capacity to issue new shares EXCEPT: a) The 1200 as issued on day 1 b) 150 more on day 2 c) Up to 400 more during year 1 d) Up to 250 more after year 2
b) 150 more on day 2
Bidder makes a takeover bid to Target's board, which the board rejects. Bidder then plans a written consent solicitation under DGCL § 228 to remove incumbent directors and elect his designees. Target's board adopts by-law amendments establishing procedures governing consent solicitations, the effect of which is to delay their effectiveness by 60 days and to stay any such effectiveness for so long as any litigation arising out of a consent solicitation is pending. Which of the following is most accurate? a) The by-laws are a lawful exercise of board power and therefore effective. b) By-laws regulating consent solicitation timing can be lawful but only if they concern ministerial review of the legality of particular shareholder consents. c) The by-laws are lawful if the board adopted them in an effort to prevent aggressive takeover artists from effecting quick takeovers. d) The by-laws are unlawful because shareholder action by written consent is a specially protected form of exercising shareholder voting rights. e) The by-laws are unlawful because all by-law amendments must be approved by shareholders.
b) By-laws regulating consent solicitation timing can be lawful but only if they concern ministerial review of the legality of particular shareholder consents.
Under both the MBCA and the DGCL, which of the following is least accurate? a) Bylaw provisions that conflict with charter provisions are invalid. b) Bylaw provisions that conflict with statutory requirements are nevertheless valid as a contract. c) Board resolutions may contain any provision so long as not inconsistent with law or the charter or bylaws d) Shareholder resolutions that conflict with statutory requirements or charter provisions are invalid. e) Charter and bylaw provisions that conflict with statutory requirements are invalid.
b) Bylaw provisions that conflict with statutory requirements are nevertheless valid as a contract.
A company issues new shares of stock in exchange for the new shareholder's PR to pay a certain amount of cash within one year. Pick LEAST accurate: a) The equity portion of the BS increases b) Cash increases c) Note receivable increases d) The shareholder is not personally liable on the corporation's obligations
b) Cash increases
Which of the following is most accurate? a) General corporate law imposes fiduciary duties on controlling shareholders in close corporations akin to the duties that partnership law imposes on partners. b) Judicial intervention under the doctrine of oppression seems more likely in the context of one-time capital transactions as opposed to ongoing operational judgments. c) Judicially ordered corporate dissolution is perhaps the best way to resolve disputes between controlling and minority shareholders in close corporations. d) Minority shareholders in close corporations are always protected against the potentially self-serving decisions of controlling shareholders. e) Minority shareholders in close corporations are always free to sell their shares if they disagree with the actions of the majority shareholders
b) Judicial intervention under the doctrine of oppression seems more likely in the context of one-time capital transactions as opposed to ongoing operational judgments.
Shareholders of a closely-held company agree on a list of events requiring any shareholder to sell, & the company to buy, all the shareholders' shares. Which of the following would be LEAST prudent to reference as the purchase price? a) Capitalization of earnings b) MV c) Adjusted BV d) Appraised value based on discounted CFs
b) MV *Closely-held company → no market for the shares; even if public, others are more prudent
On the subject of shareholder voting rights, the DGCL, the MBCA and other US state corporate law statutes: a) Require corporations to provide one-vote, one-share voting b) Permit dual class capital structures, though this is a controversial structure c) Require corporations to increase the voting power of shares held by long-term owners d) Permits corporations to limit voting rights based on the number of shares held, but only if affected shareholders are compensated fairly
b) Permit dual class capital structures, though this is a controversial structure *Issues of accountability, allocation of powers, etc.
What is the MOST accurate statement? a) The source of board power & authority is the shareholders b) The source of board authority is state statute c) Currently boards generally serve an advisory role, rather than a monitoring role d) Inside directors are generally more important than outside directors
b) The source of board authority is state statute
Which of the following is least accurate? a) Under the MBCA, in order for action to be authorized by shareholder written consent in lieu of a meeting by majority vote, a provision to such effect must be in the charter. b) Under the DGCL, absent a different charter provision, shareholders may act by written consent without a meeting only if the vote is unanimous. c) Under the MBCA, absent a different charter provision, shareholders may act by written consent without a meeting only if the vote is unanimous. d) Under the DGCL, action may be authorized by shareholder written consent in lieu of a meeting by majority vote. e) Under both the MBCA and DGCL and general principles of corporation law, the right of shareholders to vote on certain matters such as director elections and charter amendments is of basic and fundamental importance to the American system of corporate governance.
b) Under the DGCL, absent a different charter provision, shareholders may act by written consent without a meeting only if the vote is unanimous.
Pick the LEAST accurate option pertaining to agency authority: a) When 3rd parties enter into deals with a corporation, they need assurance of the legal validity of the deal b) When there is an entity, such as a corporation, that cannot act except through the actions of certain people (agents), people in the transaction need to determine that the people acting on behalf of the entity are authorized to take this action c) As a corporate lawyer, if you are giving an opinion to your client on whether a principal's authorization is legally binding, you should tell your client that apparent authority is the strongest form of authority d) Resolutions passed by the board at board meetings are a form of express authority
c) As a corporate lawyer, if you are giving an opinion to your client on whether a principal's authorization is legally binding, you should tell your client that apparent authority is the strongest form of authority *Weakest form
Which of the following is MOST accurate? a) Individual directors can bind their corporations b) Boards have limited authority over corporate strategy c) Board action by written consent must be unanimous d) There is no practical difference between inside & outside directors e) Boards may never act through committees
c) Board action by written consent must be unanimous
All of the following are consequences of assigning PV to shares EXCEPT: a) Sets the minimum price a corporation must receive for shares b) Caps the amount of dividends a corporation may pay to its shareholders c) Determines how valuable shares are d) Often determines the amount of state tax that is imposed
c) Determines how valuable shares are
Under the DGCL, which of the following is least accurate? a) Absent cumulative voting, removal is effective when holders of a majority of shares entitled to vote in director elections vote for removal. b) Directors elected by class may be removed, without cause, only by that class. c) Directors may be removed, with or without cause, unless the certificate of incorporation provides otherwise. d) Directors on classified boards may only be removed for cause, not without cause, unless the certificate of incorporation provides otherwise. e) Directors elected by cumulative voting may not be removed individually (as opposed to as part of the entire board), without cause, if the shares voted against removal would be enough to elect the director under cumulative voting.
c) Directors may be removed, with or without cause, unless the certificate of incorporation provides otherwise.
A corporate board will consider a board resolution. The corporate charter specifies that the corporation has nine directors; however, 2 directors were recently removed for cause & have not been replaced yet. Which of the following will allow the directors to pass the resolution? a) Four of the seven directors attend the meeting & all vote in favor of the board resolution b) The directors do not hold a meeting & rather vote by written consent. Six of the seven directors vote in favor of the board resolution c) Five of the seven directors attend the meeting & three vote in favor of the resolution d) All seven of the directors attend a meeting and vote in favor of the resolution; however, the meeting was not duly noticed
c) Five of the seven directors attend the meeting & three vote in favor of the resolution *Quorum = majority of directors based on the number of directors that are supposed to be on the board (here, 9 so 5 suffices) Need a majority vote based on the directors in attendance to pass the resolution (here, 3 of 5 suffices)
A Delaware corporation has two classes of common stock outstanding, 8 million Class A and 2 million Class B. Holder owns a majority of the Class B but no Class A. The corporation's board approves its merger with another corporation. The corporation's headquarters are in California, where a substantial portion of its property is based and where most of its employees work. Which of the following is most accurate? a) The classes vote separately on the merger, in accordance with Delaware statutory law. b) The classes vote as a single group on the merger, per California statutory law. c) Holder is not entitled to a separate class vote because the question of shareholder voting concerns the internal affairs of the corporation. d) Whether Holder is entitled to a separate class vote is a determination to be made by the corporation's board of directors in the exercise of its business judgment. e) Any board decision concerning whether to hold a class vote or not would be subject to judicial review for entire fairness.
c) Holder is not entitled to a separate class vote because the question of shareholder voting concerns the internal affairs of the corporation.
Which is the LEAST true regarding directors: a) Both inside & outside directors have the right to inspect & copy corporate books & records b) Outside directors are generally more independent whereas inside directors generally have more expertise c) The shift in shareholder ownership (from individual ownership to institutional ownership) has put an emphasis on corporations having boards composed almost entirely of inside directors b/c inside directors generally have more expertise d) Outside directors are distinguishable based on their position in the corporation, or lack thereof
c) The shift in shareholder ownership (from individual ownership to institutional ownership) has put an emphasis on corporations having boards composed almost entirely of inside directors b/c inside directors generally have more expertise
A software company sold cash for some investment securities it had bought. Which of the following are LEAST accurate? a) Cash increases & investment securities decreases b) The transaction affects the BS c) The transaction affects the IS d) Total assets remain the same
c) The transaction affects the IS *Sale of securities does not affect rev/exp. unless gain or loss, which would be reflected on the IS
Which of the following is least accurate? a) Under the DGCL, a corporation may have a staggered board by provision in the charter, initial bylaw, or shareholder-adopted bylaw. b) Under the MBCA, a corporation may have a staggered board only if the charter so provides. c) Under both the MBCA and DGCL, directors may be divided into multiple classes up to the number of directors authorized. d) As a default rule, director terms expire at each successive annual shareholders' meeting. e) Directors on staggered boards may be removed with or without cause under the MBCA but only with cause under the DGCL (in each case, unless the charter provides otherwise).
c) Under both the MBCA and DGCL, directors may be divided into multiple classes up to the number of directors authorized.
Which of the following financial ratios would most constrain an analyst to request further information about a company's ability to pay its debts as they come due in the ordinary course of business? a) A debt-to-equity ratio exceeding 4:1 b) A working capital ratio of 3:1 c) A profit margin of 25% d) Quick ratio of less than 1:1
d) Quick ratio of less than 1:1
A corporation borrowed funds from a lender, pledging as collateral the accounts receivable of one of its subsidiaries. The corporation's secretary and general counsel signed the loan and pledge agreement and attested that the board of directors had passed a resolution authorizing the corporation to enter into the agreement. The corporation defaulted and the lender sued. The agreement is likely to be (select most accurate): a) invalid, if the corporation's board of directors did not authorize it in fact. b) valid, given that the secretary and general counsel attested to the board resolution. c) invalid, if the secretary and general counsel was the only corporation officer who signed it. d) valid, given the likelihood of equitable estoppel. e) valid, under the doctrine of ratification.
c) invalid, if the secretary and general counsel was the only corporation officer who signed it.
Under both the MBCA and DGCL, as well as general principles of corporation law, with respect to an issuance of capital stock of a corporation, which of the following is least accurate? a) "duly authorized" means that the charter authorizes more shares than would be outstanding after giving effect to a share issuance. b) "validly issued" means all required corporate procedures were followed in issuing shares. c) to be "duly authorized" and "validly issued," shares must have a par value, and to be "fully paid and nonassessable," the corporation must receive at least the par value of shares. d) "fully paid and nonassessable" means that the corporation received all consideration required to be received from shareholders for the sale of stock. e) when the corporation receives the consideration for which the board validly authorized the issuance of shares, the shares issued are "fully paid and nonassessable."
c) to be "duly authorized" and "validly issued," shares must have a par value, and to be "fully paid and nonassessable," the corporation must receive at least the par value of shares.
Two employees advance up the ranks of a close corporation, with one eventually owning 80% and the other 20% of the shares. The 80% holder gradually transfers her shares to her children and, nearing retirement, causes the board to pass a resolution buying back her remaining shares at book value. The 20% holder seeks to participate in this buyback offer but the board refuses. He sues. The 20% holder will most likely: a) win because such buybacks always breach the board's duty to give all shareholders an equal opportunity to participate in corporate transactions. b) lose because the buyback is at book value. c) win if the court determines that fiduciary principles applicable to partners apply to close corporations. d)lose if there are alternative ways to sell his shares at or near book value. e) win or lose depending on whether the buyback decision was an exercise of sound business judgment by the board.
c) win if the court determines that fiduciary principles applicable to partners apply to close corporations.
Which of the following statements is least accurate? a) A corporation whose charter provides for cumulative voting can frustrate a stockholder's effort to gain board representation by reducing the board's size. b) A corporation whose charter provides for cumulative voting can frustrate a stockholder's effort to gain board representation by staggering the board. c) In a corporation not subject to cumulative voting, 100% of the directors can be elected by a shareholder owning a simple majority of the outstanding voting shares. d) A corporation can provide in its charter for cumulative voting for all corporate matters on which shareholders have the right to vote, so long as the provision is properly approved by both the shareholders and the board of directors of that corporation. e) Cumulative voting reduces the power of voting majorities to exercise control of a board of directors.
d) A corporation can provide in its charter for cumulative voting for all corporate matters on which shareholders have the right to vote, so long as the provision is properly approved by both the shareholders and the board of directors of that corporation.
Special shareholder meetings may be called by (LEAST accurate): a) Under the MBCA & DGCL, the board b) Under the MBCA shareholders of at least 10% of all votes entitled to be cast on the matter c) Under the MBCA & DGCL, all those named in the charter or bylaws d) Any shareholder
d) Any shareholder
Under the MBCA, on which of the following actions is a board committee most likely to be authorized to exercise the full authority of the board to bind the corporation? a) Declaring a special shareholder dividend. b) Filling board vacancies that arise due to death or retirement. c) Amending the bylaws. d) Appointing officers. e) Approving mergers that the MBCA requires be submitted to shareholders for approval.
d) Appointing officers.
Which of the following is least accurate? a) Straight voting in director elections results in majority rule b) Cumulative voting in director elections creates potential board representation for minority shareholders c) Staggered terms for boards of directors counteracts the effects of cumulative voting d) Cumulative voting is more effective for smaller boards rather than for larger boards
d) Cumulative voting is more effective for smaller boards rather than for larger boards *Minority representation is stronger for larger boards
Which of the following is least accurate? a) A corporation's debt represents fixed claims on its assets whereas its shareholders' equity represents the residual claim after subtracting liabilities from assets. b) Federal corporate income tax law makes issuing debt relatively attractive compared to equity. c) Leverage in a corporation's capital structure refers to how the use of debt amplifies both the potential gains and potential losses on shareholders' equity. d) Leverage is beneficial to shareholders when the cost of borrowed money is greater than the rate of return the corporation earns in operating its business. e) Using some borrowed funds instead of paying all cash in the acquisition of an asset has the effect of increasing the rate of return on an investment if its value rises.
d) Leverage is beneficial to shareholders when the cost of borrowed money is greater than the rate of return the corporation earns in operating its business.
Which of the following accounting statements is LEAST accurate? a) A = L + OE b) A - L = OE c) R - E = NI d) Net CFs = NI
d) Net CFs = NI
Which of the following is the most accurate: a) There has been a shift in corporate power from shareholders to senior managers b) b/c institutional shareholders now hold more voting power, companies have become less receptive to shareholder demands c) b/c shareholders have the power to manage the corporation, institutional investors now manage most publicly traded corporations d) Ownership of publicly traded companies has generally shifted from individual investors to institutional investors
d) Ownership of publicly traded companies has generally shifted from individual investors to institutional investors
All of the following illustrate problems w/ stock issuance EXCEPT: a) Shares would not be duly-authorized if the authorization appeared in the bylaws rather than the charter b) Shares would not be validly issued if they failed to comply w/ statutory or bylaw approval requirements c) Shares would not be fully paid if shareholders failed to pay the agreed price for them d) Shares would be assessable unless the board obtained an opinion from outside legal counsel on the legality of issuance
d) Shares would be assessable unless the board obtained an opinion from outside legal counsel on the legality of issuance
Which of the following is LEAST accurate? a) The balance sheet is a snapshot of financial condition at a moment in time b) The IS is a depiction of financial performance over a period of time c) The statement of CFs reflects differences between CFs & NI d) The footnotes to financial statements contain dense boilerplate that users can safely ignore
d) The footnotes to financial statements contain dense boilerplate that users can safely ignore
Which of the following is least accurate? a) Assets equal liabilities plus net worth. b) The debt-to-equity ratio is a measure of leverage. c) The balance sheet is akin to a snapshot of corporate position at a moment in time. d) The income statement and the cash flow statement are functionally equivalent statements. e) The footnotes are an integral part of most financial statements.
d) The income statement and the cash flow statement are functionally equivalent statements. *Income is an accounting expression that almost always differs from CFs
Which of the following statements is least accurate? a) The statement of cash flows differs from the income statement due to how accounting standards focus on economic activity without regard to when cash is exchanged. b) The income statement lists total revenues, total expenses and net income, for a period of time. c) The ratio of debt to equity appearing in a corporation's balance sheet expresses the degree of leverage in its capital structure. d) The market value of a corporation and the fair value of each share of its stock are listed in its financial statements. e) The balance sheet lists total assets, total liabilities and shareholders' equity, as of a particular date.
d) The market value of a corporation and the fair value of each share of its stock are listed in its financial statements.
A company's board wishes to pay a cash dividend on each share. Which is LEAST accurate? a) Cash would decrease b) The equity portion of the BS would decrease c) Shareholder capital would decrease d) The number of shares outstanding would decrease
d) The number of shares outstanding would decrease
Under the MBCA, the articles of incorporation must set forth all of the following except: a) A corporate name for the corporation. b) The number of shares the corporation is authorized to issue. c) The street address of the corporation's initial registered office. d) The purpose of the corporation. e) The name and address of each incorporator.
d) The purpose of the corporation. (See MBCA 2.02 & 3.01)
A shareholder read blog posts indicating that the directors of a corporation have been overpaying top executives; a comparison of their salaries to those of peer companies heightens his suspicion. He seeks more information from the corporation, asking to inspect minutes of board meetings and other records concerning executive compensation. The board refuses. Which of the following is most accurate? a) The shareholder is likely to obtain access under the common law and statutory rule entitling shareholders to review the books and records for any lawful purpose. b) The shareholder is likely to obtain access if he reasonably believes, and provides affidavits attesting to his belief, that the corporation has committed waste. c) The shareholder is unlikely to obtain access so long as the board conducts an investigation and determines that there is no basis for the shareholders' beliefs. d) The shareholder is unlikely to obtain access, as he must have a credible basis to suspect mismanagement or breach of fiduciary duty. e) Whether access is likely or not depends on the relative frequency with which courts have historically required corporations to provide such access.
d) The shareholder is unlikely to obtain access, as he must have a credible basis to suspect mismanagement or breach of fiduciary duty. (See Seinfeld v. Verizon Communications, Inc.)
Which of the following is least accurate? Under the MBCA, shareholders are entitled to inspect copies of board or shareholders' meeting minutes, accounting records, and shareholder lists only: a) if the records are directly connected with the shareholder's purpose b) if doing so is in good faith and for a proper purpose. c) during regular business hours at a reasonable location specified by the corporation. d) so long as the articles of incorporation or bylaws do not limit such shareholder inspection rights. e) if the shareholder, when requesting to inspect, describes the purpose of inspection and the requested records with reasonable particularity
d) so long as the articles of incorporation or bylaws do not limit such shareholder inspection rights.
Sole proprietor (Owner) incorporated an enterprise (Corporation), contributing $5,000 in assets in exchange for 100% of the shares. Later, Corporation borrowed $200,000 from third-parties (Creditors). Owner borrowed from a bank in his individual capacity, then advanced the proceeds to Corporation in exchange for a series of promissory notes with face values totaling $200,000. When Corporation became insolvent, Owner filed deeds of trust, which he backdated, securing these notes. In Corporation's bankruptcy proceeding, Creditors assert priority over Owner's notes. Which of the following is most accurate? a) Creditors will win if they can demonstrate Owner engaged in fraud, deceit, or calculated breach of trust. b) The bankruptcy court may characterize Owner's putative notes as equity in light of the instruments' substantive terms and manner of creation. c) Corporation's high debt-to-equity ratio provides a strong equitable basis for subordinating Owner's notes to Creditors' claims. d) Owner's defense should center on the relationship between the level of equity contributed and the Corporation's operational requirements. e) All of the above.
e) All of the above.
Under the MBCA, the articles of incorporation may set forth all of the following except: a) The names of the initial directors. b) Any provision that under the MBCA is required to be set forth in the bylaws. c) A par value for authorized shares or classes of shares. d) The imposition of personal liability on shareholders. e) Any provision approved by both the directors and shareholders, even if the provision is inconsistent with state statutory requirements.
e) Any provision approved by both the directors and shareholders, even if the provision is inconsistent with state statutory requirements.
Under the MBCA, which of the following is least accurate? a) Any initial directors named in the articles of incorporation must hold an organizational meeting. b) An initial organization meeting is required to appoint officers and adopt bylaws. c) The initial bylaws may be adopted either by the incorporators or the board. d) Bylaws may contain any provision that is required to be in the articles of incorporation. e) Bylaws may generally be amended by either the board or the shareholders.
e) Bylaws may generally be amended by either the board or the shareholders. *Can be amended by the board (shared power)
A board committee may possess full authority to bind the corporation on many matters but not on the following subjects under the indicated statute(s): a) amending the bylaws, under both the DGCL and MBCA (i.e., both statutes deny this power). b) approving a merger that requires a shareholder vote, under both the DGCL and MBCA. (i.e., both statutes deny this power). c) declaring a dividend, under the MBCA but not under the DGCL (i.e., a committee may have such power under the DGCL but not the MBCA). d) filling a board vacancy, under the MBCA but not under the DGCL (i.e., a committee may have such power under the DGCL but not the MBCA). e) Committees lack full authority to bind the corporation on all the foregoing matters under the indicated statutes (i.e., all of the above statements are true).
e) Committees lack full authority to bind the corporation on all the foregoing matters under the indicated statutes (i.e., all of the above statements are true).
Which of the following is least accurate? a) under the internal affairs doctrine, the law of the state of incorporation governs the rights and duties among and between shareholders, directors and officers. b) If a statute prescribes that a particular provision, to be valid, be in the charter, then such a provision in the bylaws is invalid. c) under agency law principles applicable in the corporate setting, president of a corporation possesses general executive authority over corporate affairs. d) Shareholders generally do not owe fiduciary duties to their corporations or fellow shareholders, though controlling shareholders may have such duties in some limited contexts. e) If a statute requires board approval for a transaction, and the transaction was approved only by the shareholders, it is still valid so long as all shareholders are directors and all directors are shareholders.
e) If a statute requires board approval for a transaction, and the transaction was approved only by the shareholders, it is still valid so long as all shareholders are directors and all directors are shareholders.
Which of the following is LEAST accurate? A closely-held corporation: a) Is one whose shares are not listed in a public stock market b) May have relatively few shareholders, pe Donahue, though a corporation w/ thousands of shareholders (including dynastic family companies) may be fairly described as closely held c) Can be seen as one where many shareholders are also officers or directors, though many shareholders in larger family corporations may not also hold such positions d) As Donahue defined it, helped enable equating the corporation at issue to a partnership e) Need not observe all the statutory requirements applicable to other types of corporations
e) Need not observe all the statutory requirements applicable to other types of corporations
Under the MBCA, which of the following is least accurate? a) Director meetings may be held by conference call. b) The number of directors may be stated in the articles of incorporation or bylaws. c) Directors may act by written consent but only if the vote is unanimous. d) The offices for which the corporation may designate officers are those set out in the bylaws or by board resolution pursuant to the bylaws e) No individual may simultaneously serve as both president and vice president of a corporation.
e) No individual may simultaneously serve as both president and vice president of a corporation.
Under the DGCL, all of the following provisions would be valid if appearing in the certificate of incorporation or bylaws except: a) Increasing the number of shares required to pass a shareholder resolution. b) Increasing the number of directors required to pass a board resolution. c) Any provision required by the DGCL to be set forth in the bylaws. d) Provisions stating the authorized officers of the corporation. e) Provisions stating the authorized capital stock of the corporation
e) Provisions stating the authorized capital stock of the corporation
Under the MBCA, boards are restricted in their use of committees on all of the following topics EXCEPT: a) Dividends & other distributions of assets to shareholders b) Actions upon which shareholder approval is also required c) Filling board vacancies d) Amending the bylaws e) Setting executive compensation
e) Setting executive compensation
Which of the following is LEAST accurate? a) Under the MBCA, directors can be removed with or without cause, unless the charter provides otherwise b) Under the DGCL, directors can be removed w/ or w/o cause, even if the charter provides for removal only w/ cause c) Under the MBCA, directors on staggered boards can be removed only for cause d) Under the DGCL, directors on staggered board can be removed only for cause e) The MBCA & DGCL approach director removal, in general & for staggered boards, in substantially identical ways
e) The MBCA & DGCL approach director removal, in general & for staggered boards, in substantially identical ways
Under the MBCA, which of the following is least accurate? a) Boards may amend the bylaws unilaterally, unless the articles of incorporation reserve that power exclusively in the shareholders or a shareholder-adopted bylaw denies that authority b) Except for certain ministerial matters, charter amendments require adoption first by the board and then approval by the shareholders c) Shareholders may amend the bylaws unilaterally. d) The quorum for shareholder meetings may be validly set forth only in the articles of incorporation e) The charter may provide that shareholders wishing to demand the call of a special shareholder meeting must hold at least 50 percent of the eligible votes.
e) The charter may provide that shareholders wishing to demand the call of a special shareholder meeting must hold at least 50 percent of the eligible votes.
Two individuals formed a corporation to buy and run a store. The charter authorized 100 shares (par value $1,000 per share), with 50 shares issued to each for which they never paid any consideration. The corporation bought a store and leased space from the previous proprietor. The corporation paid partly in cash and partly by giving the seller a promissory note. The store suffered losses and the corporation closed it, defaulting on its obligations to seller and the corporation thereafter dissolved and all creditors paid other than seller. Seller sues the two individuals on the note and for nonpayment of rent. a) The shareholders are only liable to the extent of personal guarantees they signed. b) The shareholders are not liable because there is no evidence that they sought to exploit the corporate form's limited liability feature in a fraudulent manner. c) The shareholders are liable because the corporation was thinly capitalized. d) The shareholders are not liable because the corporation has been dissolved. e) The shareholders are liable up to $50,000 each
e) The shareholders are liable up to $50,000 each
Under the DGCL, the certificate of incorporation must set forth all of the following except: a) A corporate name for the corporation. b) The class or classes of its authorized stock and the number of authorized shares. c) A par value for shares. d) The designations, powers, preferences and rights of all classes of stock. e) Whether or not the corporation's shareholders are entitled to limited liability.
e) Whether or not the corporation's shareholders are entitled to limited liability.
In a stock issuance, corporate lawyers provide comfort that stock is, all of the following EXCEPT, whether the shares are: a) Duly authorized b) Validly issued c) Fully paid d) Nonassessable e) Worth the offering price
e) Worth the offering price
All of the following are issues upon which shareholders are entitled to vote except: a) Director elections & removal b) Charter amendments & most bylaw amendments c) Dissolution d) Certain mergers & substantial asset sales e) Business strategy & corporate purpose
e) business strategy & corporate purpose
Under the DGCL, which of the following is least accurate? The bylaws: a) may be adopted, amended or repealed by the incorporators. b) of a corporation with outstanding fully paid shares may be amended by the stockholders. c) may be amended by post-incorporation boards only if so provided in the certificate of incorporation. d) are adopted at the organizational meeting. e) may be amended by the board or stockholders at any time without further provision in the bylaws or charter.
e) may be amended by the board or stockholders at any time without further provision in the bylaws or charter.
Absent board action, a manufacturing corporation would most likely be liable for the acts of its president in all of the following cases except when the president: a) orders machinery for its operating facility. b) grants a waiver to one its customers for late payment fees. c) agrees to provide a signing bonus to induce a new senior executive to accept an offer of employment. d) retains a lawyer to prosecute a lawsuit against a customer for nonpayment. e) signs a written agreement to sell most of the corporation's assets.
e) signs a written agreement to sell most of the corporation's assets.
