Deck 35: Management Structure of Corporations

Question 1

Under the Statutory Close Corporation Supplement, a closely held corporation may use a shareholder agreement in place of bylaws.

Answer 1

True

Question 2

Only the board of directors may approve fundamental changes in the corporation.

Answer 2

False

Question 3

Mel is a shareholder in the Kyto Corporation. He discovers evidence of insider trading by one of the directors and wants to sue the corporation on behalf of the corporation and its shareholders.  Mel is allowed to bring this suit.

Answer 3

True

Question 4

The Dodd-Frank Act requires that publicly held companies include a provision in yearly proxy statements for a binding shareholder vote on executive compensation.

Question 5

The board of directors generally manages the day-to-day affairs of the company.

Question 6

MegaValue Corporation requires a quorum of five directors. If Branson, a director, shows up at the meeting for a vote on his favorite topic (dividends) and withdraws thereafter, leaving only four directors, they, under the Revised Act, may continue to act on further business that day, because the quorum was present at the beginning of the meeting.

Question 7

The Statutory Close Corporation Supplement has relaxed most of the nonessential corporate formalities.

Question 8

Directors are elected at the annual meeting of shareholders.

Question 9

Issuing favorably priced shares to management but not to other shareholders will normally  constitute a violation of the fiduciary duty.

Question 10

According to the amendments to the Revised Act from 2014 and 2016, corporations may include in their articles of incorporation a provision that allows a director or an officer to chose to not present a business opportunity to the corporation.

Question 11

If Marge, a vice president, made a contract on behalf of Barker Corporation, she is liable if she negligently exceeded her authority.

Question 12

Directors, but not officers, may compete with the corporation in their own private business dealings.

Question 13

The Revised Act provides that every shareholder is entitled to examine specified corporate records upon prior signed written request if the demand is made in good faith, for a proper purpose, and during regular business hours at the corporation's principal office.

Question 14

Members of the board of directors may not determine their own compensation.

Question 15

In the absence of a specific agreement, shares of stock are not freely transferable.

Question 16

Some publicly held corporations have used supermajority shareholder voting requirements to defend against hostile takeover bids.

Question 17

A shareholders' written agreement, unlimited in duration, to vote in a specified manner for the election of directors is a voting trust.

Question 18

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.

Question 19

The articles of incorporation, incorporation statute, and bylaws set the number of directors.

Question 20

Notice of a shareholder's meeting may be waived.

Question 21

Directors who are also officers or employees of a publicly held corporation are "affiliated directors."

Question 22

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.

Question 23

A quorum of shares must be present at the shareholders' meeting, either in person or by proxy, to make effective decisions.

Question 24

In most states, but not under the Revised Act, cumulative voting is permissive and not mandatory.

Question 25

Incorporation statutes generally require that each share of stock issued carry voting rights.

Question 26

Unissued shares and treasury stock must be counted to see if a quorum exists.

Question 27

Any limits on the duration of the shareholder agreement must be set forth in the agreement.

Question 28

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation may operate without a board of directors.

Question 29

The members of the board of directors are trustees of the corporation.

Question 30

The business judgment rule would require an officer or director to use the highest duty of care in the execution of his office.

Question 31

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.

Question 32

A proxy is effective until the shareholder revokes it.

Question 33

Randall has been a member of the board of his sister's company for three years but has never actually attended a board meeting. He may be liable for failing to act.

Question 34

The 2002 Sarbanes-Oxley Act forbids use of an audit committee by the board of a publicly held corporation; the full board must oversee the work of the public accounting firm employed to audit the corporate books.

Question 35

Directors may vote by proxy when they are not able to be present for a meeting.

Question 36

The directors of a corporation are expected to devote their full time to the corporation's affairs.

Question 37

A voting trust permits a concentration of corporate control in one or more persons.

Question 38

Unlike voting trusts, shareholder voting agreements are not limited in duration.

Question 39

A shareholder has no right to dissent from compulsory share exchanges.

Question 40

In most states, an officer can be removed for no reason if the board decides to do so.

Question 41

The Revised Act requires dismissal of a derivative suit if qualified (disinterested) directors determine, in good faith after conducting a reasonable inquiry that maintenance of the derivative suit is not in the best interests of the corporation.

Question 42

The percentage of shares required for a quorum may vary from state to state and from company to company.

Question 43

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.

Question 44

A proxy is revocable to the same extent as an agency.

Question 45

Voting trusts generally are effective for one year.

Question 46

A shareholder may bring a direct suit to enforce a claim that she has against the corporation, based on her ownership of shares.

Question 47

Under the Revised Act and an increasing number of other statutes, by a majority vote, shareholders may remove the entire board of directors without cause.

Question 48

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.

Question 49

Special shareholder meetings may be called by:

A) the board of directors.
B) holders of at least 10% of shares.
C) Both  the board of directors and also  holders of at least 10% of shares.
D) Neither  the board of directors and also  holders of at least 10% of shares.

Question 50

As the shareholders' elected representatives, the board of directors are delegated the power to direct the business of the corporation.

Question 51

To protect a shareholder's interest in the corporation, the law provides shareholders with certain enforcement rights.

Question 52

The Investor Protection and Securities Reform Act of 2010 imposes new corporate governance rules on both publicly held and privately held companies.

Question 53

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.

Question 54

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.

Question 55

In 2005, the Revised Act was amended to emphasize the responsibility of officers to inform others in the corporation of matters that come to their attention, including any material violation of law involving the corporation or material breach of duty by an officer, employee, or agent of the corporation.

Question 56

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, or 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 t he contract will be void as a conflict of interest  and t he contract is a clear conflict of interest and will be avoidable by either company even with disclosure.

Question 57

The 1969 amendments to the MBCA, which were carried over to the Revised Act, tightened restrictions on closely held corporations.

Question 58

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.

Question 59

In most states, a corporation may, with shareholder approval, limit or eliminate the liability of directors for some breaches of the duties which they owe to the corporation.

Question 60

The board of directors of a corporation:

A) determines the capital structure and financial policy of the corporation.
B) receives no salaries for services, although directors may receive a fee for attending board meetings.
C) has the power to bind the corporation when acting as a unit or individually.
D) All of these are correct.

Question 61

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.

Question 62

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

Question 63

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 these are restrictions.
E) None of these are restrictions.

Question 64

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 do do so.
B) hire away personnel for their own business.
C) use corporate facilities to do so.
D) All of the answer choices are correct.

Question 65

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 these.

Question 66

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.

Question 67

A director may make business decisions in reliance on information provided to him without incurring liability for negligence as long as he:

A) notifies the preparer of the information.
B) reasonably believes that the information is reliable.
C) conducts his own independent investigation.
D) is given a sworn affidavit by the preparer.

Question 68

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.

Question 69

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 act as a board?

A) 7
B) 4
C) 6
D) 11

Question 70

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.

Question 71

In which of the following areas does the board determine corporate 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 these are determined by the board.

Question 72

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 these is correct.

Question 73

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.

Question 74

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.

Question 75

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 these.

Question 76

The RMBCA states that "all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its:

A) board of directors."
B) chief executive officer."
C) officers."
D) shareholders."

Question 77

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.

Question 78

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.

Question 79

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.

Question 80

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.