Deck 35: Management Structure of Corporations

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

Notice of a shareholder's meeting may be waived in writing.

Question 7

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

Question 8

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 9

A proxy is effective until the shareholder revokes it.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

Voting trusts generally are effective for one year.

Question 17

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

Question 18

Directors are elected at the annual meeting of shareholders.

Question 19

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 20

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

Question 21

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 22

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

Question 23

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

Question 24

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.

Question 25

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.

Question 26

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 27

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

Question 28

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

Question 29

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.

Question 30

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 31

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, under the Revised Act, may not act on any further business.

Question 32

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

Question 33

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

Question 34

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

Question 35

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 36

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

Question 37

The issuance of favorably priced shares to management while excluding other shareholders normally will constitute a violation of the fiduciary duty.

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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 44

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

Question 45

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.

Question 46

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 47

Which of the following is/are director(s) in publicly held corporations?

A) Inside.
B) Outside.
C) Unaffiliated.
D) Affiliated.
E) Any of these.

Question 48

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 49

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 50

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 51

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

Question 52

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

Question 53

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

Question 54

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 55

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 not in the regular course of business.

Question 56

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.

Question 57

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 58

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

Question 59

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

Question 60

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 61

The Dodd-Frank Wall Street Reform and Consumer Protection Act:

A) was signed into law in 2009.
B) authorizes the SEC to issue rules requiring that a publicly held company's proxy solicitation include nominations for the board of directors that have been submitted by shareholders.
C) authorizes the SEC to issue rules directing the national securities exchanges to require that no member of a listed company's compensation committee be an independent director.
D) All of these are correct.

Question 62

Regarding the election of directors:

A) under the Revised Act, directors are elected by a majority of the votes.
B) cumulative voting is a right of shareholders in all states.
C) cumulative voting permits minority shareholders to obtain majority representation on the board.
D) under straight voting, shareholders owning a majority of the voting shares can always elect the entire board of directors.

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

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 65

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 66

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 67

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 68

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 69

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 70

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 71

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 72

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

Question 73

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 74

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 75

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.

Question 76

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 77

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 78

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 79

In Donahue v. Rodd Electrotype Co., Inc. , the court's opinion stated:

A) by definition, a close corporation strongly resembles a partnership.
B) minority shareholders have no right to rely on the loyalty and abilities of the majority.
C) minority shareholders in a close corporation can cause dissolution of the corporation.
D) when a close corporation purchases the shares of a controlling stockholder, there is necessarily a preferential distribution of the corporation's assets.

Question 80

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.