Deck 6: Corporate Directors, Officers, and Shareholders

Question 1

Directors are expected to conduct a reasonable investigation of a situation before making a decision.

Answer 1

True

Question 2

Many states permit a corporate board to have fewer than three directors.

Answer 2

True

Question 3

A new position on a board of directors can be created by an amendment to the bylaws.

Answer 3

True

Question 4

Not all directors have a right to access a corporation's books and records, facilities, and premises.

Question 5

Corporate directors and officers are insurers of business success.

Question 6

Directors can delegate work to corporate officers and employees.

Question 7

Corporate officers can normally be removed by the board of directors without cause.

Question 8

A director or officer must act in good faith.

Question 9

Directors must engage in self-dealing.

Question 10

A director must abstain from voting on a proposed transaction in which he or she has a personal interest.

Question 11

Any individual director can act as an agent to bind the corporation.

Question 12

Most states do not allow directors to participate in board of directors' meetings from remote locations.

Question 13

A vacancy on the board of directors can be filled by the board itself.

Question 14

Corporate officers are selected and removed by shareholders.

Question 15

The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.

Question 16

In most states, an individual can be an officer or a director of a corporation, but not both at the same time.

Question 17

Each director present at a board meeting has one vote.

Question 18

Publicly held corporations typically create committees of directors and delegate certain tasks to these committees.

Question 19

The minimum number of members of a body of officials that must be present for business to be validly transacted is a quorum.

Question 20

The executive officers represent the ultimate authority in every corporation.

Question 21

Charlie, Dora, and Ethel are the first directors on the board of Face Time Corporation, a social media host. Subsequent directors are elected by a majority vote of Face Time's

A) ​users.
B) ​employees.
C) ​officers.
D) ​shareholders.

Question 22

In some states, a shareholder who receives watered stock may be liable to creditors of the corporation for unpaid corporate debts.

Question 23

Dividends can be paid in the stock of corporations other than the corporation that is paying the dividends.

Question 24

Shareholders are personally liable for the debts of a corporation.

Question 25

Shareholders must approve fundamental changes affecting a corporation.

Question 26

Beth and Curt form Day-to-Day Care, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Day-to-Day's

A) ​board of directors.
B) ​incorporators.
C) ​officers.
D) ​shareholders.

Question 27

Security Insurance, Inc. has a board of five directors. Security's bylaws do not state any quorum requirements. In most states, a quorum for Security's board meetings would be

A) ​one director.
B) ​three directors.
C) ​four directors.
D) ​all of the directors.

Question 28

Every shareholder is entitled to examine specified corporate records, but only in person, not through an agent.

Question 29

When the corporation is harmed by the actions of a third party, the directors can bring a lawsuit in the name of the corporation against that party.

Question 30

As a general rule, shareholders are responsible for the daily management of a corporation.

Question 31

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Question 32

Ron is a director of Start-Up Inc. He is also a chief corporate officer in the firm and receives compensation for both positions. He is

A) ​an inside director.
B) ​an outside director.
C) ​a well-rounded participant.
D) ​in violation of the law.

Question 33

Stock warrants are distribution of corporate profits or income ordered by the directors.

Question 34

A dividend is a right given by a company to buy stock at a stated price by a specified date.

Question 35

Riley is elected as a director to the board of Salty Snacks, Inc. He will most likely serve for a term of one

A) ​decade.
B) ​four-year period.
C) ​lifetime.
D) ​year.

Question 36

The articles of incorporation can exclude or limit shareholders' voting rights.

Question 37

With preemptive rights, shareholders can preempt the decisions of directors and officers with respect to corporate policy.

Question 38

Since stock is intangible personal property, the ownership right to stock exists independently of a stock certificate.

Question 39

For shareholders to act during a shareholders' meeting, a quorum must be present.

Question 40

In some situations, a majority shareholder owes a fiduciary duty to minority shareholders.

Question 41

Rosa and Sean are shareholders of Tasty Tacos, Inc. Rosa's written authorization to Sean to vote Rosa's shares at a shareholders' meeting is

A) ​a violation of the duty of care.
B) ​a preemptive right.
C) ​a proxy.
D) ​a quorum.

Question 42

Power Products Corporation permits its directors to be elected by cumulative voting. This

A) ​allows minority shareholders to be represented on the board.
B) ​assures directors that they will be selected by their peers.
C) ​guarantees Thor's executive officers of the final choice.
D) ​insures against persons who may "cloud" the corporate direction.

Question 43

Gina is a director on the board of Home Furnishings Inc. As a director, she may not

A) ​authorize major corporate policy decisions.
B) ​decide to issue stock and bonds, and declare dividends.
C) ​select and remove corporate officers.
D) ​subordinate the firm's welfare to her personal interests.

Question 44

Mike is a shareholder of Natural Gas, Inc. Natural Gas uses cumulative voting to elect directors. This means that the number of Mike's votes is determined by the number of

A) ​years that he has been a shareholder.
B) ​members of the board to be elected multiplied by the total number of voting shares that he holds.
C) ​shareholders present at the shareholders' meeting.
D) ​shareholders' meetings that he has attended.

Question 45

Faye and Grant are shareholders of Hearthside Hotels, Inc. As shareholders, they must approve

A) ​a merger.
B) ​a decision to pursue new business opportunities.
C) ​none of the choices.
D) ​a contract between management and labor.

Question 46

Ernie is a director of Five-Star Properties, Inc. Ernie is a property appraiser. Five-Star makes several purchases in which it pays too much. Ernie approves all the transactions without evaluating them. He is most likely liable for breach of

A) ​the duty of care.
B) ​none of the choices.
C) ​the duty of loyalty.
D) ​the business judgment rule.

Question 47

Nina is a director of Outback Outfitters, Inc. Under the standard of due care owed by directors of a corporation, Nina's decisions must be informed and

A) ​reasonable.
B) ​unquestionable.
C) ​indefensible.
D) ​perfect.

Question 48

Eve is a director of Fab Style Corporation. Without informing Fab, Eve goes into business with Gro Trend, Inc., in competition with Fab. Eve is most likely liable for breach of

A) ​none of the choices.
B) ​the business judgment rule.
C) ​the duty of care.
D) ​the duty of loyalty.

Question 49

Elise is a director for Fro-Yo Inc. Elise is also a director for Gelato Ice, Inc. When Fro-Yo's board considers a contract with Gelato, Elise must

A) ​resign from Fro-Yo or Gelato.
B) ​resign from Fro-Yo and Gelato.
C) ​make a full disclosure of any conflict of interest.
D) ​use her business judgment to rule on the deal.

Question 50

Dane is a director of Eco Packing Company. Dane's rights, as a director, do not include a right to

A) ​reimbursement.
B) ​inspection.
C) ​participation.
D) ​self-dealing.

Question 51

Holly is a director of International Foods, Inc. As a director, with respect to the corporation, Holly is

A) ​a fiduciary.
B) ​an incorporator.
C) ​an officer.
D) ​an employee.

Question 52

The board of Management Consultants, Inc., can delegate some of its responsibilities to

A) ​the firm's incorporators.
B) ​the firm's officers.
C) ​the firm's shareholders.
D) ​no one.

Question 53

Pat owns one share of stock in Quik-Stop Stores, Inc., as evidenced by a stock certificate. Because stock is intangible personal property, Pat's ownership of the stock

A) ​exists independently of the stock certificate.
B) ​cannot exist without a tangible stock certificate.
C) ​cannot exist without the original stock certificate.
D) ​cannot be transferred without the stock certificate.

Question 54

Lew is a director of Mines, Inc. Using information that is not available to the public, he makes a profit trading in Mines securities. Lew is most likely liable for breach of

A) ​none of the choices.
B) ​the business judgment rule.
C) ​the duty of loyalty.
D) ​the duty of care.

Question 55

Shauna is an officer for Tropical Shirts Corporation. Due to a bad choice of shirt-maker on Shauna's part, the company's costs increase. Shauna is most likely liable for breach of

A) ​the business judgment rule.
B) ​the duty of care.
C) ​the duty of loyalty.
D) ​none of the choices.

Question 56

Ann is a corporate officer for Blooming Flora, Inc. As a corporate officer, Ann is

A) ​the head of the board of directors.
B) ​an employee of the firm.
C) ​the employer of the firm.
D) ​in charge of approving the shareholders.

Question 57

Corporate business matters are presented at a shareholders' meeting of Hollywood Lights Inc., and other corporations, in the form of

A) ​resolutions.
B) ​proxies.
C) ​articles of incorporation.
D) ​bylaws.

Question 58

Robyn owns one share of stock in SportBoards Corporation, as evidenced by a stock certificate. She loses the certificate. Her ownership of the stock is

A) ​forfeited immediately.
B) ​forfeited within ten days of a third party's claim to ownership.
C) ​forfeited within thirty days if she cannot find the certificate.
D) ​not affected.

Question 59

Carlo is a director of Desserts Italiano, Inc. Carlo opposes a tender offer that is in the company's best interest because its acceptance would cost his position as a director. Carlo is most likely liable for a breach of

A) ​none of the choices.
B) ​the business judgment rule.
C) ​the duty of care.
D) ​the duty of loyalty.

Question 60

Roy, a director of Service & Sales Corporation, does not attend a board meeting for three years. During that time, Terry, the firm's president, makes improper loans that cost the company $10 million. Roy is most likely liable for breach of

A) ​the business judgment rule.
B) ​the duty of care.
C) ​the duty of loyalty.
D) ​none of the choices.

Question 61

Neil, a majority shareholder of Oil Changes Inc., effectively excludes Polly, a minority shareholder, from the benefits of stock ownership in the firm. Polly can

A) ​assert the business judgment rule.
B) ​bring a suit for damages.
C) ​exercise de facto control.
D) force a cumulative vote.

Question 62

Fact Pattern 6-1
Don is a shareholder of Energy Renew, Inc. When the directors fail to undertake an action to redress a wrong suffered by the corporation, Don files a suit on the firm's behalf.
Refer to Fact Pattern 6-1.Any damages recovered by the suit will normally go to

A) ​Energy Renew's shareholders, excluding Don.
B) ​Energy Renew.
C) ​Energy Renew's directors.
D) ​Energy Renew's shareholders, including Don.

Question 63

Nelson is Organic Coffee Company's majority shareholder. Nelson decides to sell his Organic Coffee stock. The sale will be an effective transfer of the control of the company. Does Nelson owe a duty to Organic Coffee or its minority shareholders in this situation?

Question 64

Brad is a shareholder of Cloud Servers Inc. He will be deemed to have a fiduciary duty to Cloud and its minority shareholders if he has a sufficient number of shares to

A) ​assert the business judgment rule.
B) ​bring a shareholder's derivative suit.
C) ​exercise de facto control.
D) ​participate in a cumulative vote.

Question 65

Ben is a shareholder of Commerce & Trade Inc. As a shareholder, Ben does not have

A) ​a right to compensation.
B) ​dividend rights.
C) ​inspection rights.
D) ​preemptive rights.

Question 66

Daryl, Elsa, and Ferris are the directors of Go Apps, Inc. Go also has four officers and fourteen shareholders. Dividends can be ordered by the firm's

A) ​board.
B) ​minority shareholders.
C) ​officers.
D) ​majority shareholders.

Question 67

Fact Pattern 6-1
Don is a shareholder of Energy Renew, Inc. When the directors fail to undertake an action to redress a wrong suffered by the corporation, Don files a suit on the firm's behalf.
Refer to Fact Pattern 6-1.Don's suit is a shareholder's

A) ​reimbursement suit.
B) ​derivative suit.
C) ​business-judgment rule suit.
D) ​preemptive suit.

Question 68

Bea transfers shares of stock that she owns in Coin Laundry Corporation to Dick. A shareholders' meeting takes place before his ownership is entered in the firm's stock book. A vote at the meeting can be cast by

A) ​Bea and Dick.
B) ​Bea.
C) ​Dick.
D) ​none of the choices.

Question 69

Sheila is a shareholder of Travels & Trips Inc. She has the right to inspect corporate books and records

A) ​only if she is also a director.
B) ​without restrictions.
C) ​for a proper purpose.
D) ​under no circumstances.

Question 70

As a corporation, Paper Products Company can pay dividends if

A) ​their payment allows the firm to remain solvent.
B) ​their payment causes the firm to become insolvent.
C) ​they are paid from an unauthorized account.
D) ​they are paid when the firm is insolvent.

Question 71

Adam is a shareholder of Bay Boats Inc. with preemptive rights. With these rights, he can

A) ​buy a prorated share of a new issue of stock before other buyers.
B) ​choose to have the firm act exclusively in a certain area.
C) ​preempt managerial decisions that affect shareholders.
D) ​sell a prorated share of a new issue of stock before other sellers.

Question 72

Donatello is a director and officer of Enzio's Pizza Corporation. Donatello selects an ad campaign that consumers find offensive-a marketing decision that results in a dramatic decrease in profits for the firm and its shareholders. The shareholders accuse Donatello of breaching his fiduciary duty to the corporation. What is Donatello's best defense against this accusation? Later, a resolution comes before Enzio's board to expand its menu to compete with Fabio's Pasta Palace Restaurants Inc. Donatello is a director and shareholder of Fabio's. What is Donatello's responsibility in this situation?