Deck 48: Management of Corporations

Question 1

In dealing with the corporation, directors act in a fiduciary capacity.

Answer 1

True

Question 2

Ordinarily, action by shareholders has legal effect as a corporate act only if such action is taken at a regular or special meeting of the stockholders.

Answer 2

True

Question 3

The business judgment rule is applied by the courts as a presumption that must be overcome by the person challenging a director's actions.

Answer 3

True

Question 4

State laws that attempt to indemnify corporate directors against personal monetary liability for gross negligence are void as contrary to public policy.

Question 5

The notice of a special meeting of shareholders must include a statement of the nature of the business to be transacted and no other business may be transacted at such a meeting.

Question 6

The courts have traditionally viewed it as their responsibility to sit in judgment on the wisdom of decisions made by corporate directors.

Question 7

A corporation generally may avoid a transaction because of a director's secret disqualification, such as a conflict of interest.

Question 8

A board of directors may enter into any contract or transaction necessary to carry out the business for which the corporation was formed.

Question 9

The sovereign immunity rule allows management immunity from liability for corporate acts where there is a reasonable indication that the acts were made in good faith and with due care.

Question 10

In a large corporation, the shareholders are often the managers of the corporation.

Question 11

Action taken by shareholders without holding a meeting is valid under the RMBCA if it is evidenced by a written consent signed by all the shareholders entitled to vote on the action.

Question 12

All states stipulate that there shall be no fewer than three directors for each corporation.

Question 13

A director is disqualified from taking part in corporate action with respect to a matter in which the director has an undisclosed conflicting interest.

Question 14

Action at a shareholders' meeting can be taken only while a quorum is present.

Question 15

Directors are usually allowed to vote by proxy.

Question 16

The sale of corporate assets outside the regular course of a corporation's business would require a vote of the shareholders.

Question 17

Electing directors who most reflect the shareholders' interests and attitudes is the most effective form of shareholder control.

Question 18

A board of directors' oversight responsibilities for its company's business affairs do not include evaluating management's performance, approving the hiring of executives and approving executive compensation plans; instead, such responsibilities are for the shareholders to assume at either regular or special shareholder meetings.

Question 19

Most states permit action to be taken by the board of directors without holding an actual meeting.

Question 20

According to the RMBCA, shareholders may, by majority vote, remove a director with or without cause unless the articles of incorporation provide that directors may be removed only for cause.

Question 21

The RMBCA provides that, absent a conflicting provision in the articles of incorporation, directors may be removed:

A) with or without cause by a majority vote of the shareholders.
B) with cause by a majority vote of the shareholders, and without cause by a unanimous vote.
C) with or without cause by a unanimous vote of the shareholders.
D) only with cause.

Question 22

During a special meeting of shareholders at which a quorum is present, action may always be taken by the shareholders on:

A) any matter affecting the welfare of the corporation.
B) the removal of one or more of the directors.
C) the determination of the price at which to sell the products manufactured by the corporation.
D) the subject specified in the notice of the meeting.

Question 23

The duties of officers of a corporation are generally set forth in the articles of incorporation.

Question 24

The authority of corporate employees and other officers is generally limited to the duties of their offices.

Question 25

The president of a corporation does not have implied authority to execute commercial paper in the name of the corporation.

Question 26

Officers that cause a corporation to break a contract with third party are liable to the third party even if they acted in good faith to advance the interests of the corporation.

Question 27

Officers and directors are not personally responsible for crimes they have committed when it can be demonstrated beyond reasonable doubt that in carrying out such crimes, they acted on behalf of the corporation.

Question 28

The powers of the officers of a corporation are controlled by the laws of agency.

Question 29

Officers and directors may be criminally liable for failure to prevent the commission of a crime if they are found to be the "responsible corporate officers."

Question 30

Ordinarily, the management of a corporation is not liable to third persons if the managerial policies cause loss to such third persons.

Question 31

Which of the following is an incorrect statement about officers?

A) Their duties are generally set forth in the corporation's bylaws.
B) They have a fiduciary obligation to the corporation.
C) They are agents of the corporation.
D) Their authority as agents is increased if they are shareholders.

Question 32

The officers of a corporation are liable for errors of judgment that cause a loss to the stockholders.

Question 33

The __________ rule allows management immunity from liability for corporate acts where there is a reasonable indication that the acts were made in good faith and with due care.

A) sovereign immunity
B) business judgment
C) reasonable director
D) good faith

Question 34

Eligibility for membership on a board of directors is determined by all of the following except:

A) statute.
B) certificates of filing.
C) articles of incorporation.
D) bylaws.

Question 35

Which of the following is an incorrect statement about directors?

A) Their eligibility requirements may be found in the bylaws.
B) Bylaws may require that directors be shareholders in the corporation.
C) The board of directors has authority to manage the corporation.
D) Courts will interfere with the board's discretion when they disagree with its actions.

Question 36

A valid meeting of the voting shareholders of a corporation requires the presence of a:

A) quorum.
B) forum.
C) majority.
D) voting majority.

Question 37

Regular meetings of shareholders are:

A) held at a time and place set forth in a notice given to all shareholders.
B) held at a time and place prescribed by the articles of incorporation or the bylaws.
C) called by the directors.
D) limited to the election of directors.

Question 38

A corporation may be convicted of a criminal offense if it is shown beyond a reasonable doubt that the offense was committed by its agent acting within the scope of the agent's authority.

Question 39

What is not part of the presumptions of the business judgment rule concerning directors?

A) that the decision they reached was profitable to the corporation
B) that they acted on an informed basis
C) that they acted in good faith
D) that they acted in the honest belief that the action taken was in the best interest of the corporation

Question 40

A stockholder-approved amendment to the certificate of incorporation may indemnify directors who:

A) acted in bad faith.
B) acted negligently.
C) breached their duty of loyalty.
D) gained an improper personal benefit.

Question 41

If an officer diverts a corporate opportunity, the corporation may recover from the officer:

A) triple damages for breach of a fiduciary duty.
B) the profits of which the corporation has been deprived.
C) past wages for the time period in question.
D) any and all funds used to divert the corporate opportunity.

Question 42

Under which of the following scenarios would a third person be able to successfully sue a corporate manager if the manger's advice to the corporation causes loss to the third person?

A) The manager's advice has resulted in the corporation's successful underselling of the third person's product.
B) The manager's advice has resulted in the corporation's breach of a contract with the third person under which the corporation was losing a substantial sum of money.
C) The manager's advice has resulted in the corporation's refusal to deal with the third person because the third person has not maintained the standards and quotas set by the corporation.
D) none of the above.

Question 43

The stockholders of the Apex Corporation attended a special meeting of the stockholders called to discuss matters of extreme urgency to the corporation. A quorum was not present when the meeting opened, nor was a quorum present when the matters to be treated in the meeting were discussed. Management, however, felt that the importance of the issue was significant enough to warrant continuation of the meeting without a quorum, and the stockholders voted on the issues presented during the meeting. During the last fifteen (15) minutes of the meeting, just prior to the cocktail hour regularly attended by many stockholders, enough stockholders had arrived to constitute a quorum. Were the issues of this meeting dealt with in a valid manner?

Question 44

In addition to the corporation itself, which of the following parties are ordinarily responsible for corporate debts?

A) directors
B) officers
C) directors and officers
D) none of the above

Question 45

A corporation is liable to a third person for the act of its agent:

A) to the same extent as a natural person would be liable.
B) only if the agent was expressly authorized to perform the act.
C) only if the agent's act was a crime.
D) only if the agent's act was based on an intent to benefit the corporation.

Question 46

The means by which stockholders may seek to protect themselves against corporate actions to which they object include all of the following except:

A) voting in new directors.
B) bringing legal action.
C) voiding the charter.
D) calling a special stockholders' meeting.

Question 47

Ping was the president and chairman of the board of directors of Oh Imports, Inc. Ping was also a major shareholder. Acting as president, Ping negotiated a series of contracts that caused the corporation serious economic losses. In this role, Ping failed to exercise the care of a reasonably prudent person acting in similar circumstances. When substantial economic losses began to pile up, Ping insisted that the corporation breach a contract with Ory in favor of a larger contract that was later entered into with Magnificent Enterprises. Ping hoped to reverse Oh's economic fortunes through this contract with Magnificent, but the attempt failed. Oh then became insolvent. Ultimately, the corporation failed. Two law-suits were initiated against Ping. In the first, a creditor of Oh who never was paid because the business failed sued Ping alleging that the negligence of Ping had caused Oh to fail to pay the creditor what was owed. The second lawsuit instituted by Ory claimed damages from Ping because Ping caused Oh to breach its contract with Ory. Decide both lawsuits.

Question 48

A corporation may be prosecuted and convicted of:

A) a criminal offense if its agent committed the offense while acting within the scope of the agent's authority.
B) an error in business judgment, assuming that no other reasonable corporation would have committed such an error.
C) operating without a corporate charter if the corporation has never sought a charter from the secretary of state's office, or if its directors and/or officers either knew of should have known that the secretary of state's office had revoked the charter.
D) none of the above; a corporation itself is not subject to criminal prosecution and conviction.

Question 49

When officers, directors, employees, and agents incur reasonable legal expenses while acting on behalf of a corporation, the corporation will often:

A) ratify them.
B) not compensate them.
C) indemnify them.
D) none of the above.

Question 50

A corporate officer, while still employed by his or her firm, may be in breach of the officer's fiduciary duty of __________ by recruiting key management employees to join a competing company.

A) obedience
B) loyalty
C) conflict of interest
D) confidentiality

Question 51

A president of a corporation does not have the authority to:

A) execute commercial paper in the corporation's name.
B) mortgage a corporate property.
C) release a claim of the corporation.
D) perform any of the above acts.

Question 52

All of the directors of the XYZ Corporation were present at a meeting called on a Monday evening at 9 p.m. Meetings normally were held on Friday evenings at 6 p.m. At the Monday meeting, a report was made indicating that an agent of the corporation was having difficulties formalizing a contract in a foreign country. The report indicated that if funds were made available to a local political figure, the contract the company desired would be obtained. The directors unanimously voted to forward the necessary funds for this operation to the agent. An action was later commenced against the directors, alleging illegal activities. In response, the directors argue that: (1) no illegal activity had occurred; (2) if an illegal activity did occur, it was not at a valid meeting of the corporation and was therefore not an official action of the board; and (3) if they had to legally defend themselves, they would seek reimbursement from the corporation. Discuss the directors' contentions.

Question 53

The relationship between a corporation and its agents is governed by the:

A) statute under which the corporation was formed.
B) corporate charter.
C) corporate bylaws.
D) same rules as are applicable when the principal is a natural person.