Deck 29: Management of the Corporate Business

Question 1

Directors are agents for the corporation by virtue of that office.

Answer 1

False

Question 2

Who are the owners of the corporation?

A) The directors of the board
B) The shareholders
C) The employees
D) The executive officers

Answer 2

B
Explanation: The shareholders are the owners of the corporation. They can affect the way the business is run through their power to elect directors and to amend the articles of incorporation. They do not, however, have the power to make management decisions. All statutes of incorporation give that power to the directors.

Question 3

What is generally required for fundamental changes in the corporation?

A) Novation
B) Referendum
C) Board initiative
D) Deal protection devices

Answer 3

C
Explanation: Board initiative is generally required for any fundamental changes in the corporation, for example, amendment of the articles of incorporation, merger of the corporation, sale of all or substantially all of the corporation's assets, and voluntary dissolution of the corporation. The initiative process requires that the board of directors propose the matter to the shareholders, who then must approve the action.

Question 4

An officer or director who has acted in bad faith or who is found liable to the corporation can be indemnified under special circumstances.

Question 5

Under the MBCA,the president of a corporation cannot also be the secretary of the corporation.

Question 6

According to the MBCA,all corporate powers shall be exercised by or under the authority of,and the business and affairs of a corporation shall be managed under the direction of a _____.

A) board of directors
B) president
C) majority shareholder
D) chief executive officer

Question 7

Stockholders have the ability to effectively reject a merger agreement.

Question 8

Directors and officers are not prohibited from entering into transactions with the corporation.

Question 9

A corporation is liable for all torts committed by its employees while acting in the course of and within the scope of their employment.

Question 10

All corporate actions can be taken only through board initiative.

Question 11

Under the MBCA,shareholders may remove directors without cause.

Question 12

Officers who,in good faith,enter into an ultra vires transaction are not held personally liable.

Question 13

If an employee commits a tort despite the corporation instructing him to avoid the act,the corporation cannot be held liable.

Question 14

Scott was a member of the board of directors of Buffalo Corporation.Officers of Buffalo were considering the purchase of new equipment to produce a new product.The board of directors had not been consulted about the new venture,but Scott found out about the plan and objected to its implementation.He sought to inspect the corporate books and records to gain factual information supportive of his position.The officers refused his inspection request,asserting that Scott had no management function or power.Under these circumstances,Scott:

A) is barred from examination of the books and records of the corporation under the business judgment rule.
B) has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties.
C) is barred from examination of the books and records of the corporation under the doctrine of respondeat superior.
D) has the right to inspect corporate books only if he is also a majority shareholder.

Question 15

According to the MBCA,the board of directors cannot act unless properly convened as a board.

Question 16

Trading on inside information is in violation of fiduciary duties.

Question 17

Under the Delaware General Corporation Law,e-mail is not a legally-recognized official form of business communication.

Question 18

A director of a corporation has the individual right to:

A) establish the price for the sale of shares of stock.
B) elect and remove shareholders.
C) sell, lease, and mortgage assets of the corporation outside the normal course of its business.
D) inspect the corporate books and records.

Question 19

A corporate officer is never held liable for the illegal behavior of a subordinate.

Question 20

The Sarbanes-Oxley Act requires CEOs and CFOs of publicly traded corporations to certify that,to their knowledge,all financial information in quarterly reports is not false.

Question 21

A _____ authorizes any corporation to adopt a specific amendment to its articles of incorporation that removes breach of duty as a cause of action for monetary damages against directors.

A) charter option statute
B) self-executing statute
C) cap on monetary damages statute
D) SEC oversight statute

Question 22

Which of the following statements is true of the lawsuits in which minority shareholders complain that they have been unfairly treated by the directors?

A) These suits always involve open corporations.
B) Minority shareholders will always win such suits.
C) These suits can claim a freeze-out.
D) The business judgment rule cannot be applied to such lawsuits.

Question 23

The board of directors of Meckes Corporation,at a regular meeting of the board,entered into a contract with Peter,one of the directors.The agreement called for the sale of a retail store the corporation operated to Peter.There were 12 board members,10 of whom were present at the meeting.Nine directors,including Peter,voted in favor of the contract and one voted against it.In view of these facts,which of the following is correct?

A) A director cannot enter into a contract with a corporation of which he is a director.
B) The contract between Peter and the corporation is illegal.
C) If the contract is unfair to the corporation, it is voidable at the option of the corporation.
D) The contract is valid because Peter's vote was not necessary for approval of the contract.

Question 24

The vice president of a corporation:

A) cannot be leading any specific department of the company.
B) has charge of the funds of the corporation.
C) cannot have implied authority.
D) has no authority by virtue of that office.

Question 25

Distanet Corporation and Telenex Corporation are competitors in the gaming accessories market.Telenex has been the market leader for over five years.After examining the price and sales data of products from both companies and consulting an economist and an accountant,Distanet's directors vote for a reduction in price of Distanet's products.They believe that reducing prices would make the company more competitive.The decision to reduce prices does not improve sales significantly.In fact,Distanet's revenues decrease as a result of the decision.Aileen,a stockholder of Distanet,seeks to hold Distanet's directors liable for the failure of the plan to improve Distanet's position in the computer market and for the losses experienced by the corporation as a result of the implementation of the plan.Will she succeed in her suit?

A) No, because the directors are the managers of the corporation.
B) No, because the directors' decision is subject to the business judgment rule.
C) Yes, because the directors are liable for any business-related financial loss sustained.
D) Yes, because shareholders are permitted to sue to allow a court to determine whether the directors have acted in the best interests of the corporation.

Question 26

A law that holds that directors will have no liability for breach of the duty of care in the absence of willful misconduct or recklessness and that does not require board or shareholder action is called a(n):

A) cap on monetary damages statute.
B) charter option statute.
C) self-executing statute.
D) enabling statute.

Question 27

When notice of a special meeting is defective,the defect may be cured if:

A) one non-attending director nominates another person to vote on matters in his or her place.
B) all of the directors attend the meeting.
C) the attending directors make the decisions for the rest of the board.
D) some of the directors attend the meeting.

Question 28

To obtain the protection of the business judgment rule,a director must meet certain requirements in arriving at his or her decisions.He or she must:

A) make an informed decision; be free from conflicts of interest; and must have a rational basis for believing that the decision is in the best interests of the corporation.
B) make a subjectively rational decision that is based on a cost benefit analysis.
C) make an informed decision that promised to make the corporation a substantial profit; the decision need not be objectively rational, only subjectively rational.
D) use the court's business judgment for all of the corporation's matters.

Question 29

The _____ binds the corporation on receipts,checks,and endorsements.

A) corporate secretary
B) treasurer
C) chairman
D) vice president

Question 30

Under the MBCA,a director:

A) will not have dissented if he or she refuses to vote for the proposed course of action.
B) will not have dissented even if he or she makes his or her dissent clear to the other board members by having it appear in the minutes.
C) will have dissented if he or she gives a written notice of dissent immediately following the meeting.
D) will have dissented if he or she waits for three months after the meeting to bring up dissent.

Question 31

A _____ places ceiling on director liability for breach of duty; the board and the shareholders,however,may amend the corporate charter to reduce the cap.

A) charter option statute
B) self-executing statute
C) SEC oversight statute
D) cap on monetary damages statute

Question 32

Vacancies on the board can be filled:

A) by appointment by the chief executive officer of a corporation.
B) only by a vote of the shareholders.
C) by appointment by the chairperson of the board.
D) only by a vote of the corporation's employees.

Question 33

When a corporate manager makes an honest error in judgment,the business judgment rule directs that the manager will:

A) be liable for corporate losses.
B) not be liable and a court will step in to correct the manager's mistake.
C) not be liable if he acted with care and in good faith.
D) be liable for all losses resulting from the error.

Question 34

A charter option statute authorizes a corporation to adopt a specific amendment to its articles of incorporation to:

A) grant directors and officers blanket immunity.
B) remove breach of duty as a cause of action for monetary damages against directors.
C) limit director liability without the approval of the board of directors and the shareholders.
D) limit the maximum liability that may be imposed on directors to the sum of $100,000.

Question 35

Which of the following does "ex officio" authority refer to?

A) Authority by virtue of one's office
B) Duty to act within one's authority
C) Conducting the affairs of the corporation with due care
D) Duty to act with loyalty and good faith

Question 36

The cap on monetary damages statute holds that the maximum liability that may be imposed on directors is the greater of:

A) $100,000 or the amount of cash compensation that the director received from the corporation during the previous 24 months.
B) $100,000 or the amount of cash compensation that the director received from the corporation during the previous 12 months.
C) $50,000 or the amount of cash compensation that the director received from the corporation during the previous 12 months.
D) $100,000 or the amount of cash compensation that the director received from the corporation during the previous 36 months.

Question 37

A _____ is a majority of the number of directors fixed by the articles or bylaws.

A) qualification
B) quorum
C) referendum
D) novation

Question 38

A director:

A) can be removed from office if he or she voluntarily failed to attend directors' meetings.
B) cannot be removed from office because he or she has acted contrary to the interests of the corporation.
C) cannot be removed from office by shareholders without any cause.
D) can be removed from office without being given notice or a hearing.

Question 39

A director or officer will be held to have failed to act with due care and diligence if he or she:

A) does not personally investigate every facet of every business decision.
B) makes an error acting in the best interest of the corporation.
C) fails to make a reasonable investigation before making any corporate decisions.
D) does not personally attend all board meetings, even if insufficient notice is given.

Question 40

The _____ usually keeps the minutes of meetings of the shareholders and directors and other general corporate records such as stockholder records.

A) corporate secretary
B) treasurer
C) vice president
D) chairman

Question 41

What is the meaning of ex officio authority?

Question 42

A corporation is:

A) liable for all torts committed by its retired and ex-employees.
B) liable for all torts committed by its employees while acting within the scope of their employment.
C) liable for all torts committed by its employees under the doctrine of ultra vires.
D) not liable for the torts committed by its employees while acting on the instructions of a high-level manager.

Question 43

Write a note on indemnification in corporations.

Question 44

Briefly write about the three fiduciary duties that officers and directors owe the corporation.

Question 45

What are the three elements that must be met before directors or officers may be found to have usurped a corporate opportunity?

Question 46

A director who has acted in bad faith or who is found liable to the corporation:

A) can be indemnified if the losses are lesser than the average annual salary.
B) may only be indemnified if some shareholders find the act to be appropriate.
C) may only be indemnified upon the approval of an independent legal counsel.
D) cannot be indemnified under any circumstances.

Question 47

Which of the following is true of liability for torts and crimes in corporations?

A) If the employee commits a crime or tort while acting outside the scope of employment, the corporation is liable.
B) If an employee commits a tort within the scope of employment but outside the office space, the corporation is not liable.
C) When a corporate officer did not know of the employee's crime or tort, the officer is still liable.
D) When a corporate officer could have prevented an employee's tort but did not, the officer may be liable.

Question 48

In cases where an officer or director has been found guilty of a crime,he or she may be indemnified under voluntary indemnification if:

A) he or she had reason to believe that his or her conduct was unlawful.
B) he or she acts in bad faith.
C) he or she acted in a manner that he or she believed not to be opposed to the corporation's best interests.
D) he or she prevails on the merits of the suit against him or her.

Question 49

Which of the following acts requires CEOs and CFOs of publicly traded corporations to certify that,to their knowledge,all financial information in quarterly and annual reports is not false or misleading?

A) Landrum-Griffin Act
B) Clayton Act
C) Sarbanes-Oxley Act
D) Norris-LaGuardia Act

Question 50

Defensive devices adopted by a board to protect an original merger transaction must withstand judicial scrutiny under an enhanced standard of review.Describe the key features of the enhanced judicial scrutiny test in this scenario.