Deck 29: Management of the Corporate Business

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

If an employee commits a tort while acting within the scope of employment,the corporation is not liable.

Answer 3

False

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

According to the MBCA,the board of directors should never act unless properly convened at a meeting.

Question 6

Under the MBCA,shareholders may remove directors without cause.

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

All corporate actions can be taken only through board initiative.

Question 10

What is generally required for any fundamental changes in the corporation?

A)Novation
B)Referendum
C)Board initiative
D)Prudent person standard

Question 11

Scott was a member of the seven-person board of directors of Buffalo Corporation.Officers of that corporation were considering a large purchase of new equipment to begin production of a completely new product line.The board of directors had not been consulted about the new venture,but Scott found out about the plan and objected to it being implemented.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 no right to inspect the books and records of the corporation unless authorized by all other members of the board.

Question 12

The president cannot also be the secretary of the corporation.

Question 13

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

Question 14

Who is considered the owner of the corporation?

A)The directors
B)The shareholders
C)The chairman of the board
D)The chief executive officer

Question 15

Corporations can be convicted of crimes.

Question 16

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

Question 17

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)the board of directors.
B)the president.
C)the shareholders.
D)the chairman of the board.

Question 18

A director of a corporation has the right to:

A)establish the price for the sale of shares of stock.
B)elect and remove officers.
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

Trading on inside information is in violation of fiduciary duties.

Question 20

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

Question 21

A director:

A)cannot be removed from office if he/she voluntarily failed to attend directors' meetings.
B)can be removed from office if he/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 22

Vacancies on the board can be filled:

A)only by a vote of the board.
B)only by a vote of the shareholders.
C)by appointment by the chairperson of the board.
D)by appointment by any two members of the board.

Question 23

To obtain the protection of the business judgment rule,a director must meet certain requirements in arriving at his/her decisions.He/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 24

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

A)one non-attending director specifies another person to vote on matters in his/her place.
B)all of the directors attend the meeting.
C)the attending directors take action on all matters at hand.
D)some of the directors attend the meeting.

Question 25

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

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

Question 26

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

A)prudent person standard
B)quorum
C)referendum
D)novation

Question 27

Under the MBCA,a director:

A)will not have dissented if he refuses to vote for the proposed course of action.
B)will not have dissented even if he makes his dissent clear to the other board members by having it appear in the minutes.
C)will have dissented if he gives a written notice of dissent immediately following the meeting.
D)will have dissented if he walks out on the board meeting.

Question 28

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 29

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

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

Question 30

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 to Peter of a retail store the corporation operated.There were 12 board members,10 of whom were present at the meeting.One of the directors present was Peter.After a lengthy discussion in which Peter participated,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 regardless of whether its terms are harsh,because Peter's presence was not necessary for a quorum and his vote was not necessary for approval of the contract.

Question 31

Distanet Corporation is a competitor of Telenex Corporation in the personal computer market.After examining past and future price and sales data and after consulting an economist and an accountant,the directors of Distanet voted to reduce the price of that company's computers,believing that by reducing the price of their product,the corporation could compete more successfully with Telenex.The plan was put into operation,but it did not prove to be effective.In fact,Distanet lost money as a result of the plan.Aileen,a stockholder of Distanet,brings an action against the directors,seeking to hold them 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 was one subject to the business judgment rule.
C)No,because a stockholder does not possess the rights to sue the directors under any circumstance.
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 32

Who 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 33

The most popular type of state statutes limiting directors' liabilities for breach of the duty of care are:

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

Question 34

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

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

Question 35

What is "ex officio" authority?

A)Authority by virtue of one's offices.
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 vice president of a corporation:

A)keeps the minutes of meetings of the shareholders and directors.
B)has charge of the funds of the corporation.
C)has implied and apparent authority.
D)has no authority by virtue of that office.

Question 37

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)Business judgment rule does not apply to such lawsuits.

Question 38

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 39

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

A)does not personally investigate every facet of every business decision.
B)relies on the opinions or statements of others.
C)fails to make a reasonable investigation before making any corporate decisions.
D)he/she does not personally attend all board meetings even if insufficient notice is given.

Question 40

This statute places a ceiling on director liability for breach of duty,however,the board and shareholders may act to lower the ceiling.

A)Charter option statutes
B)Self-executing statutes
C)SEC oversight statutes
D)Cap on monetary damages statutes

Question 41

What is the meaning of ex officio authority?

Question 42

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

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

Question 43

A corporation:

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

Question 44

The MBCA requires that a director or officer discharge his duties with "such care as an ordinarily prudent person in a like position would use under similar circumstances." Explain the MBCA's "prudent person" standard.

Question 45

This act 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 46

What are the duties of directors and officers of a corporation?

Question 47

Discuss how a director protects herself from potential liability by exercising her right to dissent.

Question 48

Describe the key features of the enhanced judicial scrutiny test adopted by the board to protect the original merger transactions.

Question 49

A corporate officer can be found criminally liable for the illegal behavior of a subordinate when the officer:

A)knew or should have known of the illegal conduct and failed to take steps to prevent it.
B)knew of the illegal behavior and personally benefited from it.
C)did not know of the illegal behavior,but personally benefited from it.
D)knew that the illegal activity concerned insider trading.

Question 50

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

A)is still covered by mandatory indemnification.
B)may only be indemnified if the shareholders find it to be appropriate.
C)may only be indemnified upon the approval of an independent legal counsel.
D)cannot be indemnified under any circumstances.