Deck 40: Corporate Directors, Officers, Shareholders

Question 1

Directors and officers must subordinate the welfare of the corporation to their personal interests.

Answer 1

False

Question 2

In most states, an individual cannot hold more than one corporate office and be both an officer and a director of the corporation.

Answer 2

False

Question 3

The board of directors normally can remove a corporate officer at any time with or without cause.

Answer 3

True

Question 4

Restrictions on the transfer of shares in a close corporation are usually void.

Question 5

Usually, the shareholder who receives watered stock must pay the difference between the price paid for the shares and their fair market value to the corporation.

Question 6

Normally, a corporate board of directors appoints itself as the first board at the time the corporation is created.

Question 7

In most states, a director cannot be removed without cause unless the shareholders have reserved the right to do so at the time of election.

Question 8

Preemptive rights permit a director to veto, or "preempt," any proposal that the shareholders have voted to approve or disapprove.

Question 9

Each director can access the corporation's facilities and premises.

Question 10

Each director present at a meeting of the board of directors has one vote for each outstanding share of corporate stock that he or she holds.

Question 11

Most states do not permit the corporate articles or bylaws to authorize compensation for directors.

Question 12

A court will dismiss a derivative suit if a majority of the directors or an independent panel determines in good faith that the lawsuit is not in the best interests of the corporation.

Question 13

A director or officer is liable to the corporation or its shareholders for honest mistakes of judgment and bad business decisions.

Question 14

Directors cannot use corporate funds or confidential corporate information for personal advantage.

Question 15

Shareholders have the power to vote to elect or remove members of the board of directors.

Question 16

A director who does not hold a management position in the corporation is an outside director.

Question 17

Dividends can be paid from the undistributed net profits earned by the corporation.

Question 18

A straight majority vote of the shares represented at a shareholders' meeting is usually required to pass resolutions.

Question 19

Shareholders own the corporation, and they have legal title to corporate property.

Question 20

Directors are prevented from ever having financial dealings with the corporations they serve.

Question 21

Farrah and Grant are shareholders of Hong Kong Restaurants, Inc. As shareholders, they must approve

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

Question 22

Orsa is a shareholder in Pickles & Preserves Corporation. In some states, Orsa may be liable to the firm's creditors for unpaid corporate debts if she

A) accepts a dividend knowing that it was paid from retained earn?ings.
B) receives shares issued by the firm for less than fair-market value.
C) fails to fulfill her fiduciary duty to the majority shareholders.
D) sells her shares.

Question 23

Lovey is a shareholder of Made-2-Order Manufacturing Corporation with preemptive rights. With these rights, Lovey can

A) buy a prorated share of a new issue of stock before other buyers.
B) choose to have Made-2-Order 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 24

Kiefer, Lori, and Moira are shareholders of Nationmade Flags & Banners Corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be

A) invalid and unenforceable.
B) oppressive and irresponsible.
C) suspect and voidable.
D) valid and enforceable.

Question 25

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

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

Question 26

Char and Doug are officers of Eden Cruise & Travel Corporation. As cor?porate officers, the rights of Char and Doug are

A) determined by their employment contracts.
B) specified in state corporation statutes.
C) the same as those of the directors.
D) the same as those of the shareholders.

Question 27

Renee is a director of Sharp Focus Lens Corporation. With respect to Sharp Focus, Renee can access the corporation's books and records. Renee has this access under

A) the director's right to participation.
B) the director's right of inspection.
C) the director's right to indemnification.
D) the articles of incorporation or corporate bylaws.

Question 28

Sophie and Tiny incorporate their beverage-container business as U-Twist Products, Inc. The first board of directors may be appointed by the firm's

A) initial board of directors.
B) incorporators.
C) first officers.
D) preferred shareholders.

Question 29

Godwin is a director on the board of Health Insurance Corporation. On the receipt of notice of a board meeting, Godwin attends the meeting and takes part in the discussion of business matters and votes on corporate issues. Godwin is entitled to be notified of, and to take part in, these meetings

A) under the director's right to participation.
B) under the director's right to compensation.
C) under the director's right to indemnification.
D) only on his own initiative.

Question 30

Eloise is a director for Frozen Yogurt Company. Eloise is also a director for Gelato Desserts, Inc. When the board of Frozen Yogurt considers entering into a contract with Gelato Desserts, Eloise must

A) resign from one of the boards.
B) resign from both boards.
C) make a full disclosure of any conflict of interest.
D) use her best business judgment in voting on the proposed deal.

Question 31

Dionne is an officer of Event Ticketing, Inc. As an officer, with respect to the corporation, Dionne is

A) a fiduciary.
B) a forum.
C) a proxy.
D) a quorum.

Question 32

Reed owns one share of stock in SK8 Boards Corporation, as evidenced by a stock certificate. Reed loses the certificate. Reed's 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 33

Merina and Nelli form Orchids, Inc. Ultimate responsibility for pol?icy decisions necessary to the management of corporate affairs rests with Orchids's

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

Question 34

Kelly transfers shares of stock that she owns in Lone Starz Company to Max. A shareholders' meeting takes place before Max's ownership is entered in Lone Starz's stock book. A vote at the meeting can be cast by

A) Kelly and Max.
B) Kelly only.
C) Max only.
D) neither Kelly nor Max.

Question 35

Alain is chairman of the board of Barber & Beauty Supply Corporation. Consuela, a con?sumer, is injured while using a Barber & Beauty product. She sues Barber & Beauty and Alain individu?ally. The corporation may pay Alain's legal fees under

A) under the director's right to participation.
B) under the director's right to compensation.
C) under the director's right to indemnification.
D) only on the firm's own initiative.

Question 36

Tucker is a director of USA Auto Parts, Inc. Under the standard of due care owed by di?rectors of a corporation, Tucker's decisions must be

A) unwavering and unquestionable.
B) arguable and defensible.
C) informed and reasonable.
D) perfect and unassailable.

Question 37

Misha and Nguyen are shareholders of Outsourcing Solutions, Inc. Misha's written authorization to Nguyen to vote her shares at a shareholders' meeting is

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

Question 38

Aviators Source Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Aviators Source's board could transact its business is

A) all of the directors authorized in the articles or bylaws.
B) a majority of the number authorized in the articles or bylaws.
C) any odd number.
D) one.

Question 39

Lewis is a director of Mines & Refineries, Inc. Using information that is not available to the public, Lewis makes a profit trading in Mines & Refineries stock. Lewis is most likely li?able for breach of

A) no duty or rule
B) the business judgment rule.
C) the duty of loyalty.
D) the duty of care.

Question 40

Rafi, a director of Super Service Station Corporation, does not attend a board meet?ing for three years. During that time, Twyla, Super's president, makes improper loans that cost the company $100,000. Rafi is most likely

A) liable for negligence or mismanagement.
B) liable for violation of the business judgment rule.
C) not liable because missing meetings is an honest mistake.
D) not liable because missing meetings is only poor judgment.

Question 41

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 42

Donatello is a director and officer of Enzio's Pizza Corporation. Donatello selects an ad campaign that consumers find offensive-a market?ing decision that results in a dramatic decrease in profits for the firm and its shareholders. The shareholders accuse Donatello of breaching his fiduci?ary duty to the corporation. What is Donatello's best defense against this ac?cu?sation? 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?