Deck 25: Corporate Directors, officers, Shareholders

Question 1

In many corporations,the directors are also the chief corporate officers.

Answer 1

True

Question 2

Corporate shareholders are the ultimate authority in every corporation.

Answer 2

False

Question 3

A corporate officer is expected to be informed on corporate matters.

Answer 3

True

Question 4

Officers are required to exercise a reasonable amount of supervision over the corporate directors.

Question 5

Incorporators appoint a corporation's first board of directors.

Question 6

A board of directors cannot conduct business outside a formal meeting.

Question 7

In most states,a director cannot be removed from a corporate board without cause.

Question 8

A director usually serves on a corporation's board for a life term.

Question 9

A director may not sit on the board of more than one corporation at a time.

Question 10

Shareholders have no responsibility for the day-to-day management of a corporation.

Question 11

A director cannot be elected by the other members of the board.

Question 12

Corporate directors and officers are insurers of business success.

Question 13

All directors must be present before a board can transact business.

Question 14

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

Question 15

A board of directors can delegate some functions to corporate officers.

Question 16

An individual director does not act as an agent to bind the corporation.

Question 17

Corporate officers and directors owe no duty to individual shareholders.

Question 18

Directors are rarely compensated,but when they are,they can set their own compensation.

Question 19

A director is a fiduciary of a corporation.

Question 20

Shareholders own a corporation.

Question 21

The board of directors of Integral Components Corporation consists of Frida,Gayla,and Hart.A quorum is the minimum number of these directors

A)who must be at odds in a dispute to call for its resolution.
B)who must be present to validly transact business.
C)that the shareholders may remove from office at any one time.
D)whose positions must be vacant to warrant an election.

Question 22

The article of corporation cannot exclude shareholders' voting rights.

Question 23

Any corporate funds are legally available for paying dividends.

Question 24

Shareholders have a right to inspect corporate books and records.

Question 25

Egan is a director of First Realty Corporation.As a director,Egan can act as an agent to bind First Realty

A)in all circumstances.
B)in no circumstances.
C)to any contract in which Egan does not have a conflict of interest.
D)to any contract that represents a corporate opportunity for First Realty.

Question 26

A corporation cannot refuse a shareholder's request to inspect corporate records.

Question 27

Shareholders' meetings do not have to occur on any regular basis.

Question 28

To vote their shares,shareholders must attend a meeting and vote in person.

Question 29

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

Question 30

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)employees.
B)incorporators.
C)officers.
D)shareholders.

Question 31

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

Question 32

Shareholder voting agreements are usually held to be invalid and unenforceable.

Question 33

Lexy and Mort act as the incorporators for NuGame Corporation.After the first board of directors is chosen,subsequent directors are elected by a vote of NuGame's

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

Question 34

Shares issued for more than their fair market value are known as watered stock.

Question 35

A dividend may be paid from undistributed net corporate profits.

Question 36

Persons whose names appear in a corporation's stock book are ordinarily entitled to notice of shareholders' meetings and the right to vote.

Question 37

A preemptive right is a preference over other shareholders to cast the determining vote on fundamental changes affecting the corporation.

Question 38

A majority shareholder does not owe a fiduciary duty to minority shareholders under any circumstances.

Question 39

A stock warrant is a distribution of corporate profits or income.

Question 40

Whit is a director of Vids Corporation.With respect to policymaking decisions necessary to the management of corporate affairs,Whit and the other Vids directors have responsibility for

A)all of the decisions.
B)only the decisions referred to them by the shareholders.
C)only the decisions referred to them by the officers.
D)none of the decisions.

Question 41

Gladys is a shareholder of Frozen Yogurt,Inc.As a shareholder,Gladys must approve

A)amending the bylaws.
B)declaring a corporate dividend.
C)hiring a chief executive officer.
D)issuing additional shares.

Question 42

Melba and Leon are directors of Fresh Foods,Inc.The right of Melba and Leon to be notified of special meetings of the board is the right to

A)compensation.
B)indemnification.
C)participation.
D)self-dealing.

Question 43

Odell,Prince,and Quinn are shareholders of Rite 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 44

Thor 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)ensures against persons who may "cloud" the corporate direction.

Question 45

Genna is a director of Fashion NOW Corporation.Without informing Fashion NOW,Genna starts up Evertrendy,Inc. ,to compete.Genna is liable for breach of

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

Question 46

Rocco is a director of Spa Lids & Tubs,Inc.Under the standard of due care owed by directors of a corporation,Rocco's decisions must be

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

Question 47

Luke is a director of Motor Parts Corporation.Luke makes decisions with respect to Motor Parts in good faith,in what he believes is the firm's best interest,and without violating any duties owed to it.If,despite these circumstances,Luke exercises poor business judgment,under the business judgment rule Luke is

A)immune from liability.
B)liable only to the extent that he gains as a result.
C)liable only to the extent that Motor Parts suffers as a result.
D)wholly liable.

Question 48

Heidi and Ian are directors and shareholders of Globe Software,Inc.Heidi's written authorization to Ian to vote Heidi's shares at a Globe shareholders' meeting is

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

Question 49

Sol is chairman of the board of Tasty Foods Corporation.Uma,a consumer,falls sick after eating a Tasty product.Uma sues Tasty,and Sol individually.Tasty may pay Sal's legal fees

A)only if Sol wins the suit.
B)only if Tasty wins the suit.
C)only if Uma wins the suit.
D)regardless of the outcome.

Question 50

Zero Sum Games Corporation has forty-three shareholders.The minimum number that must be present at a meeting for a shareholders' vote is

A)all of the shareholders.
B)a quorum.
C)a proxy.
D)three of the shareholders.

Question 51

Chip is a director of Diners Restaurants,Inc.Chip would breach his duty of loyalty if he

A)becomes a director of Fluffy Mattresses,Inc. ,a noncompeting firm.
B)buys a controlling interest in Gulpin' Foods Corporation,a competing firm.
C)votes for Diners to buy a controlling interest in Eateries,Inc. ,which causes Diners to suffer a loss.
D)votes against Diners' purchase of a controlling interest in Eateries,Inc. ,which causes Diners to suffer a loss.

Question 52

Coast-to-Coast Distribution,Inc. ,is a direct-mail distribution company.Like most corporations,Coast-to-Coast's employees include its

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

Question 53

Frawsty Corporation distributes beverages in the greater Northwest.Frawsty's board of directors can delegate some of its functions to

A)Frawsty's incorporators.
B)Frawsty's officers.
C)Frawsty's shareholders.
D)no one.

Question 54

Cara and Dru are officers of EZ Trucking Corporation.As corporate officers,the rights of Cara and Dru 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 55

Naomi and Ogden are shareholders of MediCare Residences,Inc.As shareholders,they must approve

A)conducting a merger.
B)deciding to pursue new business opportunities.
C)terminating a managerial employee.
D)negotiating a contract between management and labor.

Question 56

Fiona owns one share of stock in GR8 Boards Corporation,as evidenced by a stock certificate.Fiona 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 57

Flite-Craft Corporation makes and sells aircraft parts.In most states,the minimum number of directors that must be present before Flite-Craft's board can 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 58

Rafi,a director of Super Service Station Corporation,does not attend a board meeting 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 59

Raul is chairman of the board of Swif-Vac Corporation.Pinky,a consumer,is injured while using a Swif-Vac product.Pinky sues Swif-Vac,and Raul individually.Swif-Vac may pay Raul's legal fees under

A)the director's right to certification.
B)the director's right to compensation.
C)the director's right to indemnification.
D)no circumstances.

Question 60

Reynaldo is a director of Quantum Mechanix Corporation.Reynaldo's rights,as a director,do not include a right to

A)indemnification.
B)inspection.
C)participation.
D)self-dealing.

Question 61

Lovey is a shareholder of Matchless 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 Matchless 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 62

In all states,Sports Fitness Club Company and other corporations can pay dividends from

A)gross profits.
B)net profits.
C)retained earnings.
D)surplus.

Question 63

Natalie is a shareholder of Off-Road Vehicle Company.As a shareholder,Natalie does not have

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

Question 64

Fact Pattern 25-1
Ruben is a shareholder of Speed Bikes Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm’s behalf.



-Refer to Fact Pattern 25-1.Any damages recovered by Ruben's suit will normally go to

A)Ruben.
B)SBC.
C)SBC's directors.
D)the state in which SBC is incorporated.

Question 65

Ida,Jerzy,and Kit are the directors of Liberty Convenience Stores,Inc.Liberty has nine officers and forty-six shareholders.Dividends are ordered by the firm's

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

Question 66

Clark is a shareholder of Bedrest Mattress Company.Clark will be deemed to have a fiduciary duty to Bedrest and its minority shareholders if he has

A)preferred stock.
B)a right of first refusal.
C)a sufficient number of shares to exercise de facto control.
D)watered stock.

Question 67

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

Question 68

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 69

Mitch is a director and officer of Numero Uno,Inc.Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders.The shareholders accuse Mitch of breaching his fiduciary duty to the corporation.What is Mitch's best defense against this accusation? Later,the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation.Mitch is a director and shareholder of One-of-a-Kind.What is Mitch's responsibility in this situation?

Question 70

Orin is a shareholder of Pinkwater Corporation.In some states,Orin might incur personal liability for unpaid Pinkwater debts if he

A)accepts a dividend knowing that it was paid from retained earnings.
B)buys stock for less than its fair-market value.
C)fails to fulfill his fiduciary duty to the majority shareholders.
D)sells his shares.

Question 71

Fact Pattern 25-1
Ruben is a shareholder of Speed Bikes Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm’s behalf.



-Refer to Fact Pattern 25-1.Ruben's suit is a shareholder's

A)indemnification suit.
B)derivative suit.
C)proxy suit.
D)preemptive suit.

Question 72

Bea is a shareholder of Candy Confections Corporation.The right to inspect corporate books and records is

A)held by Bea only if she is a director.
B)held by Bea,without restrictions.
C)held by Bea,with some restrictions.
D)not held by Bea.