Deck 30: Corporate Directors, officers, Shareholders

Question 1

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

Answer 1

True

Question 2

Shareholders own a corporation.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

A director is a fiduciary of a corporation.

Question 7

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

Question 8

Corporate directors and officers are insurers of business success.

Question 9

Corporate officers and directors owe no duty to individual shareholders.

Question 10

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

Question 11

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

Question 12

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

Question 13

Directors are rarely compensated,but when they are,they cannot set their own compensation.

Question 14

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

Question 15

Incorporators appoint a corporation's first board of directors.

Question 16

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

Question 17

A corporate officer is not expected to be informed on corporate matters.

Question 18

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

Question 19

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

Question 20

Corporate shareholders are the ultimate authority in every corporation.

Question 21

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 22

A corporation cannot refuse a shareholder's re?quest to inspect corporate records.

Question 23

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

Question 24

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

Question 25

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

Question 26

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 27

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

Question 28

A dividend may be paid from undistributed net corporate profits.

Question 29

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

Question 30

Shareholders have a right to inspect corporate books and records.

Question 31

Rhea is a director of Spex Corporation,which makes and sells sunglasses and other eyewear.As a Spex director,Rhea is

A) a trustee because Rhea occupies a position of trust over Spex.
B) a trustee because Rhea holds title to Spex's property for the use and benefit of others.
C) not a trustee because Rhea does not hold title to Spex's property for the use and benefit of others.
D) not a trustee because Rhea is not in a position of trust over Spex.

Question 32

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

Question 33

Clifton is a director of Dri-Cleaning Corporation.In this capacity,Clifton has a right of

A) accounting.
B) loyalty.
C) participation.
D) service.

Question 34

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

Question 35

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

Question 36

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 37

Only certain funds are legally available for paying dividends.

Question 38

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

Question 39

The article of corporation cannot exclude or limit shareholders' voting rights.

Question 40

Shareholders' meetings must occur at least annually.

Question 41

Niche Stores,Inc.,must hold a shareholders' meeting

A) once a month.
B) once a year.
C) once every two years.
D) only when it is called by the board of directors.

Question 42

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 43

Nina is a director of Omega,Inc.Under the standard of due care owed by di?rectors of a corporation,Nina's decisions must be

A) ambiguous and questionable.
B) arguable and defensible.
C) informed and reasonable.
D) perfect and unassailable.

Question 44

Reba is a director of Superb Performance Corporation.Reba's rights,as a di?rector,do not include a right of

A) indemnification.
B) inspection of books.
C) participation.
D) preemption.

Question 45

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 46

Denise,Ervin,and Flem occupy the positions of directors on the board of Gallery Corporation.As directors,they may not

A) authorize major corporate policy decisions.
B) decide to issue stock and bonds, and declare dividends.
C) select and remove corporate officers.
D) support businesses that directly compete with Gallery.

Question 47

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 48

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 49

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 50

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 51

Eve is a director of Fab Stuff Corporation.Without informing Fab,Eve goes into business with GR8 Things,Inc.,in competition with Fab.Eve is li?able for breach of

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

Question 52

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 53

Rosa and Sean are directors of Tech,Inc.The right of Rosa and Sam to be notified of special meetings of the board is the right to

A) compensation.
B) indemnification.
C) participation.
D) preemption.

Question 54

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 55

Cara and Dru are officers of EZ Trucking Corporation.As cor?porate 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 56

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 57

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 58

Brad is a shareholder of Concert Promotion Corporation.As a shareholder,Brad can

A) authorize major corporate policy decisions.
B) decide to issue stock and bonds, and declare dividends.
C) select and remove corporate officers.
D) vote to amend the articles of incorporation or bylaws.

Question 59

Sol is chairman of the board of Tasty Foods Corporation.Uma,a con?sumer,falls sick after eating a Tasty product.Uma sues Tasty,and Sol individu?ally.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 60

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 61

Cole is a shareholder of Donut Holes,Inc.Cole will be deemed to have a fiduci?ary duty to Donut Holes and its minority share?holders if he has

A) a restriction on the transferability of his shares.
B) a right of first refusal.
C) a sufficient number of shares to exercise de facto control.
D) watered stock.

Question 62

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

A) accepts a dividend knowing that it was paid from retained earn?ings.
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 63

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 64

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.

Question 65

Rusty and Sylvia are shareholders of Triad Hotel Corporation.Triad's directors fail to declare a dividend.Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend

A) if Triad has sufficient earnings available to pay a dividend.
B) if Triad has cash reserves, even if earmarked for a different purpose.
C) if withholding a dividend is an abuse of the directors' discretion.
D) under no circumstances.

Question 66

Mitch is a director and officer of Numero Uno,Inc.Mitch makes a market?ing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders.The shareholders accuse Mitch of breaching his fiduci?ary duty to the corporation.What is Mitch's best defense against this ac?cu?sation? 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 67

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 68

Fact Pattern 30-1 (Questions 32-33 apply)
Ray is a shareholder of Small Biz Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Refer to Fact Pattern 30-1.Any damages recovered by Ray's suit will go to

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

Question 69

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 70

Fact Pattern 30-1 (Questions 32-33 apply)
Ray is a shareholder of Small Biz Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Refer to Fact Pattern 30-1.Ray's suit is a shareholder's

A) business-judgment rule suit.
B) derivative suit.
C) duty-of-care suit.
D) duty-of-loyalty suit.

Question 71

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

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

Question 72

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.