Deck 30: Management and Ownership of a Corporation

Question 1

In most states, a director cannot be removed from a corporate board for a breach of duty.

Answer 1

False

Question 2

Quorum requirements are the same in all jurisdictions.

Answer 2

False

Question 3

Corporate officers can usually be removed by the board of directors without cause.

Answer 3

True

Question 4

A corporate officer cannot act as an agent of the corporation.

Question 5

If a director fails to use a reasonable amount of supervision over corporate officers and employees, then the director can be held liable for negligence.

Question 6

Directors can use corporate funds and confidential information for personal advantage as long as they disclose that they are doing so.

Question 7

A board of directors govern every corporation.

Question 8

The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.

Question 9

Hiring corporate officers and determining their compensation are decisions that would be made by a corporation's board of directors.

Question 10

After the first board, the directors are chosen by the corporate officers.

Question 11

Corporate directors and officers are insurers of business success.

Question 12

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

Question 13

The minimum number of members of a body of officials that must be present before business can validly be transacted is known as a quorum.

Question 14

Pursuing a new product line is a decision that would be made by shareholders.

Question 15

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

Question 16

A director does not need to disclose any conflict of interest before voting on a proposal.

Question 17

A director can be elected by the other members of the board.

Question 18

A corporation's officers and other executive employees are hired by corporate shareholders.

Question 19

A director is a fiduciary of a corporation.

Question 20

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

Question 21

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

Question 22

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

Question 23

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 24

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

Question 25

Dividends can be paid only in stock in other corporations.

Question 26

The ownership right to stock exists independently of a stock certificate.

Question 27

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

Question 28

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

A) governs Spex.
B) is governed by the Spex incorporators.
C) is governed by the Spex officers.
D) is governed by the Spex shareholders.

Question 29

If a corporation fails, the shareholders are all individually liable.

Question 30

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 31

Doyle and Emily are officers of Freshé Bottled Water Corporation. As cor?porate officers, their compensation is determined by Freshé's

A) directors.
B) incorporators.
C) other officers.
D) shareholders.

Question 32

In certain instances of fraud, a court may "pierce the corporate veil" to hold the shareholders individually liable.

Question 33

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

Question 34

Shareholders own a corporation.

Question 35

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

Question 36

Philip is elected as a director for Fatless Foods, Inc. His term of office will most probably last for

A) three months.
B) six months.
C) nine months.
D) one year.

Question 37

Every shareholder is entitled to inspect corporate records for a proper purpose.

Question 38

Shareholders do not need to approve fundamental changes affecting the corporation before the changes can be effected.

Question 39

If the corporate directors fail to sue in the corporate name to redress a wrong suffered by the corporation, then the shareholders can do nothing.

Question 40

Shareholders' meetings must occur at least annually.

Question 41

Corporate business matters are presented at a shareholders' meeting in the form of

A) resolutions.
B) proxies.
C) articles of incorporation.
D) bylaws.

Question 42

Josh is a director of Sippy Soups, Inc. Josh opposes a tender offer that is in Sippy's best interest because its acceptance would cost him his position as a director. Josh is liable for a breach of duty of

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

Question 43

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) subordinate the corporation's welfare to their personal interests.

Question 44

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 45

Fiona owns one share of stock in SK8 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 46

Jaycee is a shareholder for Designer Pet Clothes, Inc. Designer Pet Clothes uses cumulative voting to elect directors. This means that the number of Jaycee's votes is determined by

A) how long Jaycee has been a shareholder.
B) the number of members of the board to be elected multiplied by the total number of voting shares Jaycee holds.
C) the number of shareholders present at the most recent shareholders' meeting.
D) the number of shareholders' meetings Jaycee has attended in the past year.

Question 47

RayAnn is a corporate officer for Timmy's Trees, Inc. As a corporate officer, RayAnn is

A) the head of the board of directors.
B) involved in the day-to-day operations of Timmy's Trees.
C) not involved in the day-to-day operations of Timmy's Trees.
D) in charge of selecting members of the board of directors.

Question 48

Etta is a director of Trendy Stuff Corporation. Without informing Trendy, Etta goes into business with GR8 Things, Inc., in competition with Trendy. Etta 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 49

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 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

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 52

Great Gates, Inc. has a board of ten directors. Great Gates' bylaws do not state any quorum requirements. In most states, a quorum for Great Gates will be defined as

A) two directors.
B) six directors.
C) nine directors.
D) ten directors.

Question 53

Louise is a director for Icy Ices, Inc. Louise is also a director for Creamy Creams, Inc. When Icy Ices enters into a contract with Creamy Creams, Louise

A) must resign from one of the boards.
B) must resign from both boards.
C) must make a full disclosure of any conflicts of interest and abstain from voting on the proposed transaction.
D) need not do anything.

Question 54

Because stock is intangible personal property, a stockholder's ownership of the stock

A) exists independently of the stock certificate itself.
B) cannot exist without a tangible stock certificate.
C) cannot exist without the original stock certificate.
D) cannot be transferred to another person.

Question 55

Mickey is a director of Fine Art Dealers, Inc. Mickey is trained in art valuation. Fine Art Dealers makes several purchases in which it pays too much money for artwork. Mickey approves all the transactions without reading the details. Mickey is most likely

A) liable for breach of the duty of care.
B) not liable for breach of the duty of care.
C) liable for breach of duty of loyalty.
D) liable for violation of the business judgment rule.

Question 56

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 57

Rosa and Sean are directors of Tech, Inc. Rosa's written authorization to Sean to vote Rosa's shares at a Tech shareholders' meeting is

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

Question 58

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 59

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

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

Question 60

Dave is an officer for Sweet Somethings Candies, Inc. In 2012, chocolate hearts were very popular. Acting within his managerial authority and the powers of the corporation, Dave signs a contract for an increase in chocolate heart production for 2013. In 2013 chocolate hearts do not sell well and Sweet Somethings Candies loses money. Dave is most likely

A) liable for breach of duty of care.
B) liable for breach of duty of loyalty.
C) none of the choices.
D) liable for violation of the business judgment rule.

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

Larry is a shareholder for Custom Colors, Inc. If Custom Colors fails, Larry will

A) be liable for Custom Colors' debts.
B) not be liable for Custom Colors' debts.
C) be able to reclaim his initial investment in Custom Colors.
D) be able to reclaim his initial investment in Custom Colors plus damages.

Question 63

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 64

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 65

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 66

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 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

Generally, Sports Fitness Club Company and other corporations can pay dividends if

A) the corporation can continue to pay its debts as they come due.
B) the amount of the dividends exceed the corporation's net worth.
C) the shareholders approve.
D) the corporation's assets equal its total liabilities.

Question 69

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 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. 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 71

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 72

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) voting rights.