Deck 26: Corporate Directors, officers, and Shareholders

Question 1

An individual director acts as an agent to bind the corporation.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Shareholders' meetings must occur at least annually.

Answer 3

True

Question 4

A person must be a shareholder of a corporation to serve as a director.

Question 5

Directors are required to exercise a reasonable amount of supervision over the corporate officers.

Question 6

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

Question 7

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

Question 8

No state permits a corporate board to have fewer than three directors.

Question 9

Few legal qualifications exist for directors.

Question 10

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

Question 11

Corporate directors and officers are insurers of business success.

Question 12

Shareholders own a corporation.

Question 13

Corporate officers govern every corporation.

Question 14

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

Question 15

A director is a fiduciary of a corporation.

Question 16

Shareholders have no right to manage a corporation.

Question 17

Incorporators can appoint a corporation's first board of directors.

Question 18

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

Question 19

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

Question 20

A board of directors generally conducts business without holding formal meetings.

Question 21

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

Question 22

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

Question 23

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 24

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

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

Question 25

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

Question 26

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

Question 27

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

Question 28

Only certain funds are legally available for paying dividends.

Question 29

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

Question 30

Preemptive rights entitle shareholders to bring a derivative suit against the corpora?tion.

Question 31

Under some circumstances,a corporation can refuse a shareholder's re?quest to inspect corporate records.

Question 32

Damages awarded in a shareholder's derivative suit go to the shareholder personally.

Question 33

A shareholder that owns sufficient shares to exercise de facto control over a corpora?tion owes a fiduciary duty to the minority shareholders.

Question 34

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

Question 35

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

Question 36

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 37

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

Question 38

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 39

Shareholders have no right to inspect corporate books and records.

Question 40

A dividend may be paid from undistributed net corporate profits.

Question 41

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 42

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 43

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 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

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 57

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 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

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 60

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 61

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 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

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 64

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 65

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 66

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 67

Fact Pattern 26-1
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 26-1.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 68

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 69

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 70

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 71

Fact Pattern 26-1
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 26-1.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 72

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.