Question 1

The text case Patrick v. Allen discussed whether the business judgment rule exempted directors of a corporation from liability for renting land to a private golf course, of which several directors were members, at a price sufficient to cover only property taxes. Which of the following was the result?

Accepted Answer

The business judgment rule does apply to directors, but it does not protect them in situations where they stand to benefit personally from their decisions, as was the case here.

Question 2

Which of the following is true regarding the Revised Model Business Corporation Act?

Accepted Answer

The Revised Model Business Corporation Act (RMBCA) has indeed been adopted, at least in part, by a majority of U.S. states, reflecting its influence on corporate governance and law.

Question 3

Daily management of a corporation is the direct responsibility of the shareholders.

Accepted Answer

The daily management of a corporation is typically the responsibility of its officers and managers, not the shareholders. Shareholders own shares in the company but do not manage day-to-day operations.

Question 4

If a director makes a decision that inadvertently harms the company, shareholders can hold the director liable for the bad decision under all circumstances.

Accepted Answer

Directors are protected by the "business judgment rule," which shields them from liability for decisions made in good faith and with the belief that they are acting in the company's best interest, even if those decisions ultimately harm the company.

Question 5

A board of directors may take no action that benefits a director in his or her personal capacity.

Accepted Answer

A board of directors can take actions that benefit a director in their personal capacity, provided such actions are transparent, in compliance with the organization's conflict of interest policy, and deemed to be in the best interest of the organization.

Question 6

The French Penal Code adopts what is called the ________ which requires that corporate criminal liability be applied only in cases that pertain to an "express mention in the law or in a French regulation."

Accepted Answer

The French Penal Code adopts the "Specialty principal," which mandates that corporate criminal liability is applicable only in instances explicitly mentioned by the law or a French regulation. This principle ensures that corporations are only held criminally liable for actions that are specifically identified as criminal offenses under French law, providing a clear framework for corporate accountability.

Question 7

Which of the following was the result on appeal in McCann v. McCann, the case in the text involving whether a corporation engaged in a "squeeze-out" as to a minority shareholder?

Accepted Answer

The correct answer is C because it indicates that there was a material question of fact regarding whether the directors engaged in a "squeeze-out" of the minority shareholder, necessitating further legal proceedings to resolve the issue.

Question 8

There is no minimum number of directors who must be present at a directors meeting in order for decisions to be valid.

Accepted Answer

The minimum number of directors required to be present at a directors' meeting to make decisions valid is referred to as the quorum, and this number is usually specified in the company's bylaws or articles of association.

Question 9

In the Case Opener, a majority shareholder voted to award a bonus to her son, the president of the company, over the objection of minority shareholders. Which of the following was the result on appeal?

Accepted Answer

The answer of In the Case Opener, a majority shareholder...

Question 10

The primary goal of shareholders is to raise the value of the company stock.

Accepted Answer

Shareholders typically invest in a company's stock with the expectation that the value of their investment will increase over time, either through appreciation in stock price, dividends, or both, thereby raising the overall value of the company stock.

Question 11

Directors or officers who violate their duty of loyalty are self-dealing.

Accepted Answer

Directors or officers who violate their duty of loyalty are considered to be self-dealing when they put their personal interests ahead of the interests of the corporation, which is a breach of their fiduciary duties.

Question 12

The three main groups of individuals within a corporation are directors, bondholders and customers.

Accepted Answer

The three main groups of individuals within a corporation are directors, shareholders, and officers. Directors oversee the management, shareholders own the corporation through stock, and officers manage the day-to-day operations.

Question 13

In most states, a corporation's bylaws can negate preemptive rights.

Accepted Answer

Preemptive rights are designed to protect shareholders from dilution of their ownership percentage. While these rights can be included in the corporation's charter or bylaws, in most states, the corporation has the flexibility to structure its bylaws to either include, limit, or exclude preemptive rights, unless otherwise restricted by state law.

Question 14

If a director has caused harm to the business by violating a fiduciary duty, a shareholder can file a direct suit against the director.

Accepted Answer

A shareholder typically files a derivative suit on behalf of the corporation, not a direct suit, when a director violates a fiduciary duty causing harm to the business.

Question 15

Directors have the right of up to 3 votes a piece.

Accepted Answer

Directors typically have one vote each on matters that come before the board, unless specified otherwise in the organization's bylaws or governing documents.

Question 16

The Revised Model Business Corporation Act forbids directors' meetings being held via telephone.

Accepted Answer

The Revised Model Business Corporation Act allows for directors' meetings to be held through electronic communication methods, such as telephone, as long as all participants can hear each other.

Question 17

Directors and officers have a fiduciary duty of care.

Accepted Answer

Directors and officers of a corporation have a fiduciary duty of care to act in the best interest of the corporation and its shareholders, making decisions with due diligence and informed judgment.

Question 18

A stock subscription agreement signed before incorporation may obligate a person to purchase shares in the corporation.

Accepted Answer

A stock subscription agreement signed before incorporation is a pre-incorporation contract that obligates the signatory to purchase shares once the corporation is formed, making it binding upon both the subscriber and the corporation.

Question 19

If a shareholder receives watered stock, they cannot be held personally liable.

Accepted Answer

Watered stock refers to shares issued by a company for a value much greater than the asset or cash value it receives, which can lead to situations where shareholders might be held personally liable to creditors for the difference if the company cannot cover its debts.

Question 20

Typically shareholders use a majority vote to elect directors.

Accepted Answer

Shareholders typically elect directors through a majority vote, where each share of stock usually entitles the owner to one vote per director position being filled. This is a common practice in corporate governance to ensure that the directors represent the interests of the majority of shareholders.

Quiz 39: Corporations: Directors, Officers, and Shareholders