Question 1

A director of the corporation has embezzled money from the company.The other corporate directors fail to sue.What should the shareholders do?

Accepted Answer

A)If corporate directors fail to sue when the corporation has been harmed by an
individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
B)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
C)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
D)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
E)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.

Question 2

When a shareholder sues,alleging that he has suffered damages caused by the corporation,it is known as which of the following?

Accepted Answer

A)Shareholders can also bring a direct suit against the corporation.In a
shareholder's direct suit,the shareholder alleges damages caused by the corporation.
B)Shareholders can also bring a direct suit against the corporation.In a shareholder's direct suit,the shareholder alleges damages caused by the corporation.
C)Shareholders can also bring a direct suit against the corporation.In a shareholder's direct suit,the shareholder alleges damages caused by the corporation.
D)Shareholders can also bring a direct suit against the corporation.In a shareholder's direct suit,the shareholder alleges damages caused by the corporation.
E)Shareholders can also bring a direct suit against the corporation.In a shareholder's direct suit,the shareholder alleges damages caused by the corporation.

Question 3

Hans receives a dividend from his closely held corporation,causing the company to go insolvent.He was aware of the fact that the dividend would result in insolvency.Which of the following is true?

Accepted Answer

A)Dividends which cause the corporation to become insolvent are always illegal.A
shareholder who knew that a dividend was illegal when he received it is personally liable and must return the funds to the corporation.
B)Dividends which cause the corporation to become insolvent are always illegal.A shareholder who knew that a dividend was illegal when he received it is personally liable and must return the funds to the corporation.
C)Dividends which cause the corporation to become insolvent are always illegal.A shareholder who knew that a dividend was illegal when he received it is personally liable and must return the funds to the corporation.
D)Dividends which cause the corporation to become insolvent are always illegal.A shareholder who knew that a dividend was illegal when he received it is personally liable and must return the funds to the corporation.
E)Dividends which cause the corporation to become insolvent are always illegal.A shareholder who knew that a dividend was illegal when he received it is personally liable and must return the funds to the corporation.

Question 4

Which of the following may be redeemed for a certain number of shares at a specified price within a given time period?

Accepted Answer

A)If preemptive rights exist,all shareholders receive stock warrants,which they can
redeem for a certain number of shares at a specified price within a given time period.
B)If preemptive rights exist,all shareholders receive stock warrants,which they can redeem for a certain number of shares at a specified price within a given time period.
C)If preemptive rights exist,all shareholders receive stock warrants,which they can redeem for a certain number of shares at a specified price within a given time period.
D)If preemptive rights exist,all shareholders receive stock warrants,which they can redeem for a certain number of shares at a specified price within a given time period.
E)If preemptive rights exist,all shareholders receive stock warrants,which they can redeem for a certain number of shares at a specified price within a given time period.

Question 5

What duty,if any,did Tatiana violate?

Accepted Answer

A)Directors and officers can also breach their fiduciary duty of loyalty by
preventing corporate opportunity.This breach usually happens when directors or officers own other companies that compete with their corporation without the consent of the board of directors or the shareholders.
B)Directors and officers can also breach their fiduciary duty of loyalty by preventing corporate opportunity.This breach usually happens when directors or officers own other companies that compete with their corporation without the consent of the board of directors or the shareholders.
C)Directors and officers can also breach their fiduciary duty of loyalty by preventing corporate opportunity.This breach usually happens when directors or officers own other companies that compete with their corporation without the consent of the board of directors or the shareholders.
D)Directors and officers can also breach their fiduciary duty of loyalty by preventing corporate opportunity.This breach usually happens when directors or officers own other companies that compete with their corporation without the consent of the board of directors or the shareholders.
E)Directors and officers can also breach their fiduciary duty of loyalty by preventing corporate opportunity.This breach usually happens when directors or officers own other companies that compete with their corporation without the consent of the board of directors or the shareholders.

Question 6

Which of the following rights does not apply to corporate directors?

Accepted Answer

A)The unique responsibilities of corporate directors call for unique rights.There are
four: the rights of compensation,participation,inspection,and indemnification.
B)The unique responsibilities of corporate directors call for unique rights.There are four: the rights of compensation,participation,inspection,and indemnification.
C)The unique responsibilities of corporate directors call for unique rights.There are four: the rights of compensation,participation,inspection,and indemnification.
D)The unique responsibilities of corporate directors call for unique rights.There are four: the rights of compensation,participation,inspection,and indemnification.
E)The unique responsibilities of corporate directors call for unique rights.There are four: the rights of compensation,participation,inspection,and indemnification.

Question 7

The right of a corporation or its shareholder to purchase any shares of stock offered for resale by a shareholder within a specified period of time is referred to as which of the following?

Accepted Answer

A)One method of restricting stock transferability is the right of first refusal.If a
corporation establishes this right in its bylaws,the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time.

Question 8

Which of the following is NOT true of shareholder liability?

Accepted Answer

A)Shareholders are liable for the debts of a corporation to the extent of their
investment;are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased;shareholders are liable for watered stock;and are personally liable for receiving illegal dividends.
B)Shareholders are liable for the debts of a corporation to the extent of their investment;are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased;shareholders are liable for watered stock;and are personally liable for receiving illegal dividends.
C)Shareholders are liable for the debts of a corporation to the extent of their investment;are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased;shareholders are liable for watered stock;and are personally liable for receiving illegal dividends.
D)Shareholders are liable for the debts of a corporation to the extent of their investment;are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased;shareholders are liable for watered stock;and are personally liable for receiving illegal dividends.
E)Shareholders are liable for the debts of a corporation to the extent of their investment;are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased;shareholders are liable for watered stock;and are personally liable for receiving illegal dividends.

Question 9

When the corporation will not issue physical stock certificates,shares are ________.

Accepted Answer

A)In most states,shares may be uncertificated,meaning that the corporation does
not issue physical stock certificates.In this case,shareholders usually have a right to receive a letter from the corporation giving the information typically included on the face of a stock certificate.
B)In most states,shares may be uncertificated,meaning that the corporation does not issue physical stock certificates.In this case,shareholders usually have a right to receive a letter from the corporation giving the information typically included on the face of a stock certificate.
C)In most states,shares may be uncertificated,meaning that the corporation does not issue physical stock certificates.In this case,shareholders usually have a right to receive a letter from the corporation giving the information typically included on the face of a stock certificate.
D)In most states,shares may be uncertificated,meaning that the corporation does not issue physical stock certificates.In this case,shareholders usually have a right to receive a letter from the corporation giving the information typically included on the face of a stock certificate.
E)In most states,shares may be uncertificated,meaning that the corporation does not issue physical stock certificates.In this case,shareholders usually have a right to receive a letter from the corporation giving the information typically included on the face of a stock certificate.

Question 10

If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders can file a[n] ________ on behalf of the corporation.

Accepted Answer

A)If corporate directors fail to sue when the corporation has been harmed by an
individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
B)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
C)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
D)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.
E)If corporate directors fail to sue when the corporation has been harmed by an individual,another corporation,or a director,individual shareholders who held stock at the time of the alleged wrongdoing)can file a shareholder's derivative suit on behalf of the corporation.

Question 11

Which of the following gives preference to shareholders to purchase shares of a new issue of stock?

Accepted Answer

A)Under common law,shareholders have preemptive rights,which give preference
to shareholders to purchase shares of a new issue of stock.
B)Under common law,shareholders have preemptive rights,which give preference to shareholders to purchase shares of a new issue of stock.
C)Under common law,shareholders have preemptive rights,which give preference to shareholders to purchase shares of a new issue of stock.
D)Under common law,shareholders have preemptive rights,which give preference to shareholders to purchase shares of a new issue of stock.
E)Under common law,shareholders have preemptive rights,which give preference to shareholders to purchase shares of a new issue of stock.

Question 12

How many votes will the minority shareholders have in the election?

Accepted Answer

A)Cumulative voting ensures that minority shareholders have a voice in electing the board of directors.It gives each group,majority and minority shareholders a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions.
B)Cumulative voting ensures that minority shareholders have a voice in electing the board of directors.It gives each group,majority and minority shareholders a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions.
C)Cumulative voting ensures that minority shareholders have a voice in electing the board of directors.It gives each group,majority and minority shareholders a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions.
D)Cumulative voting ensures that minority shareholders have a voice in electing the board of directors.It gives each group,majority and minority shareholders a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions.
E)Cumulative voting ensures that minority shareholders have a voice in electing the board of directors.It gives each group,majority and minority shareholders a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions.

Question 13

Which of the following is a term for stock issued to individuals below its fair market value?

Accepted Answer

A)Watered stock is stock issued below its fair market value.
B)Watered stock is stock issued below its fair market value.
C)Watered stock is stock issued below its fair market value.
D)Watered stock is stock issued below its fair market value.
E)Watered stock is stock issued below its fair market value.

Question 14

Is Allison correct that officers cannot be held criminally responsible for actions they take on behalf of a corporation?

Accepted Answer

A)Although corporations themselves are liable for the torts and crimes of their
directors and officers,directors and officers can be held personally responsible for their own torts and crimes and even for those of other employees whom they have failed to adequately supervise.
B)Although corporations themselves are liable for the torts and crimes of their directors and officers,directors and officers can be held personally responsible for their own torts and crimes and even for those of other employees whom they have failed to adequately supervise.

Question 15

Under what circumstances are dividends illegal?

Accepted Answer

A)Dividends are always illegal if they are paid when the corporation is insolvent.
B)Dividends are always illegal if they are paid when the corporation is insolvent.
C)Dividends are always illegal if they are paid when the corporation is insolvent.
D)Dividends are always illegal if they are paid when the corporation is insolvent.
E)Dividends are always illegal if they are paid when the corporation is insolvent.

Question 16

While incorporating,the future owners of the corporation want to restrict stock transferability to ensure that existing shareholders have the right to buy any shares of stock offered for sale by a shareholder within a specified time period.The right they should establish in their corporate bylaws is referred to as the ________.

Accepted Answer

A)One method of restricting stock transferability is the right of first refusal.If a
corporation establishes this right in its bylaws,the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time.
B)One method of restricting stock transferability is the right of first refusal.If a corporation establishes this right in its bylaws,the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time.
C)One method of restricting stock transferability is the right of first refusal.If a corporation establishes this right in its bylaws,the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified period of time.

Question 17

Is Allison correct that she owes no duties to shareholders?

Accepted Answer

A)Directors and officers have duties to the shareholders and to the corporation.Their two primary fiduciary duties are the duty of care and the duty of loyalty.
B)Directors and officers have duties to the shareholders and to the corporation.Their two primary fiduciary duties are the duty of care and the duty of loyalty.
C)Directors and officers have duties to the shareholders and to the corporation.Their two primary fiduciary duties are the duty of care and the duty of loyalty.
D)Directors and officers have duties to the shareholders and to the corporation.Their two primary fiduciary duties are the duty of care and the duty of loyalty.
E)Directors and officers have duties to the shareholders and to the corporation.Their two primary fiduciary duties are the duty of care and the duty of loyalty.

Question 18

Which of the following is false regarding corporate decisions that might personally benefit a particular director or officer?

Accepted Answer

A)If the board addresses an issue that might personally benefit a particular director,that director is required not only to disclose the self-interest,but also to abstain from voting on that issue.
B)If the board addresses an issue that might personally benefit a particular director,that director is required not only to disclose the self-interest,but also to abstain from voting on that issue.
C)If the board addresses an issue that might personally benefit a particular director,that director is required not only to disclose the self-interest,but also to abstain from voting on that issue.
D)If the board addresses an issue that might personally benefit a particular director,that director is required not only to disclose the self-interest,but also to abstain from voting on that issue.
E)If the board addresses an issue that might personally benefit a particular director,that director is required not only to disclose the self-interest,but also to abstain from voting on that issue.

Question 19

In the text case Auerbach v.Bennett a shareholder brought a derivative action after an internal audit of the GTE Corporation suggested that the corporation's management had paid significant amounts in bribes and kickbacks over a period of several years.Which of the following was the result on appeal?

Accepted Answer

A)The Court of Appeals of New York held that the business judgment rule
exempted the GTE directors from liability for their poor business decisions.
B)The Court of Appeals of New York held that the business judgment rule exempted the GTE directors from liability for their poor business decisions.
C)The Court of Appeals of New York held that the business judgment rule exempted the GTE directors from liability for their poor business decisions.
D)The Court of Appeals of New York held that the business judgment rule exempted the GTE directors from liability for their poor business decisions.
E)The Court of Appeals of New York held that the business judgment rule exempted the GTE directors from liability for their poor business decisions.

Question 20

Which of the following may be issued to shareholders as proof of ownership in the corporation?

Accepted Answer

A)Some corporations issue stock certificates to shareholders as proof of ownership
in the corporation.
B)Some corporations issue stock certificates to shareholders as proof of ownership in the corporation.
C)Some corporations issue stock certificates to shareholders as proof of ownership in the corporation.
D)Some corporations issue stock certificates to shareholders as proof of ownership in the corporation.
E)Some corporations issue stock certificates to shareholders as proof of ownership in the corporation.

Quiz 39: Corporations: Directors, officers, and Shareholders