Deck 34: Corporate Directors, Officers, and Shareholders

Question 1

How many directors serve on a corporation's board can be set forth in the corporation's bylaws.

Answer 1

True

Question 2

In most states, an individual can hold only one corporate office.

Answer 2

False

Question 3

The board of directors conducts business by holding formal meetings with recorded minutes.

Answer 3

True

Question 4

Directors, but not officers, are fiduciaries of the corporation.

Question 5

Corporate officers do not act as agents of the corporation.

Question 6

To make informed decisions and supervise corporate officers and employees, the directors need an unrestricted right to inspect corporate books and records.

Question 7

The primary function of a corporation's officers is to authorize major corporate policy decisions.

Question 8

Directors have a right to be notified of all board meetings.

Question 9

Quorum requirements vary among jurisdictions.

Question 10

To focus on individual subjects and increase efficiency, a corporate board can delegate certain tasks to committees of directors.

Question 11

A director who becomes involved in litigation because of his or her position has no right to be indemnified for the costs.

Question 12

Every corporation is governed by a committee of managerial employees.

Question 13

When it comes to managing a corporation, the corporation relies on its board of directors and officers.

Question 14

A director's right to access the corporation's books can be restricted by the corporate articles.

Question 15

If a board attempts to manipulate the shareholders' election of a director to reduce the shareholders' influence, they can challenge the election in court.

Question 16

When directors vote on issues affecting the corporation, ordinary matters generally require a greater-than-majority vote.

Question 17

The initial board of directors of a corporation is normally appointed by the incorporators when the corporation is created.

Question 18

Shareholders, not directors, make major corporate policy decisions.

Question 19

Corporate officers have responsibility for all policymaking decisions necessary to the management of corporate affairs.

Question 20

The board of directors hires the corporation's officers, and normally can remove them at anytime with or without cause.

Question 21

Directors are not answerable to the corporation for breaching their duty of care.

Question 22

If a director commits a breach of fiduciary duty, the shareholders have the inherent power to remove the director from office by a majority vote.

Question 23

A corporate director is not liable to the corporation or its shareholders for an honest mistake of judgment.

Question 24

Riley is elected as a director to the board of Salty Snacks, Inc. He will most likely serve for a term of one

A) decade.
B) four-year period.
C) lifetime.
D) year.

Question 25

A shareholder's right to transfer his or her shares to another party can be subject to restrictions set out in the bylaws or a shareholder agreement.

Question 26

Sara and Tim form Urban Foods Inc. When it comes to managing Urban, the firm relies on

A) the board of directors.
B) the business judgment rule.
C) the officers.
D) the chief executive officer.

Question 27

Kay and Leo form Metro Delivery Inc. Responsibility for all policymaking decisions related to corporate affairs rests with Metro's

A) board of directors.
B) high-level managers.
C) chief executive officer.
D) shareholders.

Question 28

The number of directors that serve on a corporate board is determined by its

A) articles of incorporation.
B) bylaws.
C) board of directors.
D) quorum.

Question 29

Because of their positions within the corporation, directors cannot be held liable for the crimes of corporate employees.

Question 30

Because of officers' positions within the corporation, they can be held liable for negligence if their failure to exercise due care results in harm to the firm.

Question 31

A breach of fiduciary duties by those who own a close corporation normally constitutes oppressive conduct.

Question 32

Dhani, Ezra, and Finn are the first directors on the board of Global Trading Corporation. Subsequent directors will be elected by a majority vote of Global's

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

Question 33

Because of their positions within the corporation, directors cannot be held personally liable for violations of statutes enacted to protect the environment.

Question 34

When directors do not act in the best interests of their corporations, the shareholders may sue them on the company's behalf.

Question 35

Under the business judgment rule, directors cannot be held liable for the negligence or mismanagement of corporate personnel.

Question 36

To participate in a shareholders' meeting, a shareholder must present a proxy.

Question 37

Because of their positions within the corporation, directors must make full disclosure of any conflicts of interest with respect to corporate contracts.

Question 38

A corporate officer is liable to the corporation or its shareholders for a bad business decision.

Question 39

Because of their positions within the corporation, directors can use confidential corporate information for personal advantage.

Question 40

If a shareholder's derivative suit is successful, any damages recovered normally go into the corporation's treasury.

Question 41

Drones Inc. has three directors, a president, two vice presidents, a secretary, and a treasurer. Ethel is a Drone director. In most states, Ethel can also hold a Drone corporate office

A) under no circumstances.
B) under any circumstances.
C) if she resigns as director.
D) if the shareholders consent.

Question 42

Kathy is a director of Line Production Inc. As a director, with respect to the corporation, Kathy is expected to subordinate

A) her personal interests to the corporation's welfare.
B) the corporation's welfare to her personal interests.
C) her knowledge and training in the corporation's interest.
D) her business judgment in the shareholders' interests.

Question 43

The rights of the director of a corporation include a right to

A) access the corporation's books, records, facilities, and other property.
B) subordinate the corporation's welfare to his personal interest.
C) use confidential corporate information for personal advantage.
D) self-deal by taking advantage of an opportunity offered to the firm.

Question 44

The executive committee of a publicly held corporation handles

A) the selection, compensation, and oversight of accountants who audit the firm's financial records.
B) interim business decisions between board meetings.
C) dividends, amendments to the bylaws, and the issuance of stock.
D) none of the choices.

Question 45

Most states provide that the minimum number of directors that must be present before the board may transact 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 46

Holly is an officer of Indelible Inc. The board removes Holly in violation of an employment contract. Indelible may be liable for breach of

A) contract.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 47

Risk Insurance Inc. has a board of five directors. Risk's bylaws do not state any quorum requirements. As in most states, a quorum for Risk's board meetings is

A) one director.
B) three directors.
C) four directors.
D) all of the directors.

Question 48

When directors vote on issues affecting the corporation, ordinary matters generally require

A) a greater-than-majority vote.
B) a majority vote.
C) one vote.
D) a unanimous vote.

Question 49

Gil is an officer for HVAC Corporation. Due to a bad choice of supplier on Gil's part, HVAC's costs increase. Gil is most likely liable for breach of

A) breach of trust and confidence.
B) breach of the business judgment rule.
C) negligence or mismanagement.
D) none of the choices.

Question 50

With respect to a corporation, an officer's rights are defined by

A) employment contracts.
B) state statutes.
C) court review.
D) shareholder votes.

Question 51

Ben is a director of ChemCo Inc. Because of this position, he becomes involved in litigation. With respect to the costs, fees, and damages involved, he has a right to

A) access the corporation's books, records, facilities, and other property.
B) be reimbursed, or indemnified.
C) use confidential corporate information for personal advantage.
D) subordinate the corporation's welfare to his personal interest.

Question 52

The audit committee of a publicly held corporation is responsible for

A) the selection, compensation, and oversight of accountants who audit the firm's financial records.
B) interim business decisions between board meetings.
C) dividends, amendments to the bylaws, and the issuance of stock.
D) none of the choices.

Question 53

As a director of InstaTalk Inc., Jim has a right of inspection. This right can be restricted by

A) the corporate articles.
B) the bylaws.
C) an act of the board.
D) none of the choices.

Question 54

Randy is a director of STEM Inc. As a director, with respect to the corporation, Randy is expected to use

A) prudent business judgment.
B) perfect business judgment.
C) prolonged business judgment.
D) pluperfect business judgment.

Question 55

When a vacancy occurs on a corporate board, how the position will be filled is most likely set forth in

A) the corporation's articles or bylaws.
B) shareholder proxies.
C) the business judgment rule.
D) the board's recorded minutes.

Question 56

Initiating and negotiating the sale and lease of corporate assets outside the regular course of business is a responsibility of the corporation's

A) board of directors.
B) high-level managers.
C) chief executive officer.
D) shareholders.

Question 57

With respect to a corporation, a director is

A) a fiduciary.
B) an actuary.
C) a notary.
D) all of the choices.

Question 58

A corporate officer

A) authorizes major corporate policy decisions.
B) manages day-to-day operations of the corporation.
C) all of the choices.
D) makes and announces corporate financial decisions.

Question 59

Belle is a director on the board of Construction Corporation. The board delegates certain tasks to Don, the corporate president, and other officers. Belle fails to reasonably supervise the work. She is most likely liable for

A) negligence or mismanagement.
B) breach of the business judgment rule.
C) breach of the duty of loyalty.
D) none of the choices.

Question 60

To avoid potential liability for misconduct in corporate operations, directors can refrain from reasonable supervision of work delegated to

A) corporate officers.
B) corporate employees.
C) board committees.
D) none of the choices.

Question 61

Carmen and Diego are shareholders of Espresso Inc. Carmen's written authorization to Diego to vote her shares at a shareholders' meeting is

A) a corporate resolution.
B) a cumulative vote.
C) a proxy.
D) a quorum requirement.

Question 62

Deb is a director and Erv is an officer of Fast Food Inc. Liability for the firm's intentional disregard of consumer-protection statutes may extend to

A) Deb only.
B) Erv only.
C) Deb and Erv
D) none of the choices.

Question 63

Liability for negligence in the performance of corporate duties may extend to

A) directors only.
B) officers only.
C) directors and officers.
D) none of the choices.

Question 64

Roy is a director of Sales Inc. Sales enters into a contract with TeleCenter Corporation in which Roy has a personal interest. Roy must

A) apply the "don't ask, don't tell" rule of personal conduct.
B) use the situation to his personal advantage.
C) make a full disclosure of the conflict of interest.
D) none of the choices.

Question 65

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 66

Molly is a director and Ned is an officer of Online Education Inc. Liability for the torts of employees under their supervision may extend to

A) Molly only.
B) Ned only.
C) Molly and Ned.
D) none of the choices.

Question 67

Han is a shareholder of Insulation Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Han files a suit on its behalf. Any damages recovered by the suit will go to the firm's

A) shareholders, excluding Han.
B) treasury.
C) directors.
D) shareholders, including Han.

Question 68

Erin, a shareholder of Finance Inc., demands the right to inspect corporate records to determine whether management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin's challenge, a court is most likely to hold that her request constitutes

A) harassment.
B) unreasonable access to trade secrets and other confidential information.
C) a proper purpose.
D) potential abuse.

Question 69

Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes. He may be protected from liability for these mistakes by

A) business success insurance.
B) the business judgment rule.
C) the duty of loyalty.
D) none of the choices.

Question 70

A corporate director may not

A) act in accord with his or her own knowledge and training.
B) use prudent business judgment in the conduct of corporate affairs.
C) delegate work to corporate officers.
D) engage in self-dealing.

Question 71

AstroStar, Inc.'s board of directors consists of three members-Eckhart, Dolan, and Macero. At a regular board meeting, the board selects Galiard as president of the corporation. Later, an audit reveals that during his term as president he has openly embezzled $500,000 from AstroStar. The same audit reveals that the board knew when it selected Galiard that he had been previously convicted of embezzlement. Can the corporation hold directors Eckhart, Dolan, and Macero personally liable?

Question 72

Daisy is a director of Excavation Corporation. She opposes an offer to merge Excavation with Fill Inc. because she would lose her board position. Daisy is most likely liable for breach of

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