Deck 2: Corporate Governance

Question 1

Which of the followings represent one of the three distinct sets of interest group that is found in most larger corporations?

A)the shareholders (the owners)
B)the directors
C)the employees
D)the lenders
E)all of the above

Answer 1

all of the above

Question 2

Managers are encouraged to act in shareholders' interests by:

A)shareholder election of a board of directors who select management.
B)the threat of a takeover by another firm.
C)compensation contracts that tie compensation to corporate success.
D)Both A and B.
E)All of the above.

Answer 2

All of the above.

Question 3

The articles of incorporation:

A)can be used to remove company management.
B)are amended annually by the company shareholders.
C)set forth the number of shares that can be issued.
D)set forth the rules by which the corporation regulates its existence.
E)can set forth the conditions under which the firm can avoid double taxation.

Answer 3

set forth the number of shares that can be issued.

Question 4

Which of the followings is false about non-executive directors in a corporation?

A)they work in the company on a day-to-day basis.
B)they attend monthly board meetings.
C)they are individuals with significant business experience.
D)they are of a certain level of possible political importance.
E)they are not involved in management.

Question 5

Which one of the following statements concerning a sole proprietorship is correct?

A)The life of the firm is limited to the life span of the owner.
B)The owner can generally raise large sums of capital quite easily.
C)The ownership of the firm is easy to transfer to another individual.
D)The company must pay separate taxes from those paid by the owner.
E)The legal costs to form a sole proprietorship are quite substantial.

Question 6

The owners of a limited liability company prefer:

A)being taxed like a corporation.
B)having liability exposure similar to that of a sole proprietor.
C)being taxed personally on all business income.
D)having liability exposure similar to that of a general partner.
E)being taxed like a corporation with liability like a partnership.

Question 7

The board of a corporation should act in the interest of:
I.majority shareholders
II.minority shareholders
III.foreign shareholders

A)(I) correct only.
B)(II) correct only.
C)(III) correct only.
D)(I) and (II) correct only.
E)(I),(II) and (III) correct.

Question 8

A partnership:

A)is taxed the same as a corporation.
B)agreement defines whether the business income will be taxed like a partnership or a
Corporation.
C)terminates at the death of any general partner.
D)has less of an ability to raise capital than a proprietorship.
E)allows for easy transfer of interest from one general partner to another.

Question 9

Corporate Governance Regulation is intended to:

A)protect financial managers from investors.
B)not have any affect on foreign companies.
C)reduce corporate revenues.
D)protect investors from corporate abuses.
E)decrease audit costs for firms.

Question 10

Assume for a moment that the shareholders in a corporation have unlimited liability for corporate debts.If so, would this affect the decision for the shareholder to invest in the company?

Question 11

Consider the following statements:
(i) Staggering makes it easier for a minority of the shareholders to elect a director when there is cumulative voting.
(ii) Staggering makes takeover attempts less likely to be successful.

A)(i) and (ii) are both correct.
B)(i) and (ii) are both incorrect.
C)(i) is incorrect and (ii) is correct.
D)(i) is correct and (ii) is incorrect.
E)None of the above.

Question 12

Which of the following help convince managers to work in the best interest of the shareholders?
I.compensation based on the value of the equity
II.share option plans
III.threat of a proxy fight
IV.threat of conversion to a partnership

A)I and II only.
B)II and III only.
C)I, II and III only.
D)I and III only.
E)I, II, III, and IV.

Question 13

Which of the following are disadvantages of a partnership?
I.limited life of the firm
II.personal liability for firm debt
III.greater ability to raise capital than a sole proprietorship
IV.lack of ability to transfer partnership interest

A)I and II only.
B)III and IV only.
C)II and III only.
D)I, II, and IV only.
E)I, III, and IV only.

Question 14

Which one of the following statements is correct concerning the organizational structure of a corporation?

A)The vice president of finance reports to the chairman of the board.
B)The chief executive officer reports to the board of directors.
C)The controller reports to the president.
D)The treasurer reports to the chief executive officer.
E)The chief operations officer reports to the vice president of production.

Question 15

In a limited partnership:

A)each limited partner's liability is limited to his net worth.
B)each limited partner's liability is limited to the amount he put into the partnership.
C)each limited partner's liability is limited to his annual salary.
D)there is no limitation on liability; only a limitation on what the partner can earn.
E)None of the above.

Question 16

Do you think agency problems arise in sole proprietorships and/or partnerships?

Question 17

A general partner:

A)has less legal liability than a limited partner.
B)has more management responsibility than a limited partner.
C)faces double taxation whereas a limited partner does not.
D)cannot lose more than the amount of his/her equity investment.
E)is the term applied only to corporations which invest in partnerships.

Question 18

Sole proprietorships are predominantly started because:

A)they are easily and cheaply setup.
B)the proprietorship life is limited to the business owner's life.
C)all business taxes are paid as individual tax.
D)All of the above.
E)None of the above.

Question 19

Which one of the following business types is best suited to raising large amounts of capital?

A)Sole proprietorship.
B)Cooperative.
C)Corporation.
D)General partnership.
E)Limited partnership.

Question 20

Which type of business organization has all the respective rights and privileges of a legal person?

A)Sole proprietorship.
B)General partnership.
C)Limited partnership.
D)Corporation.
E)Cooperative.

Question 21

Hoboken Butcher Alliance is a family-owned and operated company, operated by Mr.Krauthammer and his three sons.Mr.Krauthammer owns a controlling stake in the company.He is thinking of having selling one of his shops to an outside investor, but his sons are opposed to this transaction. If Mr.Krauthammer decides to push through the transaction, this is exemplary of what type of shareholder relationship?

Question 22

Corporations have shareholders.Some have many shareholders, who each own a small share of the firm's equity capital.Others have a few shareholders or perhaps only one, owning large shares of the firm's equity capital.What are the consequences for management and shareholders, respectively, of being in either situation?

Question 23

One thing lenders sometimes require when loaning money to a small corporation is an assignment of the ordinary equity as collateral on the loan.Then, if the business fails to repay its loan, the ownership of the stock certificates can be transferred directly to the lender.Why might a lender want such an assignment? What advantage of the corporate form of organization comes into play here?

Question 24

Explain why transparency and timely information disclosure are such important aspects of good governance.