Deck 45: Shareholder Rights in Corporations

Question 1

Corporate securities evidenced by a certificate are negotiable.

Answer 1

True

Question 2

Upon acceptance of a subscription after incorporation, the subscriber immediately attains the rights, privileges, and liabilities of a shareholder, even though the subscriber has not paid any of the purchase price.

Answer 2

True

Question 3

If a corporate stock has a par value, the person subscribing to the stock and acquiring it from the corporation must pay that par value amount.

Answer 3

True

Question 4

Membership in a corporation is based on the ownership of one or more shares of stock of the corporation.

Question 5

A preincorporation subscription to stock is generally treated as an offer to the corporation to buy the stock when the corporation is formed and the stock is thereafter issued.

Question 6

A contract for the sale of shares must be evidenced in writing and include the price and quantity of the securities.

Question 7

A shareholder may make an absolute transfer of stock or may transfer it merely as collateral to secure the payment of a debt.

Question 8

Preferred stock is ordinarily nonvoting stock.

Question 9

Restrictions on the transfer of stock are valid if they are not unreasonable.

Question 10

Each shareholder owns a proportionate share of the property of the corporation.

Question 11

Shares can exist for only as long as the shareholder is alive.

Question 12

Under the RMBCA, a preincorporation subscription agreement is irrevocable for six (6) months unless the subscription agreement provides a longer or shorter period, or all of the subscribers agree to revocation.

Question 13

Shares of stock that have been issued to stockholders in a corporation are said to be outstanding.

Question 14

A provision giving a corporation the right to purchase a shareholder's shares on the death of the shareholder is invalid.

Question 15

Shares of stock may not be acquired through subscription but may be acquired through a transfer of existing shares from a shareholder or from the corporation.

Question 16

All shares must have a par value of at least one dollar per share.

Question 17

To correctly transfer shares of stock, a delivery from the owner of the shares directly to the transferee is required.

Question 18

No writing is required for a contract by which a broker agrees with a customer to buy or sell securities for the customer.

Question 19

Preferred stock cannot have priority over common stock with respect to dividends.

Question 20

The two most common instruments used to provide the capital structure of a corporation are stocks and bonds.

Question 21

Shareholders have the right to bring a derivative action on behalf of a corporation that refuses to exercise its right to bring such action.

Question 22

The net assets of a corporation may be referred to as:

A)debentures.
B)stock.
C)capital.
D)bonds.

Question 23

Shareholders exercise direct control over their corporation.

Question 24

Ownership of shares of stock may be transferred by any of the following methods except:

A)delivery of the stock endorsed by its owner in blank.
B)delivery of a notice of intent to transfer.
C)delivery of the stock endorsed by its owner to a specified person.
D)delivery of the certificate and a separate power of attorney executed by the owner.

Question 25

Because corporate stock has the quality of negotiability:

A)it is considered commercial paper.
B)it is governed by Article 3 of the UCC.
C)it is in agreement with common law principles.
D)many defenses cannot be raised against a person acquiring the certificate in good faith and for value.

Question 26

A contract or agreement to purchase a specific number and kind of shares of stock when it is issued is called a stock:

A)guaranty.
B)warranty.
C)request.
D)subscription.

Question 27

Delivering stock to a creditor as security for a debt owed by the shareholder:

A)transfers ownership rights.
B)gives rise to a perfected security interest.
C)makes the creditor a perfected party after filing.
D)makes the debtor a perfected party after filing.

Question 28

If a share certificate is lost, destroyed, or stolen, the ownership of the shareholder is destroyed.

Question 29

Until a transfer is recorded on its books, a corporation is entitled to treat the person whose name is on its books as the owner of its stock.

Question 30

A shareholder can give a proxy to vote shares only to another shareholder.

Question 31

If a shareholder borrows money and delivers stock as collateral security, the creditor has a perfected security interest in the stock without any filing by the creditor.

Question 32

A shareholder does not:

A)qualify as a member of the corporation.
B)own any specific property of the corporation.
C)have a fractional interest in the total property of the corporation.
D)all of the above.

Question 33

Which of the following is an effective means of notice to purchasers of shares that there are restrictions on the sale?

A)notation in the bylaws
B)resolution of the shareholders at a shareholders' meeting
C)notation on the stock certificate
D)resolution of the directors at a directors' meeting

Question 34

Which of the following statements is not true of common stock?

A)It is ordinary stock that has no preferences.
B)It entitles the holder to share in corporate profits in the form of dividends.
C)It entitles the holder to participate in the distribution of capital upon dissolution.
D)It is ordinarily nonvoting.

Question 35

As an owner of the corporation, a shareholder has the right to inspect the books of the corporation for any purpose, regardless of whether the inspection is related to the shareholder's interest as a shareholder.

Question 36

Voting trusts are usually illegal.

Question 37

A bona fide purchaser of stock is shielded from the claim that the transfer was made in violation of a transfer restriction that was unknown to the purchaser and that was not noted conspicuously on the certificate.

Question 38

Which of the following need not be included in writing to satisfy the Statute of Frauds concerning a contract for the sale of securities?

A)the price of the shares
B)the terms of payment
C)the number of shares
D)the signature of the party disputing the agreement

Question 39

Ordinarily, each shareholder is entitled to one vote for each voting share.

Question 40

When an individual owns a share of stock in a corporation, that individual:

A)has an ownership interest in the corporation.
B)is a creditor of the corporation.
C)generally has no voting rights.
D)is in possession of a debt security.

Question 41

Straight voting:

A)increases the voting power of minority shareholders.
B)is the normal method for shareholder voting on corporate matters.
C)restricts each shareholder to one vote, regardless of the number of shares owned.
D)all of the above.

Question 42

Donna called her stockbroker Henry and told him to purchase 300 shares of Royex Corporation shares at $15 per share, the current market price. Henry agreed to do so, but became distracted and failed to do so. The price of the shares rose $3 in price that day. In the evening, Donna in a telephone conversation agreed to sell 300 shares of Royex to Sid. Assuming Henry and Donna dispute the validity of the contracts, which of the contracts are enforceable in court?

Question 43

A shareholder has:

A)an absolute right to dividends.
B)a right to dividends when declared.
C)a right to insist that dividends be declared.
D)to share equally all dividends with fellow shareholders.

Question 44

The Toy Corporation issued 200 shares of stock with no par value. The articles of incorporation provided that the board of directors had the right to fix the value of the stock. Through subscription agreements between the directors and two subscribers, 101 shares were issued to Maria Perez for $5,000, and 99 shares were issued to Ken Pilar for $15,000. Toy is now insolvent and is unable to pay the $6,000 it owes to Pine, its major supplier. Pine has brought suit against Perez, claiming that the subscription agreement was invalid. How will the case be decided?

Question 45

When the corporation has the right to sue its directors, officers, or third persons for damages caused by them to the corporation or for breach of contract, one (1) or more shareholders may bring such action if the corporation refuses to do so. This is known as a __________ action.

A)primary
B)derivative
C)deferential
D)preemptive

Question 46

A shareholder has a right to inspect the books of the shareholder's corporation if:

A)the request is made in good faith.
B)the request is made with proper motives.
C)the inspection takes place at a reasonable time and place.
D)all of the above.

Question 47

Which of the following is not a factor that may lead to "piercing the corporate veil" and imposing liability on corporate owners (shareholders)?

A)grossly inadequate capitalization of the corporation
B)formation of the corporation to avoid personal liability for business obligations
C)formation of the corporation to perpetuate a fraud or conceal illegality
D)shareholder diversion of corporate funds or assets

Question 48

Dividends are payable in:

A)money.
B)products manufactured by the corporation.
C)shares of other corporations held by the corporation.
D)all of the above.

Question 49

Cumulative voting:

A)decreases the voting power of minority shareholders.
B)is a form of voting trust.
C)generally is required or allowed in the election of corporate directors.
D)is a right given to participating preferred shareholders.

Question 50

Pursuant to the __________ theory, when a corporation is so dominated and controlled by shareholders, officers, and/or directors that the separate personalities of the individuals and the corporation no longer exist and there is a wrongful use of that control, the courts will disregard the corporate entity so as not to sanction a fraud or injustice.

A)alter ego
B)altered states
C)puppeteer
D)invisible hand

Question 51

An individual who has been authorized to vote the share of another stockholder is said to be voting by:

A)trust.
B)proxy.
C)estoppel.
D)agency.

Question 52

Manis owns 100 shares of stock of the Linquist Corporation. She sells her stock to Sosnik and delivers to him: (1) her stock certificate for 100 shares and (2) a written, signed assignment of the 100 shares to Sosnik. The assignment form printed on the back of the share certificate is left blank and is not signed. Sosnik refuses to take the certificate and the assignment on the ground that Manis must fill in and sign the assignment form on the stock certificate to make the transfer of stock effective. Is he correct?

Question 53

The RMBCA provides that shareholders:

A)have no preemptive rights unless the articles of incorporation so provide.
B)have preemptive rights regardless of what the articles of incorporation provide.
C)cannot have preemptive rights.
D)have preemptive rights with respect to the transfer of a block of stock as consideration.