Deck 28: Corporate Governance and the Sarbanes-Oxley Act

Question 1

Which of the following is true of stock dividends?

A) They refer to the redistribution of corporate assets as shares.
B) They are used to increase an existing shareholder's proportionate ownership interest.
C) They refer to additional stocks distributed as dividends.
D) They are distributed according to existing ownership interest of the agents of the corporation.

Answer 1

C

Question 2

Which of the following is an example of a corporate officer?

A) an ombudsman
B) a treasurer
C) an outside director
D) a non-executive director

Answer 2

B

Question 3

The director of a corporation has ________.

A) the authority to act individually on the corporation's behalf without the consent of other directors
B) exclusive rights to vote by proxy in shareholder meetings
C) two votes that he or she can use in board meetings
D) the right to inspect information that affects operations of the corporation

Answer 3

D

Question 4

A system in which a shareholder accumulates all of his or her votes and votes them all for one candidate or splits them among several candidates is known as ________ voting.

A) statutory
B) straight
C) cumulative
D) noncumulative

Question 5

________ voting is a system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open.

A) Cumulative
B) Straight
C) Accumulation
D) Weighted

Question 6

A ________ is an agreement that requires a selling shareholder to offer his or her shares for sale to the other parties to the agreement before selling them to anyone else.

A) proxy
B) buy-and-sell agreement
C) voting trust
D) right of right refusal

Question 7

A shareholder's authorization of another person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is called a ________.

A) liability
B) dividend
C) proxy
D) quorum

Question 8

A member of the board who is also an officer of the corporation is known as a(n)________.

A) ombudsman
B) non-executive director
C) inside director
D) shareholder

Question 9

An agreement that requires selling shareholders to sell their shares to the other shareholders or to the corporation at the price specified in the agreement is referred to as ________.

A) right of refusal
B) voting trust
C) buy-and-sell agreement
D) proxy

Question 10

Which of the following is true of shareholder voting agreements?

A) They are limited in duration.
B) They are specifically enforceable.
C) They are neither revocable nor irrevocable.
D) They are required to be filed with the corporation.

Question 11

Which of the following is true of shareholders?

A) They own the corporation whose shares they also own.
B) They can bind the corporation that they own to contracts.
C) They are agents of the corporations they own.
D) They are directors of the corporations they own.

Question 12

Which of the following is true about dividends?

A) Cash or property dividends, once declared, can be revoked.
B) Officers of the corporation may opt to retain profits for corporate purposes instead of as dividends.
C) Shareholders can sue to recover undeclared and paid dividends.
D) Dividends are paid at the discretion of the board of directors.

Question 13

The written document submitted by a person who has been authorized by a shareholder to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is known as ________.

A) proxy
B) derivative
C) scienter
D) quorum

Question 14

The Inkilwas Corporation has 30,000 shares outstanding.A shareholders' meeting is duly called to amend the articles of incorporation.According to the RMBCA,what is the minimum outstanding shares that must be represented in this case to have a quorum?

A) 12,001
B) 18,501
C) 15,001
D) 17,501

Question 15

The ________ advocates that a greater than majority of shares constitutes a quorum of the vote of the shareholders.

A) supramajority requirement
B) simple majority rule
C) business judgment rule
D) alter ego doctrine

Question 16

________ are a panel of decision makers who are elected by the shareholders.

A) Registered agents
B) Corporate officers
C) Resident agents
D) Board of directors

Question 17

Which of the following is true of a corporate officer?

A) A corporate officer cannot be removed by the board of directors.
B) A corporate officer has the express authority to bind a corporation to contracts.
C) A corporate officer is not liable on an unauthorized contract if the corporation does not ratify it.
D) A corporate officer is responsible for making policy decisions and employing the major officers for the corporation.

Question 18

An arrangement in which the shareholders transfer their stock certificates to a trustee is known as ________ trust.

A) purpose
B) voting
C) honorary
D) charitable

Question 19

Which of the following is true of the composition of a board of directors?

A) The number of initial directors is fixed by the shareholders.
B) The number of directors remains fixed throughout the lifetime of a company.
C) A board of directors must consist of more than one individual.
D) A board of directors consists of inside and outside directors.

Question 20

A shareholder's ________ liability means that they are liable for the debts and obligations of the corporation only to the extent of their capital contribution.

A) limited
B) product
C) manufacturer's
D) vicarious

Question 21

Which of the following is true of an audit committee?

A) It is composed of inside directors.
B) It must have at least one financial expert.
C) It constitutes shareholders who own the corporation.
D) It is formed by executive directors of the company.

Question 22

A(n)________ is a member of the board who is not an officer of the corporation.

A) outside director
B) shareholder
C) stakeholder
D) inside director

Question 23

Which of the following is true of a proxy?

A) The written authorization to vote by proxy is itself called proxy.
B) A proxy must always be oral.
C) Directors are allowed to vote by proxy.
D) Unless otherwise stated, a proxy is valid for one month.

Question 24

Unless terms are staggered,the term of a director's office expires at the next ________ shareholders' meeting following his or her election.

A) annual
B) special
C) emergency
D) extraordinary

Question 25

A corporation has 10 outstanding shares.Andy owns 6 shares (60%),while Bill owns 4 (40%)shares of the company.Together they are to elect one director for the company from 10 candidates.Andy casts 6 votes for one candidate,while Bill casts 4 votes for another candidate.The candidate voted for by Andy wins by simple majority of votes and is elected director.This is an example of ________.

A) straight voting
B) cumulative voting
C) supramajority voting requirement
D) supermajority voting requirement

Question 26

Which of the following is true of straight voting?

A) It gives a minority shareholder the advantage in electing the entire board of directors.
B) It allows shareholders to cast as many votes as the number of shares they own.
C) It requires a greater than majority of the shares to constitute a quorum of the vote of the shareholders.
D) It permits voters to procure votes equal to the product of the shares they own and the number of directors to be elected.

Question 27

Which of the following is true of preemptive rights?

A) They allow existing shareholders to sell their shares back to the corporation.
B) They may be exercised by shareholders only for a given period of time.
C) They help in diluting a shareholder's interest in the company.
D) They enable shareholders to procure new shares issued by the corporation.

Question 28

Anexwell Analytics is looking to strengthen its talent pool by recruiting subject matter experts who can help guide the company's growth.The company hires Kenneth,a data analytics professor from a private college,to serve on its board as a technology adviser.Which of the following roles has Kenneth adopted in the above scenario?

A) outside director
B) ombudsman
C) corporate officer
D) corporate agent

Question 29

________ are employees of a corporation who are appointed by the board of a corporation to manage the day-to-day operations of the corporation.

A) Ombudsmen
B) Corporate officers
C) Outside directors
D) Non-executive directors

Question 30

A derivative action is a(n)________.

A) lawsuit that a shareholder brings against an offending party on behalf of a corporation
B) inquiry that the board of directors launches in order to analyze the ethical standards of the corporation
C) review that officers of the corporation conduct to test the skill sets of their subordinates
D) audit conducted by registered agents to examine the financial health of the corporation

Question 31

Which of the following is a similarity between inside directors and outside directors of a corporation?

A) Both are required to be residents of the state of incorporation of the corporation.
B) Both are officers of the corporation.
C) Both are a part of the board of the corporation.
D) Both are non-executive members who are not officers of the corporation.

Question 32

Which of the following is true of a derivative action?

A) A settlement of a derivative action requires court approval.
B) A shareholder's successful derivative action entails the damages to be awarded solely to the shareholder.
C) A derivative action is brought by the corporation against an offending party.
D) A board member who causes harm to the corporation is legally protected from a derivation action.

Question 33

The RMBCA establishes a majority of ________ as a quorum to hold a meeting of the shareholders.

A) outstanding shares
B) treasury stock
C) treasury shares
D) reacquired stock

Question 34

The ________ is responsible for formulating policy decisions that affect the management and operation of the corporation.

A) ombudsman
B) board of directors
C) shareholder
D) corporate officer

Question 35

When shareholders of a company wish to meet for the sole purpose of electing a board of directors,they will tend to hold a(n)________ shareholders' meeting.

A) annual
B) special
C) emergency
D) extraordinary

Question 36

Denizence Informatics has expanded its board to incorporate more members.Emma,the chief technology officer at Denizence,has been appointed to serve on the board.Which of the following roles has Emma adopted in the above scenario?

A) ombudsman
B) outside director
C) inside director
D) shareholder

Question 37

Ella owns 30 shares of a company.She attends an annual shareholders' meeting held for the purpose of electing three directors to the board.The voting system used allows Ella to multiply the number of shares she owns (30)by the number of directors to be elected (3),which allows her to cast 90 votes for one candidate or a combination of multiple candidates.The elected candidate won by a simple majority of votes.The voting system used is ________.

A) straight voting
B) cumulative voting
C) supramajority voting requirement
D) supermajority voting requirement

Question 38

Anne,a shareholder of an insurance company,is unable to attend the shareholders' meeting held by the board of directors of the company.In order to make her vote count,she appoints Dexter,a friend,to attend the meeting and cast a vote in her name.This is an example of a ________.

A) liability
B) proxy
C) dividend
D) scienter

Question 39

Which of the following is true of the notice of a shareholders' meeting?

A) Lack of such a notice voids any action taken during the meeting.
B) The notice may be given to a shareholder less than 10 days before the date of the meeting.
C) Matters that are absent in the notice can be considered in the meeting.
D) The purpose of the meeting is excluded from the notice in case of special meetings.

Question 40

Which of the following is true of a voting trust agreement drafted by shareholders of a corporation?

A) It must be a tacit, unwritten contract.
B) It may exceed 10 years.
C) It is closed to inspection by the shareholders of the corporation.
D) It must be filed with the corporation.

Question 41

The ________ Act of 2002 is a federal statute that establishes rules to improve corporate governance,prevent fraud,and add transparency to corporate operations.

A) Sarbanes-Oxley
B) False Claims
C) Glass-Steagall
D) Lanham

Question 42

Which of the following is a similarity between the duty of loyalty and the duty of care?

A) Both entail directors and officers fulfilling their fiduciary duties.
B) Both encourage directors and officers to make secret profits.
C) Both require directors and officers to pursue healthy self-dealing practices.
D) Both need directors and officers to usurp corporate opportunity where available.

Question 43

Which of the following would be seen as a breach of the duty of loyalty by a corporate officer?

A) straight voting
B) cumulative voting
C) piercing the corporate veil
D) self-dealing

Question 44

Stephen,the chief of operations of an insurance company,accepts bribes in exchange of expediting paperwork regarding applications for certain insurance policies.In terms of the duty of loyalty,Stephen's behavior is an example of ________.

A) competing with the corporation
B) making a secret profit
C) piercing the corporate veil
D) violating a voting trust

Question 45

Which of the following is true of the business judgment rule?

A) The rule encourages the undertaking of high-risk, socially desirable endeavors.
B) The rule holds directors liable to the corporation for honest mistakes of judgment.
C) The rule makes officers liable to the corporation for honest mistakes of judgment.
D) The rule operates based on the benefit of hindsight as an important factor.

Question 46

According to the provisions set forth by the Sarbanes-Oxley Act,the ________ may issue an order prohibiting any person who has committed securities fraud from acting as an officer or a director of a public company.

A) United States International Trade Commission
B) Federal Reserve System
C) Federal Communications Commission
D) Securities and Exchange Commission

Question 47

Which of the following is true of the Sarbanes-Oxley Act?

A) It permits a person to knowingly alter documents to influence a federal investigation.
B) It allows public companies to make personal loans to their directors.
C) It requires the submission of CEO and CFO certification with the company's annual report.
D) It entitles an officer to continue in his or her post even after being guilty for securities fraud.

Question 48

Dean,a director of a business consultancy firm,holds a meeting of the board of directors of the company.During the voting process over a critical issue,Dean unscrupulously casts two votes instead of the one that he is entitled to.Dean's conduct is an example of a ________.

A) breach in the duty of obedience
B) denial of the right of refusal
C) piercing of the corporate veil
D) violation of the business judgment rule

Question 49

Which of the following policies helps a corporate officer from being sued for honest mistakes made on behalf of a corporation?

A) duty of loyalty
B) duty of obedience
C) business judgment rule
D) self-dealing

Question 50

A director or corporate officer who does not attend board meetings regularly would be in violation of ________.

A) self-dealing
B) duty of care
C) the business judgment rule
D) the alter ego doctrine

Question 51

Bluestone Oil invests its money in a drilling project that was predicted by industry experts to yield very profitable results.Unfortunately,the predictions failed and Bluestone Oil incurred massive losses due to the failure.Which of the following protects Bluestone Oil from litigation by its shareholders?

A) business judgment rule
B) thin capitalization
C) strict liability doctrine
D) piercing the corporate veil

Question 52

Failure of a corporate director or officer to exercise the duty of care while conducting the corporation's business is called ________.

A) defamation
B) negligence
C) extortion
D) embezzlement

Question 53

David,the CEO of Nivera Furnishings,stealthily utilizes confidential patents and processes of the company to start a similar furnishing company that grows to be Nivera's biggest rival in the market.In terms of the duty of loyalty,David's act is an example of ________.

A) violating a voting trust
B) piercing the corporate veil
C) competing with the corporation
D) breaking the business judgment rule

Question 54

Alan owns 90 percent of the shares of Whitesoft,Inc.He wrongfully uses his dominance to force the company to spend money on ventures that benefit him alone.When sued by other shareholders,Alan defends by arguing that Whitesoft as a whole is liable,but he was not personally liable as he was a mere shareholder of the company.Which of the following doctrines is the court,presiding over this case,likely to adopt in order to enforce justice?

A) attractive nuisance doctrine
B) crashworthiness doctrine
C) transferred intent doctrine
D) alter ego doctrine

Question 55

A duty that directors and officers have not to act adversely to the interests of the corporation and to subordinate their personal interests to those of the corporation and its shareholders is known as ________.

A) duty of care
B) duty of loyalty
C) duty of obedience
D) self-dealing

Question 56

________ doctrine is a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes,a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations.

A) Alter ego
B) Transferred intent
C) Crashworthiness
D) Attractive nuisance

Question 57

The Sarbanes-Oxley Act officially applies only to a ________ corporation.

A) close
B) nonprofit
C) public
D) noncommercial

Question 58

Helen works as the vice president of Gotspeed Corporation,a company that develops and sells sports shoes.Nestor,a home-based shoemaker,meets Helen privately in order to present a model for a more cost-efficient and durable shoe.Instead of taking the idea to Gotspeed's board of directors,Helen pays Nestor's asking price and purchases the Anklator model for herself.Helen leaves Gotspeed Corporation and forms her own company that manufactures and markets the Anklator shoe models.What breach of the duty of loyalty has Helen committed here?

A) piercing the corporate veil
B) usurping a corporate opportunity
C) breaching the business judgment rule
D) denial of right to first refusal

Question 59

A director or corporate officer who usurps a corporate opportunity would be in violation of ________.

A) the voting trust arrangement
B) the duty of loyalty
C) piercing of the corporate veil
D) self-dealing

Question 60

The ________ Act prohibits public companies from making personal loans to their directors or executive officers.

A) Foreign Corrupt Practices
B) Deregulation and Monetary Control
C) Sarbanes-Oxley
D) Commodity Futures Modernization

Question 61

Self-dealing is a practice that allows directors and officers to fulfill their duty of loyalty.

Question 62

The corporate officers are elected by the board of directors at such time and by such manner as prescribed in the corporation's bylaws.

Question 63

The board of directors is responsible for formulating policy decisions that affect the management,supervision,control,and operation of the corporation.

Question 64

The board of directors of a corporation is elected by the shareholders of the corporation.

Question 65

Shareholders can bind the corporation to contracts.

Question 66

Once a quorum is present,the withdrawal of shares does not affect the quorum of the meeting.

Question 67

The duty of care is a fiduciary duty.

Question 68

Officers are liable on an unauthorized contract if the corporation does not ratify it.

Question 69

A shareholder's only management duty is to vote on matters like the election of directors and the approval of fundamental changes in the corporation.

Question 70

A system in which a shareholder can accumulate all of his or her votes and vote them all for one candidate or split them among several candidates is known as the straight voting system.

Question 71

A lawsuit a shareholder brings against an offending party on behalf of a corporation when the corporation fails to bring the lawsuit is known as a derivative action.

Question 72

The duty of care applies only to shareholders of an organization,and not directors.

Question 73

The business judgment rule states that directors and officers are personally liable to the corporation or its shareholders for honest mistakes of judgment.

Question 74

Stock dividends are a distribution of corporate assets.

Question 75

Duty of loyalty requires directors to subordinate their personal interests to those of the corporation and its shareholders.

Question 76

Each director in a board of directors has only one vote.

Question 77

The written document authorizing a proxy is also called a proxy.

Question 78

Stock dividends do not increase a shareholder's proportionate ownership interest.

Question 79

A system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open is the cumulative voting system.

Question 80

The right of first refusal gives existing shareholders the option of subscribing to new shares being issued in proportion to their current ownership interests.