Deck 44: Shareholder Rights in Corporations

Question 1

In close corporations, restrictions on the transfer of stock to "outsiders" are void.
A provision giving a corporation the right to purchase a shareholder's shares on the death of the shareholder is invalid.

Answer 1

False

Question 2

A preincorporation subscription to stock is generally treated as an agreement to buy the stock when the corporation is formed.

Answer 2

True

Question 3

Outstanding shares of stock have been issued to stockholders.

Answer 3

True

Question 4

Restrictions on the transfer of stock are always valid.

Question 5

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

Question 6

A provision giving a corporation the right to purchase a shareholder's shares on the death of the shareholder is invalid unless approved by a majority of shareholders.

Question 7

Capital stock refers to the value received by the corporation for its outstanding stock.

Question 8

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

Question 9

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

Question 10

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

Question 11

No writing is required for a contract by which a broker agrees with a customer to buy or sell securities for the customer because that is an agency - not a sales -agreement.

Question 12

Preferred stock is ordinarily nonvoting stock.

Question 13

If Bruce signs an agreement to purchase Joe's shares in ABCo. the stock sales contract is called an indenture.

Question 14

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

Question 15

Corporate securities evidenced by a certificate are negotiable.

Question 16

Shares exist for only as long as the corporation exists.

Question 17

A contract for the sale of shares must be evidenced in writing the revised Article 8 does away with the Statute of Frauds.

Question 18

Common stock cannot has priority over preferred stock with respect to dividends.

Question 19

Under the RMBCA, a preincorporation subscription agreement is irrevocable for three (3) months unless the subscription agreement provides a longer or shorter period, or all of the subscribers agree to revocation.

Question 20

Another term for par value is book value.

Question 21

A wasting asset corporation is designed to exhaust the assets of the corporation.

Question 22

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 23

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 24

Shareholders exercise direct control over their corporation.

Question 25

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

Question 26

A corporate bond can be all of the following except: ______.

A) an unsecured debenture bond.
B) a negotiable security
C) having a life of five years.
D) preferred stock

Question 27

Shares may be issued with: ______.

A) no rights to dividends or profits.
B) no par value.
C) have a fractional interest in the total property of the corporation no book value.
D) specific interest in corporate property.

Question 28

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 29

If Bob owns 100 shares of stock for which he paid $1,000 to the corporation, the _______ would be $10 per share.

A) par value
B) book value
C) market value
D) capital value

Question 30

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 these.

Question 31

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 32

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

Question 33

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) subscription.
C) request.
D) warranty.

Question 34

As an owner of the corporation, a shareholder always 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 35

Each shareholder has an absolute right to annual dividends.

Question 36

Voting trusts are usually illegal.

Question 37

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 38

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 39

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

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

Question 40

A physical transfer of the certificate without a necessary indorsement is not necessary for future gifts and sales.

Question 41

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 42

A shareholder has a right to inspect the books of the shareholder's corporation in any of the following situations, except: ______.

A) when she owns 10% of the stock for one year and wants to determine its value.
B) when she owns 5% of the stock for six months and wants to determine the quality of corporate management.
C) when he owns 10% of the stock for three months and wants to determine the financial condition of the corporation.
D) when he owns 1 share of stock for 30 days and wants to determine the stock value.

Question 43

Pursuant to the __________ theory, when a corporation is so dominated and controlled by a single shareholder that the separate personalities of the shareholder and the corporation no longer exist, courts will ignore the corporate entity and hold the shareholder personally liable.

A) alter ego
B) altered states
C) limited liability
D) business judgment

Question 44

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 45

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 46

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) only have preemptive rights with respect to the transfer of a block of stock as consideration.

Question 47

Dividends are payable in any of the following ways except:

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

Question 48

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 49

Statutes authorizing the formation of professional corporations usually require that share ownership be limited to: ________.

A) residents of the same state
B) attorneys with malpractice insurance
C) duly licensed professionals
D) professionals without a malpractice history

Question 50

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 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

When a shareholder brings a _______ action, he is suing on behalf of the corporation itself to enforce a right.

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

Question 53

Cumulative voting: ______.

A) decreases the voting power of minority shareholders.
B) is the normal method for shareholder voting on corporate matters.
C) generally is required or allowed in the election of corporate directors.
D) is a right given to participating preferred shareholders.