Deck 30: Corporations

Question 1

The Williams Act regulates tender offers only if the target company's stock is publicly traded.

Answer 1

True

Question 2

The shareholders decide how much directors will be paid since the Model Act prohibits directors from setting their own compensation.

Answer 2

False

Question 3

Owners of preferred stock typically have a preference in liquidation.

Answer 3

True

Question 4

The Brooks v.Becker case addressed the issue of liability of promoters priot to the formation of the corporation.

Question 5

A derivative lawsuit is filed by the shareholders on behalf of the corporation to remedy a wrong to the corporation.

Question 6

Terminating a corporation is a three-step process: dissolution,winding up,and termination.

Question 7

Laurie is incorporating her business.The business's home state is Wisconsin.Business will be conducted in California,Michigan,Pennsylvania,and Virginia.Laurie:

A)must incorporate the business in Wisconsin, the home state.
B)must incorporate the business in Wisconsin, California, Michigan, Pennsylvania, and Virginia.
C)must incorporate in Delaware.
D)can incorporate the business in any state.

Question 8

The promoter is personally liable on any contracts he signs before the corporation is formed.

Question 9

Casey decided to incorporate her business under the name yStar Inc.Before yStar was incorporated,Casey signed a contract in the name of yStar,Inc.to have some office space remodeled.Which statement is correct?

A)yStar is liable on the contract because the contract was signed in its name.
B)yStar becomes liable on the contract as soon as it is incorporated.
C)yStar is liable on the contract if the contractor knows that the corporation does not yet exist.
D)yStar will be liable on the contract only if the corporation adopts the contract.

Question 10

Shareholders have the authority to manage the corporate business.

Question 11

A business corporation can only be incorporated under state law.

Question 12

Better Built Storage Buildings,Inc.wants to incorporate in Delaware but has no office there.It must:

A)open an office so it has an official address in Delaware where the Secretary of State can contact the business.
B)hire a registered agent to serve as its official presence in Delaware.
C)incorporate only where it actually does business so anyone who wants to sue the corporation can serve the complaint in-state.
D)give the Secretary of State of Delaware the address and phone number of its corporate office and a list of its top executives so the Secretary of State of Delaware can make sufficient contact out of state.

Question 13

Shyff decided to incorporate his business under the name of "Zamm." In addition to "Zamm," the Model Act requires that Shyff include one of the following words: "corporation," "incorporated," "limited," or "company" or an abbreviation thereof.

Question 14

The "business judgment rule" has been abandoned in most states.

Question 15

Larry has owned $5,000 of stock in E-prise,Inc.for the past 18 months.Under SEC rules,Larry can require that one proposal be placed in the company's proxy statement to be voted on at the shareholder meeting.

Question 16

Foster,Asher,and Jefferies are the incorporators of Moreland,Inc.They will elect the first set of directors.

Question 17

Sara decided to incorporate her business under the name Loro,Inc.Before Loro was incorporated,Sara signed a contract in the name of Loro,Inc.to lease a storefront.Sara did not tell the other party that Loro was not yet formed.Sara is personally liable on the lease.

Question 18

A corporate charter is filed with:

A)a state's Secretary of State office.
B)a state's Treasury and/or Revenue Division.
C)the United States Department of Commerce.
D)All the above.

Question 19

Shareholders have the right to manage the day-to-day business of the company.

Question 20

A corporation is incorporated:

A)under state law.
B)under federal law.
C)under both state law and federal law.
D)under either state or federal law depending on whether its stock is publicly traded or not.

Question 21

In the Anderson v.Bellino case,the Supreme Court of Nevada held that:

A)Bellino usurped a corporate opportunity by depriving the corporation of its only business.
B)Bellino's decision amounted to self dealing.
C)Anderson violated the business judgment rule.
D)Bellino's decision had no rational business purpose.

Question 22

To be successful in a court challenge regarding an executive's compensation,shareholders must prove that:

A)the board was grossly uninformed before it set the compensation amount.
B)the executive's performance caused the business to become unprofitable.
C)the amount of the executive's compensation was too high in relation to the compensation of the typical employee within the company.
D)the compensation level is not in the company's best interests.

Question 23

Maureen,a shareholder of Metra,Inc.,was unhappy with how the corporation was being managed.Maureen wanted to be a member of Metra's board of directors.Which statement is correct?

A)If Maureen owns at least 1 percent or $2,000 of Metra's stock, she can require the company to include her name as a candidate for the board of directors in its proxy statement.
B)If Maureen has a proper purpose, she can require the company to include her name as a candidate for the board of directors in its proxy statement.
C)If Maureen can show cause, she can require the company to include her name as a candidate for the board of directors in its proxy statement.
D)Maureen cannot require that the company put her name in the proxy statement; she must prepare and distribute her own proxy.

Question 24

Alex is on the board of directors of Computers Plus.Computers Plus is looking for a warehouse to purchase.Alex owns a warehouse.In order for Alex to sell his warehouse to Computers Plus:

A)the transaction must be fair to both Alex and Computers Plus.
B)the disinterested members of the board of directors may approve the transaction.
C)he must resign his position on the board of directors of Computers Plus before any negotiations for the warehouse begin.
D)a court must review the opportunity to determine its favorability.

Question 25

Directors of a corporation are:

A)designated in the charter.
B)elected by the shareholders.
C)appointed by the officers.
D)elected by the officers.

Question 26

Shareholder proposals on the company proxy statement:

A)must be stated in the form of a request or recommendation according to SEC rules.
B)may only be implemented by the company if they receive support from at least a simple majority of the shareholders.
C)are, in about half of the cases, withdrawn before a vote because the company decides to implement the proposal.
D)may address only corporate-governance issues, such as cumulative voting or executive compensation, but may not address the shareholder's political agenda, such as saving the environment.

Question 27

The business judgment rule doesn't apply if:

A)the manager's decision amounted to self dealing.
B)the shareholders approved the manager's decision.
C)the charter expressly excludes it..
D)the manager's decision was about the creation of treasury stock.

Question 28

Fashions,Inc.has 52 shareholders.There is no shareholder agreement concerning the board of directors.The company is subject to the Model Act.How many directors is Fashions,Inc.required to have?

A)None.
B)One.
C)Two.
D)Five.

Question 29

The Lippman v.Shaffer case was about:

A)piercing the corporate veil to hold shareholders personnaly liable.
B)the application of the business judgment rule.
C)the unlawful transfer of a close corporation stock.
D)all of the above.

Question 30

What is meant by the term "piercing the corporate veil"?

A)Corporate directors and/or officers may be held personally liable to a person damaged by an act of the corporation.
B)Corporate shareholders may be held personally liable to a person damaged by an act of the corporation.
C)Both of the above.
D)None of the above.

Question 31

Jerry works for a SpringBrook nursing home.He signs a contract on behalf of the nursing home with Sunny Floral to have fresh flowers delivered every week.No one at SpringBrook knows that,with three other family members,Jerry owns Sunny Floral.This is an issue of:

A)violation by Jerry of his duty of care.
B)violation of the business judgment rule.
C)self dealing.
D)fraud.

Question 32

Jenny is an officer of a corporation.She made a difficult business decision.When challenged about her decision,the court ruled she had acted in good faith and that the business judgment rule applied.As such:

A)Jenny will not be held personally liable for a decision that results in money losses to the company.
B)Jenny's decision will be reviewed by a court.
C)Jenny is immune from a lawsuit.
D)Jenny must resign from the board.

Question 33

The business judgment rule:

A)permits directors to do their job.
B)keeps judges out of corporate management.
C)encourages directors to serve.
D)accomplishes all of the above goals.

Question 34

In the late 1960s a shareholder of the company that owned the Chicago Cubs baseball team sued the company because the directors refused to install lights in Wrigley Field.The court decided that the directors:

A)had a rational purpose for not installing lights and were not liable for doing anything improper.
B)were not protected by the business judgment rule.
C)had not acted with any rational purpose and were liable to its shareholders for damages caused by their actions.
D)None of the above.

Question 35

When a manager compete against the corporation without its consent,he is in violation of:

A)the business judgment rule.
B)the self dealing doctrine.
C)his duty of care.
D)the corporate opportunity doctrine.

Question 36

Which of the following is not true in applying the Williams Act?

A)An individual or group acquiring more than 5 percent of a company's publicly traded stock must file a public disclosure document with the SEC.
B)A bidder must keep a tender offer open for at least 30 business days initially.
C)If any substantial change is made in the terms of the tender offer, it must be kept open for at least ten business days following the change.
D)Any shareholder may withdraw acceptance of the tender offer at any time while the offer is still open.

Question 37

Treasury stock is:

A)stock that has been authorized but not yet sold.
B)stock that has been sold.
C)stock that has not been authorized yet.
D)stock that the company has sold but later bought back.

Question 38

Who establishes executive compensation?

A)The board of directors.
B)The shareholders.
C)The officers themselves.
D)An independent CPA firm.

Question 39

For the business judgment rule to apply:

A)there must be a conflict of interest.
B)the director must exercise extraordinary care.
C)the director must act in the best interests of the corporation.
D)All of the above.

Question 40

The proceeds,if any,of a derivative lawsuit go to:

A)the shareholders of the corporation.
B)the shareholders who actually filed the lawsuit.
C)the board of directors.
D)the corporation.

Question 41

What is the business judgment rule and what is its purpose?

Question 42

Identify four circumstances that might persuade a court to pierce the corporate veil.

Question 43

Discuss how a corporation is terminated.

Question 44

Discuss the self dealing concept.Under what circumstances is a self-dealing transaction valid?

Question 45

Discuss how the Sarbanes-Oxley Act affects Haletronne Co.,a publicly traded corporation.