Deck 39: Corporationsdirectors, Officers, Shareholders

Question 1

Unlike a director, an officer is not expected to be informed on corporate matters.

Answer 1

False

Question 2

A director is a fiduciary of a corporation.

Answer 2

True

Question 3

All directors must be present before a board can transact business.

Answer 3

False

Question 4

Directors are required to use a reasonable amount of supervision over the corporate officers.

Question 5

Incorporators can appoint a corporation's first board of directors.

Question 6

Few legal qualifications exist for directors.

Question 7

Corporate directors and officers are insurers of business success.

Question 8

Directors are rarely compensated and cannot set their own compensation.

Question 9

A director is elected by a majority vote of the other members of the board.

Question 10

Shareholders do not have legal title to corporate property but an equitable interest in the firm.

Question 11

A director may not sit on the board of more than one corporation at a time.

Question 12

Corporate officers govern every corporation.

Question 13

No state permits a corporate board to have fewer than three directors.

Question 14

Directors are responsible for all major corporate policy decisions.

Question 15

A person must be a shareholder of a corporation to serve as a director.

Question 16

A board of directors generally conducts business without holding formal meetings.

Question 17

A board of directors can delegate some of its functions to corporate officers.

Question 18

Shareholders own a corporation and the right to manage it.

Question 19

Shareholders may not vote to remove members of the board of directors.

Question 20

A director can be removed from a corporate board for cause.

Question 21

If a stock certificate is lost or destroyed, the shareholder's ownership in?terest in the corporation is lost with it.

Question 22

Under some circumstances, a corporation can refuse a shareholder's re?quest to inspect corporate records.

Question 23

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Question 24

A share issued for more than its fair market value is watered stock.

Question 25

A dividend may be paid from undistributed net corporate profits.

Question 26

Persons whose names appear on a corporation's shareholder records as owners are ordinarily entitled to vote.

Question 27

The article of corporation cannot exclude or limit shareholders' voting rights.

Question 28

The ownership right to stock exists independently of the stock certificate.

Question 29

Unlike the directors of other corporations, the directors of a close corporation can take any action without breaching their fiduciary duties.

Question 30

Damages awarded in a shareholder's derivative suit go into the corporation's treasury.

Question 31

Shareholders' meetings must occur at least twice a year.

Question 32

Preemptive rights entitle shareholders to bring a derivative suit against the corpora?tion.

Question 33

When a third party harms a corporation, the directors can bring a suit in the corporation's name against that party.

Question 34

Only certain funds are legally available for paying dividends.

Question 35

A stock warrant is a distribution of corporate profits or income.

Question 36

A voting trust is an illegal restraint of shareholders' power.

Question 37

To vote their shares, shareholders must attend a shareholders' meeting and vote in person.

Question 38

A shareholder that owns sufficient shares to exercise de facto control over a corpora?tion owes a fiduciary duty to the minority shareholders.

Question 39

Shareholders have no right to inspect corporate books and records.

Question 40

For action to be taken during a shareholders' meeting, a forum must be present.

Question 41

Rhea is a director of Spex Corporation. As a Spex director, Rhea is

A) a trustee because Rhea occupies a position of trust over Spex.
B) a trustee who holds title to Spex's property for the benefit of others.
C) not a trustee because Rhea does not hold title to Spex's property.
D) not a trustee because Rhea is not in a position of trust over Spex.

Question 42

Cara and Dru are officers of EZ Trucking Corporation. As cor?porate officers, the rights of Cara and Dru are

A) determined by their employment contracts.
B) specified in state corporation statutes.
C) the same as those of the directors.
D) the same as those of the shareholders.

Question 43

Sol is chairman of the board of Tasty Foods Corporation. Uma, a con?sumer, falls sick after eating a Tasty product. Uma sues Tasty, and Sol individu?ally. Tasty may pay Sal's legal fees

A) only if Sol wins the suit.
B) only if Tasty wins the suit.
C) only if Uma wins the suit.
D) regardless of the outcome.

Question 44

Cody and Dex form Eminent Corporation. Eminent has a board of directors, a chief executive officer, a chief operating officer, and fifty-two sharehold?ers. Eminent is governed by its

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 45

Rita is a director of Superb Performance Corporation. Rita's rights, as a di?rector, do not include a right to

A) indemnification.
B) inspection of books.
C) participation.
D) preemption.

Question 46

VeriVisual Company makes 3-D film and video equipment. VeriVisual is like most cor?porations in that its officers are hired by the firm's

A) board of directors.
B) incorporators.
C) other officers.
D) shareholders.

Question 47

Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coast's employees include its

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 48

Frida, Gayla, and Hart occupy the positions of director on the board of Integral Components Corporation. With respect to these directors, a quorum is the minimum number

A) who must be at odds in a dispute to call for its resolution.
B) who must be present to validly transact business.
C) whom the shareholders may remove from office at any one time.
D) whose positions must be vacant to warrant an election.

Question 49

Frawsty Corporation distributes beverages in the greater Northwest. Frawsty's board of directors can delegate some of its functions to

A) Frawsty's incorporators.
B) Frawsty's officers.
C) Frawsty's shareholders.
D) no one.

Question 50

Lon and Merry act as the incorporators for NuGame Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of NuGame's

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 51

Nina is a director of Omega, Inc. Under the standard of due care owed by di?rectors of a corporation, Nina's decisions must be

A) ambiguous and questionable.
B) arguable and defensible.
C) informed and reasonable.
D) perfect and unassailable.

Question 52

Rafi, a director of Super Service Station Corporation, does not attend a board meet?ing for three years. During that time, Twyla, Super's president, makes improper loans that cost the company $100,000. Ron is most likely

A) liable for negligence or mismanagement.
B) liable for violation of the business judgment rule.
C) not liable because missing meetings is an honest mistake.
D) not liable because missing meetings is only poor judgment.

Question 53

Sophie and Tiny incorporate their beverage-container business as U-Twist Products, Inc. The first board of directors may be appointed by the firm's

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 54

Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for pol?icy decisions necessary to the management of corporate affairs rests with Delite's

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 55

Rosa and Sean are directors of Tech, Inc. The right of Rosa and Sam to be notified of special meetings of the board is the right to

A) compensation.
B) indemnification.
C) participation.
D) preemption.

Question 56

Eve is a director of Fab Stuff Corporation. Without informing Fab, Eve goes into business with GR8 Things, Inc., in competition with Fab. Eve is li?able for breach of

A) no duty or rule
B) the business judgment rule.
C) the duty of care.
D) the duty of loyalty.

Question 57

Flite-Craft Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Flite-Craft's board could transact its business is

A) all of the directors authorized in the articles or bylaws.
B) a majority of the number authorized in the articles or bylaws.
C) any odd number.
D) one.

Question 58

Ida, Jerzy, and Kit are the directors of Liberty Convenience Stores, Inc. Liberty has nine officers and forty-six shareholders. Dividends are ordered by the firm's

A) board of directors.
B) incorporators.
C) officers.
D) shareholders.

Question 59

Egan is a director of First Realty Corporation. As a director, Egan can act as an agent to bind First Realty

A) in all circumstances.
B) in no circumstances.
C) to any contract in which A does not have a conflict of interest.
D) to any contract that represents a corporate opportunity for B.

Question 60

Clifton is a director of Dri-Cleaning Corporation. With respect to Dri-Cleaning, Clifton's most important right is the right of

A) compensation.
B) indemnification.
C) participation.
D) service.

Question 61

Fiona owns one share of stock in GR8 Boards Corporation, as evidenced by a stock certificate. Fiona loses the certificate. Her ownership of the stock is

A) forfeited immediately.
B) forfeited within ten days of a third party's claim to ownership.
C) forfeited within thirty days if she cannot find the certificate.
D) not affected.

Question 62

Kelly transfers shares of stock that she owns in Little Company to Max. A shareholders' meeting takes place before Max's ownership is entered in Little's stock book. A vote at the meeting can be cast by

A) Kelly and Max.
B) Kelly only.
C) Max only.
D) neither Kelly nor Max.

Question 63

Chip is a director of Diners Restaurants, Inc. Chip would breach his duty of loyalty if he

A) becomes a director of Fluffy Mattresses, Inc., a noncompeting firm.
B) buys stock in Gulpin' Foods Corporation, a competing firm.
C) votes for Diners to buy a controlling interest in Eateries, Inc., which causes Diners to suffer a loss.
D) votes against Diners' purchase of a controlling interest in Eateries, Inc., which causes Diners to suffer a loss.

Question 64

Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not

A) authorize major corporate policy decisions.
B) decide to issue stock and bonds, and declare dividends.
C) select and remove corporate officers.
D) support businesses that directly compete with Gallery.

Question 65

Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can

A) authorize major corporate policy decisions.
B) decide to issue stock and bonds, and declare dividends.
C) select and remove corporate officers.
D) vote to amend the articles of incorporation or bylaws.

Question 66

Cole is a shareholder of Delta, Inc. Cole will be deemed to have a fiduci?ary duty to Delta and its minority share?holders if he has

A) a restriction on the transferability of his shares.
B) a right of first refusal.
C) a sufficient number of shares to exercise de facto control.
D) watered stock.

Question 67

Natalie is a shareholder of Off-Road Vehicle Company. As a share?holder, Natalie does not have

A) a right to compensation.
B) dividend rights.
C) inspection rights.
D) preemptive rights.

Question 68

In all states, Sports Club Company and other corporations can pay dividends from

A) gross profits.
B) net profits.
C) retained earnings.
D) surplus.

Question 69

Fact Pattern 39-1A
Ray is a shareholder of Small Biz Company . When the direc?tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Refer to Fact Pattern 39-1A. Ray's suit is a shareholder's

A) business-judgment rule suit.
B) derivative suit.
C) duty-of-care suit.
D) duty-of-loyalty suit.

Question 70

Bea is a shareholder of Candy Corporation. The right to inspect corporate books and records is

A) held by Bea only if she is a director.
B) held by Bea, without restrictions.
C) held by Bea, with some restrictions.
D) not held by Bea.

Question 71

Dolly and Elbert are shareholders of Friendly Credit, Inc. As shareholders, they must approve

A) amending the articles of incorporation.
B) declaring a corporate dividend.
C) hiring a chief executive officer.
D) all of the choices.

Question 72

Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be

A) invalid and unenforceable.
B) oppressive and irresponsible.
C) suspect and voidable.
D) valid and enforceable.

Question 73

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what Luke believes is the firm's best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule Luke is

A) immune from liability.
B) liable only to the extent that Luke gains as a result.
C) liable only to the extent that Motor Parts suffers as a result.
D) wholly liable.

Question 74

Orin is a shareholder of Pinkwater Corporation. In some states, Orin might in?cur personal liability for Pinkwater obligations if he

A) accepts a dividend knowing that it was paid from retained earn?ings.
B) buys stock for less than its fair-market value.
C) fails to fulfill his fiduciary duty to the majority shareholders.
D) sells his shares.

Question 75

Eddie is a shareholder of Fast Food, Inc. As a shareholder, he must approve

A) amending the articles of incorporation.
B) declaring a corporate dividend.
C) hiring a chief executive officer.
D) issuing additional shares.

Question 76

Niche Stores, Inc., must hold a shareholders' meeting

A) once a month.
B) once a year.
C) once every two years.
D) only when it is called by the board of directors.

Question 77

Rusty and Sylvia are shareholders of Triad Hotel Corporation. Triad's directors fail to declare a dividend. Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend

A) if Triad has sufficient earnings available to pay a dividend.
B) if Triad has cash reserves, even if earmarked for a different purpose.
C) if withholding a dividend is an abuse of the directors' discretion.
D) under no circumstances.

Question 78

Thor Power Products Corporation permits the election of its directors by cumulative voting. This

A) allows minority shareholders to be represented on the board.
B) assures directors that they will be selected by their peers.
C) guarantees Thor's executive officers of the final choice.
D) insures against persons who may "cloud" the corporate direction.

Question 79

Fact Pattern 39-1A
Ray is a shareholder of Small Biz Company . When the direc?tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Refer to Fact Pattern 39-1A. Any damages recovered by Ray's suit will go to

A) Ray.
B) SBC.
C) SBC's directors.
D) the state in which SBC is incorporated.

Question 80

Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

A) buy a prorated share of a new issue of stock before other buyers.
B) choose to have Matchless act exclusively in a certain area.
C) "preempt" managerial decisions that impact shareholders.
D) sell a prorated share of a new issue of stock before other sellers.