Deck 35: Shareholder Rights

Question 1

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.

Answer 1

True

Question 2

Alberta is not employed by E-prise, Inc. but she is a member of E-prise's board of directors. Alberta is an outside director.

Answer 2

True

Question 3

Mariposa is a shareholder of Tuscan Corporation. If she is acting in good faith, under the Model Act she has the right to

A) inspect the company's accounting records.
B) vote on a merger proposal.
C) examine the company's minute book.
D) All of these are correct.

Answer 3

D

Question 4

A proxy is a vote that is mailed in, like an absentee ballot.

Question 5

Shareholders must begin the litigation process by asking the board of directors to bring suit, an action called

A) proxy access.
B) proper purpose.
C) making demand.
D) benchmarking.

Question 6

A derivative lawsuit is filed by a shareholder of the corporation if his or her own rights have been harmed.

Question 7

A corporation's obligation to voluntarily provide shareholders with financial information

A) depends on whether the company is publicly or privately held.
B) depends on the requirements of the Model Business Corporation Act.
C) is extensive and is carefully regulated by the SEC if the company is privately held.
D) depends on the ruling of the board of directors.

Question 8

Under the Model Act, who has the right to call a special meeting of the shareholders to vote on an emergency issue that cannot wait until the next annual meeting?

A) The board of directors and shareholders who own at least 10 percent of a company's stock
B) Any group of shareholders that is at least 25 in number and holds 25 percent of a company's stock
C) The board of directors and the CEO
D) Only the board of directors

Question 9

Matt, a shareholder, can run for director by simply placing his name on the company's proxy statement.

Question 10

Under both state and federal law, a shareholder can generally revoke a proxy at any time.

Question 11

The NYSE and NASDAQ both require that the members of the nominating committee be independent directors who are less likely to simply go along with whatever the CEO wants.

Question 12

In a derivative lawsuit, the named plaintiff

A) is the corporation on whose behalf the lawsuit is filed.
B) is the particular class of shareholders primarily injured by the wrong.
C) consists of all the corporation's shareholders.
D) is the board of directors for the corporation.

Question 13

If a public company decides not to solicit proxies for a shareholder meeting, it need not give shareholders the information that would have been required in a proxy statement.

Question 14

Overall, directors get paid very little for the amount of work they perform.

Question 15

Minority shareholders have no right to overturn an ordinary business transaction between the corporation and a controlling shareholder.

Question 16

A corporation is required to have at least one class of stock with voting rights.

Question 17

In a derivative lawsuit, any proceeds awarded by the court must be paid to the corporation, not the shareholders themselves.

Question 18

In reality, the officers of the large corporations have a great deal of influence on who will be nominated and elected as directors.

Question 19

Controlling shareholders have no fiduciary responsibility to minority shareholders.

Question 20

Alfrieda purchased an ownership interest in a corporation. This gives her the right to use the equipment owned by the corporation, as long as her usage does not interfere with the normal operation of the business.

Question 21

The percentage of voters who must be present for a meeting to count is referred to as

A) a plurality.
B) simple majority.
C) a quorum.
D) a proxy.

Question 22

All of the following are shareholder rights EXCEPT

A) the right to manage the firm.
B) the right to vote.
C) the right to information.
D) the right to dissent.

Question 23

What is an inside director?

A) a shareholder charged with the illegal act of insider trading
B) a member of the board of directors who is also a board member of a competing firm
C) a shareholder who is a board member of a competing firm
D) a member of the board of directors who is also an employee of the corporation

Question 24

Charles owns 1,000 shares of stock in Temperan, Inc. Charles wants to obtain corporate records including the corporation's minute book and accounting records. Under the Model Act, Charles is entitled to this information if he requests it in good faith and

A) he has a proper purpose.
B) he owns at least 1 percent of the company or $2,000 of stock.
C) he is an employee of Temperan.
D) he is a controlling shareholder.

Question 25

Luella just purchased five shares of common stock in TriColor, Inc. for $250. Luella has the right to

A) manage the day-to-day business of the corporation.
B) set executive compensation.
C) require that a proposal be placed in the company's proxy statement to be voted on at the shareholder meeting.
D) vote to elect directors.

Question 26

When can shareholders sue a corporation directly?

A) only if their own rights have been violated
B) only if the corporation has been wronged
C) only if they hold at least 10 percent of company stock
D) at any time they wish

Question 27

Meredith, a shareholder in Quarto, Inc., notified Quarto's board of directors that the corporation had been wronged and asked the board to bring a lawsuit in the corporation's name. In response to Meredith's demand, the board

A) can file suit on behalf of the corporation.
B) can reject Meredith's demand or simply fail to respond.
C) can appoint a Special Litigation Committee.
D) can do any of these options.

Question 28

A corporation must obtain shareholder approval before the company

A) sells off a major portion of its business to another company.
B) opens additional offices.
C) hires or fires a significant number of employees.
D) expands into foreign markets.

Question 29

A "fundamental change" in a corporation would be illustrated by

A) E-prise, Inc. merging with Vitta Corporation.
B) E-prise electing new members to the board.
C) Vitta Corporation adding a new product to its product line.
D) Vitta Corporation setting the date for its annual meeting.

Question 30

Maureen, a shareholder of Metra, Inc., is unhappy with how the corporation is being managed. Maureen wants the company to sell off its unproductive divisions. 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 proposal in its proxy statement.
B) If Maureen has a proper purpose, she can require the company to include her proposal in its proxy statement.
C) If Maureen can show cause, she can require the company to automatically sell off its unproductive divisions.
D) Maureen cannot require that the company put her proposal to sell off unproductive divisions on its proxy statement.

Question 31

A public company instituted a clawback policy. What does this mean?

A) The company can require the CEO and CFO to reimburse the company for any bonus or profits they received from selling company stock within a year of the release of flawed financials.
B) At least once every three years, companies must take a nonbinding shareholder vote on the compensation of the five highest-paid executives.
C) The company is prohibited from expelling shareholders unless the firm pays a fair price for the minority stock and the expulsion has a legitimate business purpose.
D) The company has decided that the compensation level of its executives is not in the company's best interests, so it reduces all executive pay levels by a certain percentage.

Question 32

Veritas, Inc. is planning its annual shareholder meeting on June 15. The company

A) need not send notices of the meeting to shareholders since it is the regularly scheduled, annual meeting, which Veritas always holds on the third Thursday of June.
B) must send notices to everyone who owns stock as of January 1.
C) must send notices to everyone who owns stock on the "record date," which can be no more than 70 days before the meeting.
D) is not required to have an annual shareholders meeting if the company is listed only on the NYSE.

Question 33

Ev-R-Green Co., a private corporation, decides to sell substantially all of the company's assets. Under the Model Act and many state statutes,

A) the sole remedy for dissenting shareholders is to sell their stock on the stock exchange.
B) the board must first get unanimous shareholder approval for this fundamental change.
C) Ev-R-Green must buy back, at fair value, the stock of any shareholders who object to the decision.
D) the company may buy back, at fair value, the stock of any shareholders who object to the decision or the shareholders who object may receive the right of first refusal to purchase corporate assets.

Question 34

The percentage increase in stock price appreciation and dividends is referred to as

A) net returns on invested capital.
B) price/earnings ratio.
C) total shareholder return.
D) financial leverage ratio.

Question 35

Kian is the chief financial officer of Yonkka, Inc. He is also a member of Yonkka's board of directors. Kian is

A) an inside director.
B) an outside director.
C) holding an illegal position.
D) a public director.

Question 36

At least once every three years, companies must take a nonbinding shareholder vote on the compensation of the five highest-paid executives. This is referred to as

A) clawback pay action.
B) voting out the directors.
C) activist investing.
D) say-on-pay.

Question 37

Benjamin sits on the board of directors of Litman Corporation. He has the support of only 30 percent of Litman's shareholders. Benjamin is best characterized as a(n)

A) independent director.
B) zombie director.
C) inside director.
D) outside director.

Question 38

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 39

Lucy owns 10 shares of stock in Quamba, Inc. Lucy wishes to place a proposal in a company's proxy statement to be voted on at the shareholders' meeting. Pursuant to the SEC rules, before Lucy is allowed to place her proposal on the proxy statement, she must

A) have owned continuously for one year at least 1 percent of the company and $2,000 or more of the stock.
B) have owned continuously for one year at least 1 percent of the company or $2,000 or more of the stock.
C) have the permission of the board of directors.
D) have been a stockholder for at least two years.

Question 40

Quick Supply House breached a contract with MegaCorp. The breach resulted in the loss of a great deal of money to MegaCorp. The board of directors for MegaCorp vote not to sue the supply house since it believes the legal costs would be more than it would probably recover. If a group of shareholders wish to sue the supply house, this would

A) be a type of direct lawsuit.
B) have to be a derivative lawsuit.
C) be a settlement lawsuit.
D) be an SEC lawsuit.

Question 41

Loraine is a shareholder of Taley Corp. She would like to inspect and copy the company's minute book, accounting records, and shareholder lists. Under what circumstances is Loraine allowed to inspect or copy corporate records?

Question 42

Vernon and David are the controlling shareholders in E-treme, Inc. Discuss the obligations that Vernon and David owe to the minority shareholders.

Question 43

List and describe the various rules that apply to fundamental corporate changes requiring shareholder approval.

Question 44

Kris, a shareholder of E-Max, Inc., claimed that the business was being mismanaged. Kris notified the board of directors that the corporation has been wronged and asked the board to bring suit in the name of the corporation directly. In response to Kris's demand, what actions may the board take? What could Kris's response be to each alternative?

Question 45

Explain the ways in which the federal government has tried to change the landscape of corporate governance and executive compensation.