Question 1

In closely held corporations,stock transfer restrictions are used to achieve the corporate equivalent of delectus personae.

Accepted Answer

This is true. Stock transfer restrictions limit the ability of shareholders to transfer their shares to other parties without first offering the shares to existing shareholders or obtaining the approval of the corporation's board of directors. This allows closely held corporations to maintain control over who owns a stake in the company and to ensure that the shareholders are aligned with the corporation's goals and values.

Question 2

In most states,a corporation may,with shareholder approval,limit the liability of directors for some breaches of the duties which they owe to the corporation.

Accepted Answer

Many states allow corporations to include provisions in their articles of incorporation that limit the liability of directors for certain breaches of duty, under certain circumstances, and with shareholder approval. This is known as exculpation.

Question 3

Zachary has been on the board of his brother's company for three years but has never attended a board meeting.He may be liable for failing to act.

Accepted Answer

As a member of the board of directors, Zachary has a duty to attend board meetings and participate in decision-making. Failing to do so could result in liability for breach of that duty.

Question 4

The officers and the directors are fiduciaries of the corporation,but the business judgment rule will not preclude liability on officers and directors for honest mistakes of judgment.

Accepted Answer

The business judgment rule does protect officers and directors from liability for honest mistakes of judgment, assuming they acted in good faith, with the care that an ordinarily prudent person in a like position would have exercised under similar circumstances, and in a manner they reasonably believed to be in the best interests of the corporation.

Question 5

Under the statutes in most states,if Heather and Gabriel form a corporation with Heather as president and Gabriel as treasurer,Heather cannot also be corporate secretary.

Accepted Answer

In most states, corporate officers cannot hold multiple positions within the same corporation.

Question 6

An extension of a voting trust for an additional term binds only those shareholders that consent to the extension.

Accepted Answer

This is in accordance with the principles of corporate law, which state that agreements and contracts only bind those who voluntarily give their consent. Therefore, if a shareholder does not agree to extend the voting trust, they are not bound by it.

Question 7

Directors may vote by proxy when they are not able to be present for a meeting.

Accepted Answer

Directors must personally attend meetings to vote, as proxy voting is not allowed for board directors in corporate governance.

Question 8

Gumer Corporation requires a quorum of five directors.Under the RMBCA if Marlene,a director,shows up at the meeting for a vote on her favorite topic,dividends,and withdraws thereafter leaving only four directors,they may not act on any further business.

Accepted Answer

According to the RMBCA, a quorum is necessary for a board to act on any business, and in this case, the quorum is five directors. If Marlene shows up and then leaves, leaving only four directors, the board cannot act on any further business, including the vote on dividends.

Question 9

The Sarbanes-Oxley Act was passed in 2002 to seek to prevent corporate scandals by increasing corporate responsibility,creating new financial disclosure requirements,creating new criminal offenses,and creating an Accounting Oversight Board.

Accepted Answer

The Sarbanes-Oxley Act was passed in 2002 with the purpose of preventing corporate scandals by increasing corporate responsibility, creating new financial disclosure requirements, creating new criminal offenses, and creating an Accounting Oversight Board.

Question 10

George is a shareholder in the Muncy Kempf Corporation.He learns of insider trading by one of the directors and wants to sue the corporation on behalf of the corporation and its shareholders.A shareholder cannot sue the corporation to enforce a right belonging to the corporation.

Accepted Answer

A shareholder can sue the corporation to enforce a right belonging to the corporation, but they must first make a demand on the board of directors to take action. If the board refuses or does not respond, the shareholder may bring a derivative lawsuit on behalf of the corporation and its shareholders.

Question 11

Directors,but not officers,may compete with the corporation in their own private business dealings.

Accepted Answer

Both directors and officers owe a duty of loyalty to the corporation, which generally prohibits them from competing with the corporation in their private business dealings.

Question 12

Management can be offered shares of the corporation at favorable prices if other shareholders are excluded from that offer.

Accepted Answer

This practice is generally considered unfair and could be illegal as it violates shareholder rights and principles of equal treatment. Shareholders typically must be given the opportunity to participate in offerings that could affect their ownership percentage or the value of their shares.

Question 13

The board of directors appoints the officers of the corporation,who are agents of the corporation.

Accepted Answer

The board of directors has the authority to appoint officers of the corporation as agents to manage the business of the corporation. This is a common practice in corporations.

Question 14

Currently,Julia Lee is vice president of Lessing Corporation.Under the Revised Act,Julia will not be permitted to also hold the office of treasurer.

Accepted Answer

The Revised Act typically refers to updates in corporate governance laws, but these laws vary by jurisdiction and often do not specifically prohibit one individual from holding multiple officer positions in a corporation. It's common for small corporations to have individuals holding multiple roles.

Question 15

Federal statutes prohibit officers and directors from purchasing or selling shares of their corporation's stock without adequately disclosing all material facts in their possession that may affect the stock's actual or potential value.

Accepted Answer

Federal statutes, such as the Securities Exchange Act of 1934, require officers and directors to disclose material non-public information to the public before buying or selling their corporation's stock. This is to prevent insider trading and ensure fair and equal access to information for all investors. Failure to do so may result in legal and financial penalties.

Question 16

Officers who trade on inside information must return their profits to the corporation.

Accepted Answer

This is a provision under the Securities Exchange Act of 1934 where officers, directors, and employees who trade on insider information must return their profits or gains to the corporation. This is to prevent insider trading and ensure fair and equal access to information for all investors.

Question 17

Under the Statutory Close Corporation Supplement to the MBCA,a close corporation may operate without a board of directors.

Accepted Answer

Under the Statutory Close Corporation Supplement to the MBCA, a close corporation may operate without a board of directors.

Question 18

Determining the names of other shareholders in order to communicate with them about corporate affairs is a "proper purpose" for a shareholder to inspect the books and records of a corporation.

Accepted Answer

According to most state laws and corporate bylaws, determining the names of other shareholders for communication regarding corporate affairs is considered a proper purpose for a shareholder to inspect the books and records of a corporation.

Question 19

The Revised Act requires that demand be made upon the board of directors to enforce the corporate right at issue in all cases as a prerequisite to bringing a derivative suit.

Accepted Answer

The statement accurately reflects the requirements of the Revised Act for bringing a derivative suit.

Question 20

Under the Sarbanes-Oxley Act,the audit committee of every publicly held corporation has direct responsibility for the appointment,compensation,and oversight of the work of the public accounting firm employed by the corporation to perform audit services.

Accepted Answer

The Sarbanes-Oxley Act mandates that the audit committee of publicly held corporations has direct responsibility for appointing, compensating, and overseeing the work of the auditor.

Quiz 35: Management Structure