Question 1

Which of the following would be likely to result in liability to a director of a textile company? The director:
A) sells stock in the textile company before a merger is announced.
B) buys stock in the textile company using the computer in the office of the company.
C) owns stock in an automobile company.
D) agrees to hire as president a man he has not personally investigated.

Accepted Answer

Selling stock before a merger is announced could be considered insider trading, which is illegal and could result in liability for the director. Buying stock using the company's computer is not necessarily illegal, owning stock in another company is not a problem, and agreeing to hire someone without personally investigating them is not illegal, although it may be unwise.

Question 2

What are some of the matters involving fundamental changes in the corporation?
A) Amendments to articles of incorporation
B) Sale or lease of all or substantially all of the corporate assets not in the regular course of business
C) Mergers,consolidations,compulsory share exchanges
D) All of these

Accepted Answer

All of these options involve fundamental changes in the corporation and require approval by the board of directors and/or shareholders. Amendments to articles of incorporation involve changing the fundamental structure or purpose of the corporation. Sale or lease of all or substantially all of the corporate assets not in the regular course of business can drastically alter the nature of the corporation. Mergers, consolidations, and compulsory share exchanges involve combining with or acquiring other companies, which can lead to significant changes in the corporate structure and operations.

Question 3

The board of directors is delegated the power to manage the business of the corporation,which includes:
A) determining the capital structure and financial policy of the corporation.
B) declaring the amount and type of dividends.
C) formulating major management policy.
D) All of these.

Accepted Answer

The board of directors is responsible for managing the business of the corporation, which includes determining the capital structure and financial policy, declaring dividends, and formulating major management policies. Therefore, all of the given options are correct.

Question 4

Which of the following is not an established right of a shareholder?
A) The right to vote
B) The right to inspect the books of the corporation
C) The right to participate directly in the management of the corporation
D) The right to bring lawsuits to enforce their rights

Accepted Answer

Shareholders have the right to vote, inspect the books of the corporation, and bring lawsuits to enforce their rights. However, they do not have the right to participate directly in the management of the corporation. That responsibility lies with the board of directors and executive officers.

Question 5

Shares in a publicly held corporation typically are:
A) owned mostly by management of the corporation.
B) widely dispersed and about two-thirds are held by institutional investors.
C) owned by a few investors holding many shares each.
D) owned mostly by individual investors,and these investors usually exercise their right to vote by attending shareholder meetings.

Accepted Answer

Shares in a publicly held corporation are usually widely dispersed, and about two-thirds of the shares are held by institutional investors such as mutual funds, pension funds, and hedge funds. Management of the corporation typically owns only a small percentage of the shares. While some investors hold many shares each, the majority of investors are individuals who typically do not attend shareholder meetings or exercise their right to vote.

Question 6

Ryan is a shareholder of Sigma Corp.He has evidence to suggest that its president/CEO has allowed the corporation to engage in acts that are ultra vires.Based upon this evidence,Ryan contacts an attorney and sues the corporation on behalf of the corporation.The lawsuit Ryan has filed is known as a(n):
A) direct suit.
B) derivative suit.
C) class action suit.
D) unauthorized suit.

Accepted Answer

Since Ryan is suing on behalf of the corporation due to acts committed by the CEO, the lawsuit is a derivative suit.

Question 7

Which of the following is correct regarding the removal of Mr.X from the board of XYZ?
A) The common law does not permit removal of a director for any reason.
B) The RMBCA permits the removal of a director without cause.
C) The articles of incorporation cannot provide for the removal of directors.
D) Under common law and statutory law,a director can never be removed without cause.

Accepted Answer

The RMBCA (Revised Model Business Corporation Act) permits the removal of a director without cause. The other options are incorrect. The common law does allow for the removal of a director for cause, but not without it. Articles of incorporation may provide for the removal of directors, and there is no law that prevents removal of directors with no cause.

Question 8

What is the role of shareholders in managing the corporation?
A) Election of directors
B) Approval of corporate transactions that are void or avoidable unless ratified
C) Right to bring enforcement suits
D) All of these

Accepted Answer

Shareholders have the right to elect directors who manage the corporation. They also have the power to approve or ratify corporate transactions, and they can bring enforcement suits in certain circumstances. Therefore, all of these options are correct.

Question 9

Which of the following is not true about a corporation's ratification of an officer's act?
A) It applies to an authorized act of an officer.
B) It relates back to the original transaction.
C) It may be either express or implied from the corporation's acceptance of contractual benefits.
D) The corporation must have full knowledge of the facts in order to ratify the act.

Accepted Answer

Ratification refers to the approval of an act that was initially unauthorized. Therefore, it does not apply to an act that was already authorized by the corporation. Choices B, C, and D describe correct aspects of ratification.

Question 10

Assume that 12,000 shares are represented at a shareholder meeting and a quorum exists.How many votes are normally necessary to carry a motion?
A) 4,001
B) 8,001
C) 6,001
D) 10,000

Accepted Answer

The quorum is the minimum number of shares required to be present or represented at a shareholder meeting for the meeting to be valid. The exact quorum requirement may vary depending on the company's bylaws or applicable laws, but let's assume that in this case, the quorum is set at 50% of the outstanding shares, or 6,000 shares.

Once the quorum is met, a motion can be passed if it receives a majority of the votes cast. In this case, as there are 12,000 shares represented, a majority would be 6,001 votes (half of the shares plus one). Therefore, the correct answer is C) 6,001.

Question 11

The minimum number of board members necessary to be present at a meeting in order to transact business is known as:
A) a plurality.
B) the entire board of directors.
C) a quorum.
D) a minority.

Accepted Answer

A quorum is the minimum number of board members required to be present at a meeting in order for official business to be conducted. It is usually defined in the organization's bylaws and is typically a majority or a specific number of members. Without a quorum, decisions made by the board are not considered valid.

Question 12

Greyson is the president of the Speedway Bicycle Company.He also serves as a director of the Flexible Tire Company.It occurs to Greyson that both companies could benefit from a contract in which Flexible agrees to supply Speedway with tires for its bicycles.If Greyson wishes to negotiate a contract between Speedway and Flexible,which of the following is correct?
A) The contract will be void as a conflict of interest.
B) In most states,the contract might be permitted if it is fair and reasonable to both corporations and if Greyson fully discloses all information relating to the transaction.
C) The contract is a clear conflict of interest and will be avoidable by either company even with disclosure.
D) Greyson must bring in an outside broker to mediate the agreement.

Accepted Answer

As long as Greyson fully discloses all information about the potential contract and ensures that it is fair and reasonable to both corporations, the contract may be permitted in most states. While there is a potential conflict of interest, it can be managed through transparency and fairness in the negotiation process.

Question 13

If shareholders agree to vote in a specified manner for the election or removal of directors,this is known as:
A) a proxy.
B) cumulative voting.
C) a voting trust.
D) a shareholder voting agreement.

Accepted Answer

This is known as a shareholder voting agreement. A proxy is when a shareholder authorizes someone else to vote on their behalf. Cumulative voting allows shareholders to concentrate all their votes on a few candidates, rather than spreading them out among multiple candidates. A voting trust is when shareholders transfer their voting rights to a trustee, who then votes on their behalf. None of these options match the scenario described in the question.

Question 14

Zeron Corporation stock may be summarized as follows: 100,000 authorized
90,000 issued
75,000 outstanding
15,000 treasury stock
How many shares or proxies will have to be present for a quorum (assuming no special provision and that the Revised Act is not in effect)?
A) 45,001
B) 37,501
C) 52,501
D) 50,001

Accepted Answer

Under typical corporate governance rules, a quorum for shareholder meetings is based on the number of shares outstanding, not the total authorized or issued shares. If no special provision is in effect, the standard requirement is usually a majority of the outstanding shares. With 75,000 shares outstanding, a majority would be half plus one, or 37,501 shares. Treasury stock, being shares that the corporation holds of its own stock, does not vote and is not counted in the quorum calculation.

Question 15

With respect to the voting rights of shareholders,a shareholder is entitled to vote:
A) only at annual shareholder meetings.
B) one vote for every two shares of stock owned.
C) only in person.
D) at annual and special shareholder meetings,ordinarily with one vote for each share owned.

Accepted Answer

Shareholders are entitled to vote at both annual and special shareholder meetings, with one vote for each share owned. This allows shareholders to have a say in important decisions and elect board members. Shareholders can also vote by proxy if they are unable to attend the meeting in person. Option A is incorrect because shareholders can also vote at special meetings. Option B is incorrect because the number of votes per share varies depending on the company's bylaws. Option C is incorrect because shareholders can vote in person or by proxy.

Question 16

OmegaByte Corp.has 1,000 shares of stock outstanding that are permitted to vote for directors.If OmegaByte Corp.permits cumulative voting,a minority shareholder would need to vote how many shares to elect one of three directors?
A) 251
B) 501
C) 751
D) 334

Accepted Answer

In cumulative voting, a shareholder can concentrate all their votes on one candidate. To elect one director out of three, a shareholder needs more than 1/3 of the total votes. With 1,000 shares and each share getting one vote, the total votes are 1,000. Dividing 1,000 by 3 gives 333.33, so to guarantee electing a director, a shareholder needs one more vote than this, which is 251 votes.

Question 17

To whom does a large,publicly held corporation and its management have obligations?
A) The corporation's shareholders
B) Its employees,customers,and suppliers
C) Communities in which the corporation is located
D) All of these.

Accepted Answer

A large, publicly held corporation and its management have obligations to all of these groups, including their shareholders, employees, customers, suppliers, and the communities in which they operate. Shareholders expect a return on their investment, employees expect fair wages and working conditions, customers expect quality products and services, suppliers expect timely payment and fair treatment, and communities expect the corporation to be a responsible member and contribute to their well-being.

Question 18

The right of a shareholder to examine the books and records of the corporation is a valuable right.However,it may be denied if the shareholder:
A) seeks information to determine the financial condition of the corporation.
B) desires to know the amount of executive salaries.
C) seeks information to embarrass or cause loss to the corporation.
D) desires the names and addresses of other shareholders.

Accepted Answer

The right of a shareholder to examine the books and records of the corporation may be denied if the shareholder seeks information to embarrass or cause loss to the corporation. This is because the purpose of the shareholder's right to examine the books and records is to allow them to make informed decisions regarding their investment, not to harm the corporation. The other choices are not valid reasons for denying a shareholder's right to examine the books and records.

Question 19

One of the fiduciary duties of directors is the duty not to compete with the corporation.They may pursue their own business interest,but they may not:
A) use corporate resources.
B) hire away personnel for their own business.
C) use corporate facilities.
D) All of these.

Accepted Answer

Directors have a duty not to compete with the corporation and may pursue their own business interests, but they may not use corporate resources, hire away personnel for their own business, or use corporate facilities. All of these actions would be a violation of their duty not to compete with the corporation.

Question 20

The nominating committee of the board of directors actually determines the board's membership because:
A) they are the only ones who can vote on this matter.
B) virtually all shareholders who vote for directors do so through the use of a proxy,and the majority of shareholders who return their proxies vote as management advises.
C) very few institutional investors exercise their right to vote their shares,so the choice of the nominating committee usually prevails.
D) most individual investors exercise their right to vote their shares,and they tend to rely on the recommendation of the nominating committee.

Accepted Answer

Shareholders who vote for directors do so through a proxy, and the majority of shareholders who return their proxies vote as management recommends. Therefore, the nominating committee, which is a part of the management, has a significant influence on the board's membership. While institutional investors exercise their right to vote, most individual investors tend to rely on the recommendation of the nominating committee. Therefore, the nominating committee determines the board's membership effectively.

Quiz 35: Management Structure

Which of the following would be likely to result in liability to a director of a textile company? The director:

What are some of the matters involving fundamental changes in the corporation?

The board of directors is delegated the power to manage the business of the corporation,which includes:

Which of the following is not an established right of a shareholder?

Shares in a publicly held corporation typically are:

Which of the following is correct regarding the removal of Mr.X from the board of XYZ?

What is the role of shareholders in managing the corporation?

Which of the following is not true about a corporation's ratification of an officer's act?

Assume that 12,000 shares are represented at a shareholder meeting and a quorum exists.How many votes are normally necessary to carry a motion?

The minimum number of board members necessary to be present at a meeting in order to transact business is known as:

If shareholders agree to vote in a specified manner for the election or removal of directors,this is known as:

Zeron Corporation stock may be summarized as follows: 100,000 authorized 90,000 issued 75,000 outstanding 15,000 treasury stock How many shares or proxies will have to be present for a quorum (assuming no special provision and that the Revised Act is not in effect) ?

With respect to the voting rights of shareholders,a shareholder is entitled to vote:

OmegaByte Corp.has 1,000 shares of stock outstanding that are permitted to vote for directors.If OmegaByte Corp.permits cumulative voting,a minority shareholder would need to vote how many shares to elect one of three directors?

To whom does a large,publicly held corporation and its management have obligations?

The right of a shareholder to examine the books and records of the corporation is a valuable right.However,it may be denied if the shareholder:

One of the fiduciary duties of directors is the duty not to compete with the corporation.They may pursue their own business interest,but they may not:

The nominating committee of the board of directors actually determines the board's membership because: