Question 1

The type of authority that arises from acts of the corporation that lead third parties to believe reasonably and in good faith that an officer has the requisite authority is:

Accepted Answer

Apparent authority arises from the conduct of the corporation that leads third parties to reasonably believe that an officer or agent has authority, even if that authority was not actually given. This belief must be made in good faith for apparent authority to exist.

Question 2

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:

Accepted Answer

All of the answer choices are correct. Directors have a duty not to compete with the corporation and this includes not using corporate resources, facilities, or personnel to pursue their own business interests.

Question 3

Restrictions on transfer of shares:

Accepted Answer

Restrictions on transfer of shares are valid under the common law if they are reasonable and adopted for a lawful purpose, and they are valid under the Revised Act if the restriction is conspicuously noted on the stock certificate. These restrictions exist not only for closely held corporations to control who may become shareholders, but can also be imposed by other types of corporations. Therefore, option E is the correct answer.

Question 4

With respect to the voting rights of shareholders,unless the articles of incorporation provide otherwise,a shareholder is entitled to:

Accepted Answer

According to the statement, unless the articles of incorporation provide otherwise, a shareholder is entitled to vote at annual and special shareholder meetings with one vote for each share of stock they own. Option A is incorrect as the statement mentions that a shareholder can vote even at special shareholder meetings. Option B is incorrect as the number of votes allotted to a shareholder as per the number of shares owned can vary depending on the articles of incorporation. Option C is incorrect as the statement mentions that shareholders can also vote by proxy.

Question 5

The right of a shareholder to examine the books and records of the corporation may be denied if the shareholder:

Accepted Answer

A shareholder's right to examine the books and records of the corporation is not absolute and may be denied if the shareholder seeks information to embarrass or cause loss to the corporation. Shareholders have a legitimate interest in examining the books and records of the corporation, but this right is subject to limitations to protect the corporation's interest. Seeking information to determine the financial condition of the corporation (A) or desiring to know the value of shares (B) are legitimate purposes for examining the books and records, and the shareholder's right to information should not be denied for these reasons. Similarly, desiring the names and addresses of other shareholders (D) may be a legitimate interest, but this information should be handled with care to protect the privacy of other shareholders.

Question 6

The role of shareholders in managing the corporation is generally restricted to:

Accepted Answer

Shareholders typically play a limited role in managing corporations and their responsibilities are limited to electing directors, approving certain extraordinary measures, and ratifying corporate transactions that may be void or voidable. Therefore, option D, which includes all of the above, is the correct answer. Options A, B, and C each refer to a subset of the activities that shareholders may engage in, but none of them capture the full range of activities that shareholders can undertake. Option E is incorrect because shareholders do have a role in managing the corporation, albeit a limited one.

Question 7

The __________ precludes imposing liability on directors and officers for honest mistakes in judgment if they act with due care,in good faith,and in a manner reasonably believed to be in the best interests of the corporation.

Accepted Answer

The business judgment rule is a legal principle that shields directors and officers from liability for their business decisions as long as they have acted in good faith, with due care, and in a manner that they reasonably believed to be in the best interests of the corporation. This rule precludes imposing liability on directors and officers for honest mistakes in judgment. The duty of diligence and duty of obedience are separate legal principles that do not apply to this scenario.

Question 8

A director may make business decisions in reliance on information provided to him without incurring liability for negligence as long as he:

Accepted Answer

A director may rely on information provided to him as long as he has a reasonable belief that the information is reliable. However, if there are red flags or reasons to doubt the reliability of the information, the director may need to conduct an independent investigation. Notification, a sworn affidavit or other similar measures may provide some additional protection, but they do not eliminate the director's duty to act with care and diligence in making decisions.

Question 9

The Dodd-Frank Wall Street Reform and Consumer Protection Act:

Accepted Answer

The Dodd-Frank Act was signed into law in 2010, not 2009, making A incorrect. It does authorize the SEC to issue rules regarding shareholder nominations for the board of directors, making B correct. C is incorrect because the Act requires compensation committee members to be independent directors.

Question 10

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

Accepted Answer

This is known as a shareholder voting agreement, where shareholders agree in writing to vote in a specified manner for election or removal of directors. A proxy refers to the designation of an individual to vote on behalf of a shareholder. Cumulative voting is a method of voting for directors where shareholders can allocate all their votes to one candidate or distribute them among multiple candidates. A voting trust is a mechanism where shareholders transfer their shares to a trustee to vote on their behalf.

Question 11

Zeelon 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)?

Accepted Answer

A quorum is typically defined as a majority of outstanding shares. In this case, a majority of outstanding shares would be 37,501 (since there are 75,000 outstanding shares). Therefore, the answer is B.

Question 12

Regarding the election of directors:

Accepted Answer

The answer of Regarding the election of directors:
...

Question 13

Most states,as well as the Revised Act,hold that the test for the duty of diligence requires a director or officer to discharge corporate duties:

Accepted Answer

The duty of diligence requires directors or officers to act in good faith, meaning they must act honestly and with a sincere intention to deal fairly with the corporation.

Question 14

With respect to the board of directors of a corporation,which of the following is NOT correct?

Accepted Answer

While the board of directors is accountable to the shareholders, they are not required to obtain shareholder approval for every decision. Their role is to manage the business and affairs of the corporation and make decisions that are in the best interest of the corporation and its shareholders. However, major decisions such as mergers, acquisitions, or changes to the corporation's charter or bylaws often require shareholder approval.

Question 15

In Donahue v.Rodd Electrotype Co.,Inc., the court's opinion stated:

Accepted Answer

The court's opinion in Donahue v. Rodd Electrotype Co., Inc. stated that a close corporation strongly resembles a partnership by definition. This means that the structure and operation of a close corporation are more similar to a partnership than a traditional corporation, and the rights and responsibilities of the shareholders may be different as a result.

Question 16

Arthur is a shareholder of Rowson,Inc.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,Arthur contacts an attorney and sues the corporation on behalf of the corporation.The lawsuit Arthur has filed is known as:

Accepted Answer

Arthur has filed a derivative suit, which is a type of lawsuit brought by a shareholder on behalf of the corporation to enforce the corporation's rights when the directors or officers have failed to do so. In this case, the suit is based on the allegation that the CEO has allowed the corporation to engage in acts that are ultra vires.

Question 17

Bill is a member of the board of directors of Telmar Corp.He would like to have the corporation lend him some money so that he can begin another business venture.Which of the following is correct regarding loans of a corporation to one of its directors?

Accepted Answer

Both the Model Act and the Sarbanes-Oxley Act prohibit loans to directors in most cases.

Question 18

Special shareholder meetings may be called by:

Accepted Answer

Special shareholder meetings can be called by both the board of directors and shareholders holding at least 10% of shares.

Question 19

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

Accepted Answer

A quorum refers to the minimum number of necessary members required to be present at a meeting in order to conduct official business. This number is often established in the organization's bylaws and can vary based on the size of the board. Without a quorum, the board cannot make any official decisions or take action on behalf of the organization.

Question 20

Theodore,as treasurer of Komand Corporation,had the duty to invest corporate earnings as he deemed best for the company.When Komand Corporation went public,the new board decided that a committee of the officers would make such investment decisions.If Theodore thereafter unilaterally contracted to purchase investment securities with corporate earnings as he had done many times before,such contract would be valid:

Accepted Answer

Since Theodore no longer had express or implied authority to invest corporate earnings, he could only enter into a valid contract to purchase investment securities based on apparent authority. This would be the case if the seller knew of Theodore's past transactions, leading them to assume he still had authority to make such purchases. It is unlikely that the board would ratify Theodore's actions if they did not know about them, so option D is not the best choice.

Quiz 35: Management Structure of Corporations