Question 1

A director:

Accepted Answer

The MBCA permits shareholders to remove directors with or without cause.A director who has failed to or is unable to attend and participate in directors' meetings or who has acted contrary to the interests of the corporation can be removed for cause.

Question 2

Vacancies on the board can be filled:

Accepted Answer

Vacancies on the board can be filled only by a vote of the shareholders unless the state statute,the articles,or the bylaws give this power to the board itself.The MBCA permits a majority of the remaining directors,even though less than a quorum,to elect directors to serve out unexpired terms.

Question 3

To obtain the protection of the business judgment rule,a director must meet certain requirements in arriving at his/her decisions.He/she must:

Accepted Answer

In order to obtain the protection of the business judgment rule,the directors must meet three requirements in arriving at their decision: First,they must make an informed decision.Second,the decision makers must be free from conflicts of interest.Third,the board of directors must have a rational basis for believing that the decision is in the best interests of the corporation.

Question 4

When notice of a special meeting is defective,the defect may be cured if:

Accepted Answer

Reasonable notice must be given for special meetings.If all of the directors attend a meeting,this cures any defect in or failure to give notice.However,a director who has not received a proper notice may attend solely to complain of the notice.In this case,he or she would not be held to have been in attendance.

Question 5

When a corporate manager makes an honest error in judgment,the business judgment rule directs that:

Accepted Answer

Directors are not liable for mere errors of judgment when they act with care and good faith.This is the business judgment rule.The rule precludes the courts from substituting their business judgment for that of the corporation's managers.In short,it protects officers and directors from personal liability for honest mistakes in judgment.

Question 6

A _____ is a majority of the number of directors fixed by the articles or bylaws.

Accepted Answer

A quorum is a majority of the number of directors fixed by the articles or bylaws.Actions taken by a board are ineffective unless a quorum is present.If there is a quorum present,the vote of a majority of the directors is the act of the board.

Question 7

Under the MBCA,a director:

Accepted Answer

Under the MBCA,a director will not have dissented unless he refuses to vote for the proposed course of action and makes this dissent clear to the other board members by having it appear in the minutes or by giving a written notice of dissent to the chairman or secretary immediately following the meeting.

Question 8

A charter option statute authorizes a corporation to adopt a specific amendment to its articles of incorporation to:

Accepted Answer

A charter option statute authorizes any corporation to adopt a specific amendment to its articles of incorporation that removes breach of duty as a cause of action for monetary damages against directors.Under this approach,both the board of directors and the shareholders would have to approve the limitation on director liability.

Question 9

The _____ binds the corporation on receipts,checks,and endorsements.

Accepted Answer

The treasurer has charge of the funds of the corporation.He or she has power to pay out corporate funds for proper purposes and is the person who receives payments to the corporation.The treasurer binds the corporation on receipts,checks,and endorsements.However,the treasurer does not have authority by virtue of the office alone to borrow money or issue negotiable instruments.

Question 10

The board of directors of Meckes Corporation,at a regular meeting of the board,entered into a contract with Peter,one of the directors.The agreement called for the sale to Peter of a retail store the corporation operated.There were 12 board members,10 of whom were present at the meeting.One of the directors present was Peter.After a lengthy discussion in which Peter participated,nine directors,including Peter,voted in favor of the contract and one voted against it.In view of these facts,which of the following is correct?

Accepted Answer

Directors and officers are not prohibited from entering into transactions with the corporation.At one time,courts held that such deals were voidable by the corporation,but today the majority of courts hold them voidable only if unfair to the corporation.

Question 11

Distanet Corporation is a competitor of Telenex Corporation in the personal computer market.After examining past and future price and sales data and after consulting an economist and an accountant,the directors of Distanet voted to reduce the price of that company's computers,believing that by reducing the price of their product,the corporation could compete more successfully with Telenex.The plan was put into operation,but it did not prove to be effective.In fact,Distanet lost money as a result of the plan.Aileen,a stockholder of Distanet,brings an action against the directors,seeking to hold them liable for the failure of the plan to improve Distanet's position in the computer market,and for the losses experienced by the corporation as a result of the implementation of the plan.Will she succeed in her suit?

Accepted Answer

Under the given circumstances,Aileen cannot sue the directors because the directors' decision was one subject to the business judgment rule.According to the business judgment rule,directors are not liable for mere errors of judgment when they act with care and good faith.

Question 12

Who keeps the minutes of meetings of the shareholders and directors,and other general corporate records such as stockholder records?

Accepted Answer

The corporate secretary (called clerk in some states)keeps the minutes of meetings of the shareholders and directors and other general corporate records such as stockholder records.The office gives the secretary no authority to bind the corporation on contracts.However,there is a presumption that a document to which the secretary has affixed the corporate seal has been properly authorized.

Question 13

The most popular type of state statutes limiting directors' liabilities for breach of the duty of care are:

Accepted Answer

The most popular type of state statutes limiting directors' liabilities for breach of the duty of care are charter option statutes.It authorizes any corporation to adopt a specific amendment to its articles of incorporation that removes breach of duty as a cause of action for monetary damages against directors.

Question 14

The cap on monetary damages statute holds that the maximum liability that may be imposed on directors:

Accepted Answer

The cap on monetary damages statute holds that the maximum liability that may be imposed on directors is the greater of $100,000 or the amount of cash compensation that the director received from the corporation during the previous 12 months.This was adopted by the state of Virginia.

Question 15

What is "ex officio" authority?

Accepted Answer

The power of the officers to bind the corporation on contracts they make on its behalf is the same as that of any agent.In addition to their express authority,they have implied and apparent authority."Ex officio" authority is the authority by virtue of their offices.This,however,is more restricted than is generally believed.The president or chairman of the board has no power to bind the corporation solely because of his position.

Question 16

The vice president of a corporation:

Accepted Answer

The vice president of a corporation has no authority by virtue of that office.However,if the title indicates that the person is the principal officer of some area of the business,she has considerable implied authority.

Question 17

Which of the following statements is true of the lawsuits in which minority shareholders complain that they have been unfairly treated by the directors?

Accepted Answer

There have been many lawsuits in which minority shareholders complain that they have been unfairly treated by the directors.Usually,these involve close corporations.The suits may claim a freeze-out.

Question 18

A law that holds that directors will have no liability for breach of the duty of care in the absence of willful misconduct or recklessness and that does not require board or shareholder action is called a(n):

Accepted Answer

A law that holds that directors will have no liability for breach of the duty of care in the absence of willful misconduct or recklessness and that does not require board or shareholder action is called a self-executing statute.These are called self-executing statutes because they are automatically effective.No board or shareholder action is necessary to trigger their applicability.

Question 19

A director or officer will be held to have failed to act with due care and diligence if he/she:

Accepted Answer

The duty of care requires that directors and officers make a reasonable investigation before making any corporate decisions.These standards,however,take into consideration the complexities of many corporate decisions and understand that it would be impossible for any manager to personally investigate every facet of every business decision.

Question 20

This statute places a ceiling on director liability for breach of duty,however,the board and shareholders may act to lower the ceiling.

Accepted Answer

Cap on monetary damages statutes places ceiling on director liability for breach of duty.This statute has a charter option quality in that the board and shareholders of a corporation may amend the corporate charter to reduce the cap (they may not increase it).

Quiz 29: Management of the Corporate Business