Question 1

Lovey is a shareholder of Matchless Corporation with preemptive rights.With these rights,Lovey can

Accepted Answer

Preemptive rights give existing shareholders the ability to purchase a prorated share of new stock issuances before they are offered to other buyers. This allows Lovey to maintain her proportional ownership in the company and potentially benefit from any future growth. Choices B and C are not related to preemptive rights, and choice D is not accurate as shareholders cannot sell new shares before they have been issued.

Question 2

In all states,Sports Fitness Club Company and other corporations can pay dividends from

Accepted Answer

Dividends are usually paid from retained earnings, which is the portion of a corporation's profits that is not distributed as dividends but is instead reinvested in the business or held in reserve. Gross profits and net profits are amounts of money earned by a corporation from its business activities, but they do not necessarily reflect the company's financial position or its ability to pay dividends. Surplus is a term that can refer to either the balance of a company's accounts (i.e. assets minus liabilities) or to an excess of goods or products beyond what is needed or sold, and does not necessarily relate to a company's ability to pay dividends.

Question 3

Natalie is a shareholder of Off-Road Vehicle Company.As a shareholder,Natalie does not have

Accepted Answer

As a shareholder, Natalie does not have a right to compensation, which refers to being reimbursed for any losses incurred by the company. Shareholders can only potentially receive a return on their investment through dividend payments or an increase in the value of their shares. However, shareholders do have inspection rights to review company records and activities, as well as preemptive rights to purchase additional shares in a new stock issuance.

Question 4

Fact Pattern 25-1 
Ruben is a shareholder of Speed Bikes Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm’s behalf.

-Refer to Fact Pattern 25-1.Any damages recovered by Ruben's suit will normally go to

Accepted Answer

In a derivative suit, any damages recovered typically go to the corporation, in this case, SBC, because the suit is brought on behalf of the corporation to address a wrong done to it.

Question 5

Ida,Jerzy,and Kit are the directors of Liberty Convenience Stores,Inc.Liberty has nine officers and forty-six shareholders.Dividends are ordered by the firm's

Accepted Answer

Dividends are primarily ordered by the board of directors, who are elected by the shareholders to make decisions for the company. In this case, Ida, Jerzy, and Kit are the directors of Liberty Convenience Stores, Inc., making them responsible for ordering dividends for the shareholders. The officers and shareholders may also have input and influence on the decision, but ultimately it is the board of directors who make the final call.

Question 6

Clark is a shareholder of Bedrest Mattress Company.Clark will be deemed to have a fiduciary duty to Bedrest and its minority shareholders if he has

Accepted Answer

A shareholder with a sufficient number of shares to exercise de facto control of a company will be deemed to have a fiduciary duty to the company and its minority shareholders. This is because the shareholder has the power to make significant decisions that can affect the company and its shareholders. Preferred stock, a right of first refusal, and watered stock do not necessarily indicate control or the ability to make significant decisions for the company.

Question 7

Guy is Hot Java Company's majority shareholder.Guy decides to sell his Hot Java stock.The sale will be an effective transfer of the control of the company.Does Guy owe a duty to Hot Java or its minority shareholders in this situation?

Accepted Answer

The answer of Guy is Hot Java Company's majority shareholder.Guy...

Question 8

Kelly transfers shares of stock that she owns in Lone Starz Company to Max.A shareholders' meeting takes place before Max's ownership is entered in Lone Starz's stock book.A vote at the meeting can be cast by

Accepted Answer

Max's ownership has not been entered in Lone Starz's stock book yet, so he is not recognized as a shareholder by the company. Only Kelly, who is the current recorded shareholder, can cast a vote at the meeting. Max's ownership will be recognized in the future after the stock transfer is processed.

Question 9

Mitch is a director and officer of Numero Uno,Inc.Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders.The shareholders accuse Mitch of breaching his fiduciary duty to the corporation.What is Mitch's best defense against this accusation? Later,the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation.Mitch is a director and shareholder of One-of-a-Kind.What is Mitch's responsibility in this situation?

Accepted Answer

The answer of Mitch is a director and officer of...

Question 10

Orin is a shareholder of Pinkwater Corporation.In some states,Orin might incur personal liability for unpaid Pinkwater debts if he

Accepted Answer

The answer of Orin is a shareholder of Pinkwater Corporation.In...

Question 11

Fact Pattern 25-1 
Ruben is a shareholder of Speed Bikes Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ruben files a suit on the firm’s behalf.

-Refer to Fact Pattern 25-1.Ruben's suit is a shareholder's

Accepted Answer

Ruben's lawsuit is a derivative suit, as it is brought on behalf of the corporation to address harm that was done to the corporation. It is not an indemnification suit, as Ruben is not seeking to be reimbursed for personal losses. It is also not a proxy suit or preemptive suit, as those involve different types of legal actions.

Question 12

Bea is a shareholder of Candy Confections Corporation.The right to inspect corporate books and records is

Accepted Answer

Shareholders have the right to inspect corporate books and records, but there may be some restrictions on this right, such as the requirement to provide a legitimate purpose for the inspection and the need to make a written request at a reasonable time and place. Therefore, the right to inspect corporate books and records is held by Bea, with some restrictions. It is not necessary for her to be a director to exercise this right.

Quiz 25: Corporate Directors, officers, Shareholders