Question 1

Cole is a shareholder of Donut Holes,Inc.Cole will be deemed to have a fiduciary duty to Donut Holes and its minority shareholders if he has

Accepted Answer

A shareholder may owe a fiduciary duty to the corporation and its minority shareholders if they have enough shares to exercise de facto control over the corporation. This means they have the ability to influence the corporation's decision-making processes and potentially harm minority shareholders. A restriction on the transferability of shares and a right of first refusal do not necessarily create a fiduciary duty, and watered stock refers to shares that were issued at a price lower than their true value, which is not relevant to this question.

Question 2

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 3

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

Accepted Answer

Dividends are typically paid out of retained earnings, which is the portion of a company's net income that is not distributed as dividends but is instead reinvested in the business, reserved for contingencies, or used to pay off debt. Gross profits represent total revenue minus the cost of goods sold, while net profits are gross profits minus expenses. Surplus typically refers to the excess of assets over liabilities. While dividends can technically be paid from any of these sources, it is most common for them to be paid out of retained earnings.

Question 4

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 this right may be subject to some restrictions, such as the shareholder providing a valid reason for the inspection and giving reasonable notice to the corporation. Therefore, the correct answer is that the right to inspect corporate books and records is held by Bea, with some restrictions.

Question 5

Rusty and Sylvia are shareholders of Triad Hotel Corporation.Triad's directors fail to declare a dividend.Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend

Accepted Answer

Courts generally give directors wide discretion in deciding whether to declare dividends. However, if the directors' decision to withhold a dividend is deemed an abuse of discretion, a court may order them to declare a dividend. This would require Rusty and Sylvia to show that the directors' decision was arbitrary or motivated by bad faith. The availability of earnings or cash reserves are not necessarily determinative factors in a court's decision.

Question 6

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 7

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

Ownership of the shares has not yet been entered in Lone Starz's stock book, so Max does not have the legal right to vote as a shareholder. Therefore, only Kelly is eligible to cast a vote at the meeting.

Question 8

Fact Pattern 30-1 (Questions 32-33 apply)
Ray is a shareholder of Small Biz Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
-Refer to Fact Pattern 30-1.Any damages recovered by Ray's suit will go to

Accepted Answer

Any damages recovered by Ray's suit will go to SBC, the firm on whose behalf he filed the suit.

Question 9

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 10

Fact Pattern 30-1 (Questions 32-33 apply)
Ray is a shareholder of Small Biz Company (SBC). When the direc¬tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
-Refer to Fact Pattern 30-1.Ray's suit is a shareholder's

Accepted Answer

Ray's suit is a derivative suit, which is a lawsuit filed by a shareholder on behalf of the corporation against a third party.

Question 11

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

Accepted Answer

Shareholders do not have a right to compensation as they have invested in the company and have a vested interest in its success, but they do not have an employment agreement or a contractual right to receive compensation. Shareholders do have dividend rights, inspection rights, and preemptive rights in certain circumstances.

Question 12

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 ordered by the board of directors, who are responsible for making decisions regarding the company's financial matters, including the distribution of profits to shareholders. While officers may have input in the decision-making process, the ultimate authority lies with the board of directors. Shareholders also have a say in dividends through their ability to elect and remove directors. However, they do not themselves order the dividends. Incorporators are individuals who file the necessary paperwork to create a corporation, but they are not involved in the ongoing management or decision-making of the company.

Quiz 30: Corporate Directors, officers, Shareholders