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Q:
Which of the following is true about the rights of shareholders?
A. They do not have the right to be informed about their investment.
B. They are aimed at protecting the interests of only major shareholders.
C. They have the right to make bylaws.
D. They do not have the right to put ceilings on the salaries of top executives.
Q:
Which of the following is true for debentures?
A. It is a type of short term equity security.
B. It is a type of long-term secured debt security.
C. It can have a term of 10 years or less.
D. It is a type of long-term unsecured debt security.
Q:
One can become a shareholder:
A. by buying newly-issued shares that are sold through a stockbroker but which have not been underwritten.
B. only by subscribing to shares that are being issued by an existing corporation.
C. by buying newly-issued shares that have been underwritten by an investment banker and also sold by him.
D. by subscribing to shares in a new corporation and having them accepted by the board of directors after incorporation.
Q:
Under the MBCA, a subscription to buy stock in a corporation that is not yet in existence is usually treated as a(n) ______ until incorporation is completed.
A. offer
B. promissory bid
C. acceptance
D. void
Q:
A shareholder's function includes:
A. election of investors.
B. approval of mergers or a voluntary dissolution.
C. approval of loans to directors by the corporation.
D. approval of stock option plans for other shareholders.
Q:
If the required notice of a shareholder meeting is not given, actions taken at the meeting:
A. are of no effect.
B. are effective only if two-thirds of the stockholders approve the action.
C. are effective, but subject to amendment.
D. are effective only if half of the stockholders approve the action.
Q:
Which of the following shareholders are entitled to vote?
A. Someone who owns a preferred stock and has it listed in his name.
B. Those who are shareholders of record on a date prior to that established by the directors.
C. A stockbroker without a proxy from the record holder.
D. A person with legal title to the stock.
Q:
Under the MBCA, a corporation does not need shareholder approval to purchase securities out of:
A. equity surplus.
B. unrestricted earned surplus.
C. capital surplus.
D. restricted earned surplus.
Q:
Which of the following statements about debt securities is true?
A. They transfer an ownership interest in the corporation.
B. They do not arise in the form of a debenture.
C. They arise in the form of notes, debentures, or bonds.
D. They are generally in the form of stocks and not loans.
Q:
Short-term debt instruments are called:
A. par mechanisms.
B. notes.
C. debentures.
D. bonds.
Q:
Long-term, secured debt securities are called:
A. bonds.
B. indentures.
C. debentures.
D. notes.
Q:
The value assigned to shares in the articles of incorporation is referred to as:
A. stated value.
B. par value.
C. fair value.
D. capital surplus.
Q:
Identify the statement which correctly describes preferred stocks.
A. Preferred stock can never be converted into common stock.
B. The right to vote is usually granted only in the event that dividends due are fully repaid.
C. Redemption of preferred stocks is allowed irrespective of whether the cost would make the corporation insolvent.
D. A corporation can buy back preferred stocks from holders even if they do not wish to sell them.
Q:
Kirby subscribed to purchase 100 shares of stock to be issued by Globule, Inc., an already existing corporation. Globule accepted the subscription. The price set forth in the subscription agreement was $10 per share. The par value of the stock was $8 per share. When the time came for Kirby to pay the amount of his subscription, Kirby paid only $6 per share, claiming that such amount represented the fair value of the shares. Globule delivered the stock certificates to Kirby, but demanded the other $4 per share. Is Kirby liable for the other $4 per share?
A. No, because regardless of what the subscription price was, he cannot be forced to pay more than the fair market value of the shares.
B. Yes, because Globule's delivery of the stock certificates implied its rights to collect the extra $4 from Kirby.
C. Yes, because regardless of the fair value, a purchaser is liable for stocks issued for less than the par value.
D. No, but he is liable for another $2 per share.
Q:
The following arises through the sale of ownership interests in the business in the form of shares of corporate stock.
A. Bond securities
B. Equity securities
C. Debt securities
D. Proxies
Q:
If a corporation has only one type of stock, it is:
A. common stock.
B. preferred stock.
C. cumulative stock.
D. convertible stock.
Q:
Holders of secured notes have priority over bondholders as to the assets securing the debt.
Q:
A corporation as well as its subsidiaries can vote treasury shares.
Q:
Shareholders are prohibited from submitting resolutions that are social or political in nature.
Q:
Dividends must always be paid in cash.
Q:
Dividends on noncumulative preferred stock need to be paid later if they are not earned and paid in the year due.
Q:
A shareholder can sue a corporation if it did not pay a preferred dividend and can also recover the expenses in bringing suit.
Q:
An illegally paid dividend may be recovered from a shareholder who received it with knowledge of the illegality.
Q:
The value assigned to the shares in the articles of incorporation is called "par value."
Q:
Shares are never worth more than the par or stated value.
Q:
Under the MBCA, shareholder approval is required for employee and director stock option plans.
Q:
Corporations do not have inherent power to borrow money necessary for their operations by issuing debt securities.
Q:
Debt securities transfer ownership interest in the corporation.
Q:
If permitted in the articles, preferred stock can be redeemed by the corporation even if the holders do not wish to sell.
Q:
With preferred stocks, the right to vote is usually granted to a shareholder only in the event that dividends due are not paid.
Q:
Preferred stock and common stock are both debt securities.
Q:
In cases where an officer or director has been found guilty of a crime, he/she may be indemnified under voluntary indemnification if:
A. he/she had reason to believe that his/her conduct was unlawful.
B. he/she acts in bad faith.
C. he/she acted in a manner that he/she believed not to be opposed to the corporation's best interests.
D. he/she prevails on the merits of the suit against him/her.
Q:
What is the meaning of ex officio authority?
Q:
What are the duties of directors and officers of a corporation?
Q:
The MBCA requires that a director or officer discharge his duties with "such care as an ordinarily prudent person in a like position would use under similar circumstances." Explain the MBCA's "prudent person" standard.
Q:
Describe the key features of the enhanced judicial scrutiny test adopted by the board to protect the original merger transactions.
Q:
Discuss how a director protects herself from potential liability by exercising her right to dissent.
Q:
Which of the following statements is true of the lawsuits in which minority shareholders complain that they have been unfairly treated by the directors?
A. These suits always involve open corporations.
B. Minority shareholders will always win such suits.
C. These suits can claim a freeze-out.
D. Business judgment rule does not apply to such lawsuits.
Q:
Under the MBCA, a director:
A. will not have dissented if he refuses to vote for the proposed course of action.
B. will not have dissented even if he makes his dissent clear to the other board members by having it appear in the minutes.
C. will have dissented if he gives a written notice of dissent immediately following the meeting.
D. will have dissented if he walks out on the board meeting.
Q:
A corporation:
A. is liable for all torts committed by its retired and ex-employees.
B. is liable for all torts committed by its employees while acting within the scope of their employment.
C. is liable for all torts committed by its employees under the doctrine of ultra vires.
D. is not liable for the torts committed by its employees while acting on the instructions of a high-level manager.
Q:
A corporate officer can be found criminally liable for the illegal behavior of a subordinate when the officer:
A. knew or should have known of the illegal conduct and failed to take steps to prevent it.
B. knew of the illegal behavior and personally benefited from it.
C. did not know of the illegal behavior, but personally benefited from it.
D. knew that the illegal activity concerned insider trading.
Q:
This act requires CEOs and CFOs of publicly traded corporations to certify that, to their knowledge, all financial information in quarterly and annual reports is not false or misleading.
A. Landrum-Griffin Act
B. Clayton Act
C. Sarbanes-Oxley Act
D. Norris-LaGuardia Act
Q:
A director who has acted in bad faith or who is found liable to the corporation:
A. is still covered by mandatory indemnification.
B. may only be indemnified if the shareholders find it to be appropriate.
C. may only be indemnified upon the approval of an independent legal counsel.
D. cannot be indemnified under any circumstances.
Q:
The cap on monetary damages statute holds that the maximum liability that may be imposed on directors:
A. is the greater of $100,000 or the amount of cash compensation that the director received from the corporation during the previous 24 months.
B. is the greater of $100,000 or the amount of cash compensation that the director received from the corporation during the previous 12 months.
C. is the greater of $50,000 or the amount of cash compensation that the director received from the corporation during the previous 12 months.
D. is the greater of $100,000 or the amount of cash compensation that the director received from the corporation during the previous 36 months.
Q:
This statute places a ceiling on director liability for breach of duty, however, the board and shareholders may act to lower the ceiling.
A. Charter option statutes
B. Self-executing statutes
C. SEC oversight statutes
D. Cap on monetary damages statutes
Q:
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?
A. A director cannot enter into a contract with a corporation of which he is a director.
B. The contract between Peter and the corporation is illegal.
C. If the contract is unfair to the corporation, it is voidable at the option of the corporation.
D. The contract is valid regardless of whether its terms are harsh, because Peter's presence was not necessary for a quorum and his vote was not necessary for approval of the contract.
Q:
A charter option statute authorizes a corporation to adopt a specific amendment to its articles of incorporation to:
A. grant directors and officers blanket immunity.
B. remove breach of duty as a cause of action for monetary damages against directors.
C. limit director liability without the approval of the board of directors and the shareholders.
D. limit the maximum liability that may be imposed on directors to the sum of $100,000.
Q:
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):
A. cap on monetary damages statute.
B. charter option statute.
C. self-executing statute.
D. enabling statute.
Q:
A director or officer will be held to have failed to act with due care and diligence if he/she:
A. does not personally investigate every facet of every business decision.
B. relies on the opinions or statements of others.
C. fails to make a reasonable investigation before making any corporate decisions.
D. he/she does not personally attend all board meetings even if insufficient notice is given.
Q:
To obtain the protection of the business judgment rule, a director must meet certain requirements in arriving at his/her decisions. He/she must:
A. make an informed decision; be free from conflicts of interest; and must have a rational basis for believing that the decision is in the best interests of the corporation.
B. make a subjectively rational decision that is based on a cost benefit analysis.
C. make an informed decision that promised to make the corporation a substantial profit; the decision need not be objectively rational, only subjectively rational.
D. use the court's business judgment for all of the corporation's matters.
Q:
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?
A. No, because the directors are the managers of the corporation.
B. No, because the directors' decision was one subject to the business judgment rule.
C. No, because a stockholder does not possess the rights to sue the directors under any circumstance.
D. Yes, because shareholders are permitted to sue to allow a court to determine whether the directors have acted in the best interests of the corporation.
Q:
The most popular type of state statutes limiting directors' liabilities for breach of the duty of care are:
A. charter option statutes.
B. self-executing statutes.
C. cap on monetary damages statutes.
D. SEC oversight statutes.
Q:
What is "ex officio" authority?
A. Authority by virtue of one's offices.
B. Duty to act within one's authority.
C. Conducting the affairs of the corporation with due care.
D. Duty to act with loyalty and good faith.
Q:
The vice president of a corporation:
A. keeps the minutes of meetings of the shareholders and directors.
B. has charge of the funds of the corporation.
C. has implied and apparent authority.
D. has no authority by virtue of that office.
Q:
Who keeps the minutes of meetings of the shareholders and directors, and other general corporate records such as stockholder records?
A. Corporate secretary
B. Treasurer
C. Vice president
D. Chairman
Q:
The _____ binds the corporation on receipts, checks, and endorsements.
A. chairman
B. vice president
C. corporate secretary
D. treasurer
Q:
When a corporate manager makes an honest error in judgment, the business judgment rule directs that:
A. the manager will be liable for corporate losses.
B. the manager will not be liable and a court will step in to correct the manager's mistake.
C. the manager will not be liable if he acted with care and in good faith.
D. the manager will be liable for all losses resulting from the error.
Q:
According to the MBCA, all corporate powers shall be exercised by or under the authority of, and the business and affairs of a corporation shall be managed under the direction of:
A. the board of directors.
B. the president.
C. the shareholders.
D. the chairman of the board.
Q:
Vacancies on the board can be filled:
A. only by a vote of the board.
B. only by a vote of the shareholders.
C. by appointment by the chairperson of the board.
D. by appointment by any two members of the board.
Q:
A director:
A. cannot be removed from office if he/she voluntarily failed to attend directors' meetings.
B. can be removed from office if he/she has acted contrary to the interests of the corporation.
C. cannot be removed from office by shareholders without any cause.
D. can be removed from office without being given notice or a hearing.
Q:
A _____ is a majority of the number of directors fixed by the articles or bylaws.
A. prudent person standard
B. quorum
C. referendum
D. novation
Q:
When notice of a special meeting is defective, the defect may be cured if:
A. one non-attending director specifies another person to vote on matters in his/her place.
B. all of the directors attend the meeting.
C. the attending directors take action on all matters at hand.
D. some of the directors attend the meeting.
Q:
The Sarbanes-Oxley Act requires CEOs and CFOs of publicly traded corporations to certify that, to their knowledge, all financial information in quarterly reports is not false.
TRUE
Q:
An officer or director who has acted in bad faith or who is found liable to the corporation can be indemnified under special circumstances.
Q:
Who is considered the owner of the corporation?
A. The directors
B. The shareholders
C. The chairman of the board
D. The chief executive officer
Q:
What is generally required for any fundamental changes in the corporation?
A. Novation
B. Referendum
C. Board initiative
D. Prudent person standard
Q:
A director of a corporation has the right to:
A. establish the price for the sale of shares of stock.
B. elect and remove officers.
C. sell, lease, and mortgage assets of the corporation outside the normal course of its business.
D. inspect the corporate books and records.
Q:
Scott was a member of the seven-person board of directors of Buffalo Corporation. Officers of that corporation were considering a large purchase of new equipment to begin production of a completely new product line. The board of directors had not been consulted about the new venture, but Scott found out about the plan and objected to it being implemented. He sought to inspect the corporate books and records to gain factual information supportive of his position. The officers refused his inspection request, asserting that Scott had no management function or power. Under these circumstances, Scott:
A. is barred from examination of the books and records of the corporation under the business judgment rule.
B. has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties.
C. is barred from examination of the books and records of the corporation under the doctrine of respondeat superior.
D. has no right to inspect the books and records of the corporation unless authorized by all other members of the board.
Q:
Trading on inside information is in violation of fiduciary duties.
Q:
Corporations can be convicted of crimes.
Q:
If an employee commits a tort while acting within the scope of employment, the corporation is not liable.
Q:
A corporate officer is never held liable for the illegal behavior of a subordinate.
Q:
Under the MBCA, shareholders may remove directors without cause.
Q:
According to the MBCA, the board of directors should never act unless properly convened at a meeting.
Q:
The president cannot also be the secretary of the corporation.
Q:
Officers who, in good faith, enter into an ultra vires transaction are not held personally liable.
Q:
Stockholders have the ability to effectively reject a merger agreement.
Q:
Directors and officers are not prohibited from entering into transactions with the corporation.
Q:
Under the revised MBCA, who will be liable for the business debts if the business has been defectively incorporated?
Q:
When will a court pierce the veil of a corporation?