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Business Law
Q:
Once formed, a corporation cannot be dissolved voluntarily.
Q:
During a takeover attempt, a company's promise to give its shareholders the right to buy additional shares at low prices is the poison pill defense.
Q:
A self-tender is usually made by shareholders attempting to sell their stock to other shareholders.
Q:
Liability based on the conduct of a selling corporation cannot be imposed on a buying corporation that acquires the seller's assets.
Q:
When a sale of assets amounts to what in effect is a merger, the acquiring corporation inherits the selling corporation's liabilities.
Q:
Selling all of a corporation's assets requires the approval of its board of directors and its shareholders.
Q:
The fair value of shares under shareholder appraisal rights is normally the value on the day before the shareholders vote on a proposed action.
Q:
Under shareholder appraisal rights, the shareholder and the corporation must agree on the shares' fair value or a court will determine it.
Q:
Once a shareholder elects appraisal rights, in many jurisdictions, the shareholder loses his or her shareholder status.
Q:
Appraisal rights can force shareholders to be owners of corporations that are different from the ones in which they originally invested.
Q:
In a merger, only a surviving corporation's shareholders are entitled to appraisal rights.
Q:
In most cases, merging corporations' shareholders do not need to approve the merger.
Q:
In a short-form merger, the merging corporation's shareholders do not need to approve the merger.
Q:
In a consolidation, the articles of consolidation become the articles of incorporation for the new corporation.
Q:
After a consolidation, the new corporation inherits all of the consolidating corporations' rights.
Q:
The main difference between a consolidation and a merger is that in a consolidation there are two surviving corporations.
Q:
After a merger, a surviving corporation's shareholders assume personal liability for a disappearing corporation's preexisting obligations.
Q:
After a merger, the surviving corporation inherits all of the disappearing corporation's preexisting rights.
Q:
A merger involves the legal combination of two or more corporations, none of which continue to exist.
Q:
Sam is a shareholder of Telecommunications Corporation (TC), which sells repair parts and service for analog communications equipment. Business has not been profitable for TC. For the past four years, the firm has lost money on its operations. There has been some profit through sales of company assets, but the board of directors has refused to declare a dividend. This last year, the firm's accountants failed to file federal income tax returns and the board refused to pay the tax. Sam takes a close look at the firm and protests to the board, in particular over the failure to declare a dividend, but the board ignores the complaint. Which of these events, if any, would form a ground for a court to order the dissolution of TC, on Sam's petition?
Q:
Fred and Gail form Home Construction, Inc. After three years, they decide to cease business and go their separate ways. Can they simply dissolve their corporation at will? Could Fred or Gail seek dissolution of Home alone (as a partner can dissolve a partnership)?
Q:
Fact Pattern 40-3
Atlantic Corporation's articles of incorporation prohibit a sale of its assets without a vote of the board of directors. Atlantic's officers sell some assets to Pacific Company without notice to the board. The officers also fail to pay Atlantic's taxes on time, and some Atlantic funds are not accounted for.
Refer to Fact Pattern 40-3. According to the court in Case 40.3, Colt v. Mt. Princeton Trout Club, Inc., the appropriate remedy is most likely
a. a sale of the rest of Atlantic's assets to its directors and shareholders.
b. Atlantic's consolidation or merger with Pacific.
c. Atlantic's dissolution.
d. payment of damages to Atlantic's officers.
Q:
Fact Pattern 40-3
Atlantic Corporation's articles of incorporation prohibit a sale of its assets without a vote of the board of directors. Atlantic's officers sell some assets to Pacific Company without notice to the board. The officers also fail to pay Atlantic's taxes on time, and some Atlantic funds are not accounted for.
Refer to Fact Pattern 40-3. Under the decision of the court in Case 40.3, Colt v. Mt. Princeton Trout Club, Inc., with respect to Atlantic's shareholders, this conduct is most likely
a. not oppressive because it is undertaken by Atlantic's officers.
b. oppressive because Atlantic's directors may be personally liable.
c. oppressive because Atlantic's shareholders may be personally liable.
d. oppressive because it departs from the standards of fair dealing.
Q:
Standard Corporation can be compelled to dissolve by
a. its creditors only.
b. itself, through its shareholders and directors, only.
c. itself, through its shareholders and directors, or the state.
d. the state only.
Q:
Amalgamated Industries, Inc., increases its holdings, making tender offers in many states. These offers are subject to
a. federal securities regulations only.
b. in all states, state securities regulations only.
c. in certain states, only state securities regulations.
d. in most states, state and federal securities regulations.
Q:
Eve is a shareholder of Fresh Produce, Inc., whose management is considering a tender offer by Grocery Stores Corporation. Eve elects to exercise her appraisal rights. In some jurisdictions, now Eve can
a. not participate in shareholder votes but can receive dividends.
b. not participate in shareholder votes or receive dividends.
c. not receive dividends but can participate in shareholder votes.
d. still participate in shareholder votes and receive dividends.
Q:
Hugh is a shareholder of Interstate, Inc. Hugh could normally exercise appraisal rights if Interstate participated in
a. a sale of substantially all the corporate assets only.
b. a short-form merger only.
c. a sale of substantially all the corporate assets or a short-form merger.
d. neither a sale of assets nor a short-form merger.
Q:
Macro Corporation wants to complete a short-form merger with its subsidiary, Micro Company. The merger must be approved by
a. Macro's board of directors and Micro's board.
b. Macro's board only.
c. Micro's board only.
d. neither Macro's board nor Micro's board.
Q:
Big Blow Bubble Gum, Inc., decided to merge with its subsidiary, Not-So-Big Bubble Gum, Inc. Big Blow owned 95 percent of the stock of Not-So-Big. The board of directors of each firm agreed on a short-form merger. There was no evidence of fraud on the part of the directors or the corporation. When Bob and other minority shareholders of Not-So-Big heard about the merger and the exchange ratio of their stock, they sued Big Blow for breaching its fiduciary duty. Based on the decision in Case 40.2, Glassman v. Unocal Exploration Corp., the court in this case would most likely rule that Bob was entitled to
a. punitive damages, based on Big Blow's breach of its fiduciary duty.
b. an appraisal of his shares, to determine whether fair value was given for them.
c. dissolution of the corporation.
d. nothing.
Q:
Vacation Hotels, Inc., and Windy Resort Corporation plan to merge. Most likely, the articles of merger will be filed with
a. the county recording office.
b. the Securities and Exchange Commission.
c. the state's secretary of state.
d. the U.S. Department of Justice.
Q:
Continental Distribution, Inc., and Discount Sales Corporation plan to merge. A certificate of merger must be issued by
a. neither the state nor the surviving corporation.
b. the state and the surviving corporation.
c. the state only.
d. the surviving corporation only.
Q:
Applied Services Company and Big Brand Products Corporation plan to merge. The plan must be approved by
a. neither their boards of directors nor their shareholders.
b. their boards and their shareholders.
c. their boards only.
d. their shareholders only.
Q:
Fact Patter 40-2
Ample Corporation combines its assets and debts with those of Xantha Corporation to form AXCorp.
Refer to Fact Pattern 40-2. To accomplish this combination, it is not necessary to
a. hold a vote by Ample's shareholders.
b. hold a vote by Xantha's shareholders.
c. satisfy all state formalities.
d. submit the proposal to a court for approval.
Q:
Fact Patter 40-2
Ample Corporation combines its assets and debts with those of Xantha Corporation to form AXCorp.
Refer to Fact Pattern 40-2. AXCorp assumes
a. all of Ample's and Xantha's debts.
b. half of Ample's and Xantha's debts.
c. none of Ample's and Xantha's debts.
d. only debts that Ample and Xantha incurred after their combination was proposed.
Q:
Fact Patter 40-2
Ample Corporation combines its assets and debts with those of Xantha Corporation to form AXCorp.
Refer to Fact Pattern 40-2. AXCorp acquires
a. all of Ample's and Xantha's assets.
b. half of Ample's and Xantha's assets.
c. none of Ample's and Xantha's assets.
d. only assets that Ample and Xantha acquired after their combination was proposed.
Q:
Fact Patter 40-2
Ample Corporation combines its assets and debts with those of Xantha Corporation to form AXCorp.
Refer to Fact Pattern 40-2. The formation of AXCorp is
a. a consolidation.
b. a dissolution.
c. a liquidation.
d. a merger.
Q:
Ada files a suit against Brand Name Company. While the suit is pending, Brand Name merges with Conglomerate Corporation, with Conglomerate absorbing Brand Name. Now, liability in the suit, if any, rests with
a. Ada.
b. Brand Name.
c. Conglomerate.
d. the court.
Q:
Fact Pattern 40-1
AAA Apartments, Inc., merges with Better Rentals, Inc. Only AAA remains.
Refer to Fact Pattern 40-1. Better Rentals owed money to Construction Repair Associates and other creditors. After the merger, AAA must pay
a. all of Better Rentals' debts.
b. half of Better Rentals' debts.
c. none of Better Rentals' debts.
d. only debts that Better Rentals incurred after a merger was proposed.
Q:
Fact Pattern 40-1
AAA Apartments, Inc., merges with Better Rentals, Inc. Only AAA remains.
Refer to Fact Pattern 40-1. The terms of the merger agreement differ from AAA's articles of incorporation. The articles
a. are deemed amended to include the differences.
b. are replaced by the merger agreement.
c. effectively prevent the merger.
d. prevail.
Q:
Fact Pattern 40-1
AAA Apartments, Inc., merges with Better Rentals, Inc. Only AAA remains.
Refer to Fact Pattern 40-1. Better Rentals, Inc., held rights in certain real property. After the merger, AAA acquires the rights
a. automatically.
b. only after completing certain additional statutory procedures.
c. only Better Rental's former shareholders expressly approve.
d. only if the acquisition is a specified result of the merger.
Q:
Ace Tool Corporation and Best Hardware Company combine so that all that remains after the papers have been signed is Ace Tool Corporation. This is
a. a consolidation.
b. a merger.
c. a purchase of assets.
d. a purchase of stock.
Q:
Liquidation of a corporation cannot be performed without court supervision.
Q:
Liquidation is the process of converting corporate assets into cash, and distributing it to the corporation's creditors and shareholders.
Q:
Failure to comply with administrative requirements can result in the dissolution of a corporation by court order.
Q:
Shareholders can initiate the dissolution of a corporation by a majority vote.
Q:
A promise by a company, during a takeover attempt, to give its shareholders the right to buy additional shares at low prices is a white knight defense.
Q:
The board of directors of a targeted corporation must approve a tender offer before its shareholders can accept it.
Q:
When a sale of assets amounts to what in effect is a consolidation, the acquiring corporation does not inherit the selling corporation's liabilities.
Q:
Shareholder approval is required when a corporation buys all of the assets of another company.
Q:
Shareholder approval is required when a corporation sells all of its assets to another company.
Q:
The fair value of shares under appraisal rights is always the value on the day the shareholder files the notice of dissent.
Q:
Appraisal rights are available only when a state statute specifically provides for them.
Q:
Shareholder appraisal rights are normally available in sales of substantially all corporate assets not in the ordinary course of business.
Q:
A short-form merger can be used whenever a parent owns more than 10 percent of the stock of its subsidiary.
Q:
In a consolidation, the consolidating corporation's shareholders do not need to approve the consolidation.
Q:
After a consolidation, there are two or more surviving corporations.
Q:
After a consolidation, the new corporation inherits all of the consolidating corporations' obligations.
Q:
In a consolidation, the consolidating corporations become subsidiaries of the new corporation.
Q:
After a merger, a disappearing corporation's preexisting rights disappear.
Q:
After a merger, the disappearing corporation retains all of its preexisting obligations.
Q:
In a merger, the articles of incorporation of the surviving corporation are deemed not to include any changes that are stated in the articles of merger.
Q:
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?
Q:
Todd is a director and officer of United Sales, Inc. Todd makes a marketing decision that results in a dramatic decrease in profits for United and its shareholders. The shareholders accuse Todd of breaching his fiduciary duty to the corporation. What is Todd's best defense against this accusation? Later, a resolution comes before the United board to compete with VeriFine Products, Inc. Todd is a director and shareholder of VeriFine. What is Todd's responsibility in this situation?
Q:
Fact Pattern 39-1
Art is the majority shareholder of Business Corporation (BC), of which Cleo is the minority shareholder. Art uses BC funds to buy real estate in his own name, to invest in other businesses in his own name, and to buy personal items for himself. When Cleo asks Art to account for the expenditures, he refuses.
Refer to Fact Pattern 39-1. Suppose that two years later, Cleo dies. Art continues his personal use of BC funds, and refuses to account for his conduct to Don, the administrator of Cleo's estate. One year later, Don files a suit against Art. There is a state two-year statute of limitations on such actions. According to the decision of the court in Case 39.3, Robbins v. Sanders, Don's suit is
a. barred because Art's conduct began more than two years earlier.
b. barred because Cleo is dead, regardless of the statute of limitations.
c. not barred because Art's conduct occurred within one year of the suit.
d. not barred because Cleo and Don would otherwise be "squeezed out."
Q:
Fact Pattern 39-1
Art is the majority shareholder of Business Corporation (BC), of which Cleo is the minority shareholder. Art uses BC funds to buy real estate in his own name, to invest in other businesses in his own name, and to buy personal items for himself. When Cleo asks Art to account for the expenditures, he refuses.
Refer to Fact Pattern 39-1. According to the reasoning of the court in Case 39.3, Robbins v. Sanders, Art's conduct is
a. not oppression because Art is BC's majority shareholder.
b. oppression by Art of BC and Cleo.
c. oppression by Art of BC only.
d. oppression by Art of Cleo only.
Q:
Holly is a shareholder of International Corporation (IC). In some states, Holly might incur personal liability for IC obligations if she
a. buys no-par shares.
b. buys stock for less than its stated value.
c. fails to fulfill her fiduciary duty to the majority shareholders.
d. receives a dividend knowing that it was paid from retained earnings and fails to return it to IC.
Q:
Kelly transfers shares of stock that she owns in Local Company to Mac. A shareholders' meeting takes place before Mac's ownership is entered in Local's stock book. A vote at the meeting can be cast by
a. Kelly and Mac.
b. Kelly only.
c. Mac only.
d. neither Kelly nor Mac.
Q:
A restriction on the transferability of shares of stock in Alpha Corporation that Ben, or any other Alpha shareholder, offers for resale is a right of
a. definite approval.
b. final purchase.
c. first refusal.
d. shareholder appraisal.
Q:
Britney is a shareholder of Consumer Corporation. The right to inspect corporate books and records is
a. held by Britney only if she is a director.
b. held by Britney, without restrictions.
c. held by Britney, with some restrictions.
d. not held by Britney.
Q:
Great Stores, Inc., must hold a shareholders' meeting
a. once a month.
b. once a year.
c. once every two years.
d. only when it is called by the board of directors.
Q:
Donna and Ed are shareholders of Friendly Credit, Inc. As shareholders, they must approve
a. amending the articles of incorporation.
b. declaring a corporate dividend.
c. hiring a chief executive officer.
d. all of the above.
Q:
Carol is a director of Diners Restaurants, Inc. Carol would breach her duty of loyalty if she
a. becomes a director of Fine Mattresses, Inc., a noncompeting firm.
b. buys stock in Great Foods Corporation, a competing firm.
c. votes for Diners to buy a controlling interest in Eats, Inc., which causes Diners to suffer a loss.
d. votes against Diners' purchase of a controlling interest in Eats, Inc., which causes Diners to suffer a loss.
Q:
Eve is a director of Fine Stuff Corporation. Without informing Fine, Eve goes into business with Great Things, Inc., in competition with Fine. Eve is liable for breach of
a. no duty or rule
b. the business judgment rule.
c. the duty of care.
d. the duty of loyalty.
Q:
Ron, a director of Super Corporation, does not attend a board meeting for three years. During that time, Tina, Super's president, makes improper loans that cost the company $100,000. Ron is most likely
a. liable for negligence or mismanagement.
b. liable for violation of the business judgment rule.
c. not liable because missing meetings is an honest mistake.
d. not liable because missing meetings is only poor judgment.
Q:
Nina is a director of Omega, Inc. Under the standard of due care owed by directors of a corporation, Nina's decisions must be
a. ambiguous and questionable.
b. arguable and defensible.
c. informed and reasonable.
d. perfect and unassailable.
Q:
Adam and Beth are officers of Computer Products Corporation. As corporate officers, the rights of Adam and Beth are
a. determined by their employment contracts.
b. specified in state corporation statutes.
c. the same as those of the directors.
d. the same as those of the shareholders.
Q:
Carol and Drew are two of nine authorized directors of East Coast Corporation. The minimum number of directors that can customarily declare a dividend on East Coast stock is
a. one.
b. two.
c. five.
d. nine.
Q:
Ann and Bill form Consumer Sales, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Consumer's
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.
Q:
Sal is chairman of the board of Tasty Food Corporation. Uma, a consumer, falls sick after eating a Tasty product. Uma sues Tasty, and Sal individually. Tasty may pay Sal's legal fees
a. only if Sal wins the suit.
b. only if Tasty wins the suit.
c. only if Uma wins the suit.
d. regardless of the outcome.
Q:
Kim is a director of Light Service Corporation (LSC). With respect to LSC, Kim's most important right is the right of
a. compensation.
b. indemnification.
c. participation.
d. service.