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Q:
To support his efforts in the writing of a new novel, Madden sold various patrons an interest in the forthcoming novel. The patrons agreed to supply him with money in exchange for a return on their investments out of any profits Madden made in the sale of the novel. Could this scheme be considered a sale of securities? Why or why not?
Q:
John is a director of both Small Co., with an aggregate worth of $75,000, and Medium Co., with an aggregate worth of $7,500,000. Small and Medium are competitors in the auto repair business. Discuss the legal implications of John's service.
Q:
Tremendous LLC proposes to merge with Small LLC. Janice, a member of Tremendous, is opposed to this merger. The operating agreement allows mergers to be approved by a simple majority vote. Discuss the legal rights Janice may assert in this situation.
Q:
Big Co. would like a patent owned by Small Co. that Big believes could be used to make a profitable product. Small has other assets and owes a variety of debts. Discuss the advantages to Big if it only purchases the patent rather than Small Co. in its entirety.
Q:
Yanasko wanted to purchase Raymond-Mason Inc. When he approached the board of directors about the merger, they told him that they were not interested. Yanasko then suggested an asset acquisition. Again, the board refused. What measure could Yanasko take to sidestep the board of directors and obtain control of Raymond-Mason? Explain.
Q:
The Crown Corp. offers to buy the voting stock of the L&N Corp. with the intention of acquiring L&N and changing its management. To avoid being taken over by Crown, L&N asks the Spendle Corp. to outbid Crown. In this situation:
A. L&N is a hostile bidder, Crown is the target, and Spendle is a white knight.
B. L&N is a friendly suitor, Crown is a hostile bidder, and Spendle is the target.
C. L&N is the target, Crown is a hostile bidder, and Spendle is a white knight.
D. L&N is the target, Crown is a friendly suitor, and Spendle is a hostile bidder.
Q:
The targeted corporation makes a deal with the suitor to protect management of the target in a:
A. greenmail.
B. lockup agreement.
C. public relations campaign.
D. targeted shareholder agreement.
Q:
A _____ might be used by target management if the target owns an irreplaceable piece of property, the sale of which would seriously devalue the overall worth of the target.
A. greenmail
B. lockup agreement
C. public relations campaign
D. targeted shareholder agreement
Q:
In a ____, a target corporation uses news releases, advertisements, and press conferences to convince shareholders to retain present management.
A. greenmail
B. lockup agreement
C. public relations campaign
D. targeted shareholder agreement
Q:
Ajax Co. has six directors. Three of the directors favor corporate expansion and three directors want to keep Ajax at its current size and distribute the surplus profit. How will a court likely resolve this deadlock?
A. Appoint a seventh director to break the tie.
B. Appoint an arbitrator.
C. Order an involuntary dissolution of Ajax.
D. Order the directors to make an agreement or be in contempt of court.
Q:
Which legislation specifically addresses promotional allowances?
A. Clayton Act
B. Robinson-Patman Act
C. Federal Trade Commission Act
D. Sherman Act
Q:
One corporation makes a tender offer to the shareholders of another corporation in a(n):
A. merger.
B. consolidation.
C. stock acquisition.
D. asset acquisition.
Q:
If Titanic Co. makes a tender offer to acquire more than _____ of a target, Titanic Co. must file a statement with the SEC.
A. 5%
B. 10%
C. 15%
D. 20%
Q:
Under some state statutes, a merger involving an LLC requires a(n) _____ rather than the two-thirds majority required of corporations.
A. 51% majority vote
B. one-third majority vote
C. 90% majority vote
D. unanimous approval
Q:
In a ____, the buyer purchases enough shares in a corporation to gain voting control of that corporation.
A. asset acquisition
B. stock acquisition
C. consolidation
D. joint venture
Q:
Tom is a potential investor in Delta Co. Tom should receive a:
A. contract summary.
B. prospectus.
C. closing settlement statement.
D. registration statement.
Q:
Contracts, combinations, and conspiracies in restraint of trade are prohibited by the:
A. Robinson-Patman Act.
B. Federal Trade Commission Act.
C. Sherman Antitrust Act.
D. Clayton Act.
Q:
An exclusive control of a market by a business enterprise is a:
A. monopoly.
B. common enterprise.
C. trust.
D. confederation.
Q:
Small State has a limited customer base north and south of the interstate highway. Company A and Company Z agree that A will sell north of the interstate highway and Z will sell south of the interstate. This is a _____ violation of the Sherman Antitrust Act.
A. per se
B. rule-of-reason
C. joint federal and state
D. minor
Q:
Homeruns Co. manufactures baseball bats. It withdrew deals from a few retailers who refused to put a particular price tag, as decided by Homeruns Co, on the bats. This act of Homeruns Co.:
A. violates the per se rule.
B. is legal under the quasi-RPM arrangement.
C. violates the rule-of-reason standard.
D. is legal under the RPM agreement.
Q:
Linicome Industries is a manufacturer of home video game machines and home video games. Johnson Department Store wants to market the home video games, but Linicome refuses to sell the games unless Johnson also agrees to purchase the home video machines. A court will most likely find such as restriction to be:
A. an interlocking directorate.
B. a lawful tying agreement.
C. an unlawful tying agreement.
D. a per se violation.
Q:
The dissolution of an LLC need not be followed up by a winding up of the LLC.
Q:
Some state statutes specify that the death of a member does not trigger dissolution of an LLC.
Q:
The Commerce Clause of the U.S. Constitution was first expanded by the U.S. Supreme Court in the context of:
A. industrial expansion.
B. mass marketing.
C. land grants.
D. frontier protection.
Q:
Which of the following stated that a farmer's production of wheat for use only on his own farm was held to impact interstate commerce.
A. Gibbons v. Ogden
B. Wickard v. Filburn
C. Hughes v. Wendel
D. Mangus v. Miller
Q:
The concept of justice includes a fair and balanced interpretation of the law. This is:
A. regulatory justice.
B. distributive justice.
C. individual justice.
D. balanced justice.
Q:
Mill enterprises needs to raise a large amount of money. Therefore it sells its fractional interest in orange groves, located in Florida, to Sunshine Co. in New York. Sunshine Co would be ensured a return in investment from the land purchased. Mill enterprises has sold:
A. real estate.
B. debt instruments.
C. goods.
D. securities.
Q:
A lockup agreement requires that a friendly suitor is given an option to buy that valuable piece of property should the hostile bidder gain control of the target corporation.
Q:
Hart-Scott-Rodino is designed to police any expansion attempts that might hurt competition in the marketplace.
Q:
It is illegal for agencies responsible for reviewing merger plans proposed by corporations to use their power to negotiate concessions within merger agreements for social purposes.
Q:
A failure to pay franchise taxes would lead to the state revoking a corporation's charter.
Q:
A receiver is an individual appointed by the shareholders to hold property subject to diverse claims.
Q:
Under the FTAIA, even if an American company is operating totally in a foreign market that company is subject to American antitrust law.
Q:
ABC Co. makes a tender offer to acquire 3% of the stock of XYZ Co. ABC need not file with the SEC.
Q:
If ABC Co. is to merge with XYZ Co., typically a two-thirds majority vote of the shareholders will be required.
Q:
A buyer of Titan Co. that does not want to be burdened by Titan's pension plan should structure the purchase as an asset acquisition.
Q:
Greenmail is an offer by a target corporation to the bidder to acquire a portion of the shares, which is already held by the bidder, at a price greater than when it was originally sold.
Q:
Big Co. advertises that "nine out of ten physicians prefer our products" when in fact the marketing research, done by Independent Research Co., was flawed. Big may be charged with false advertising even if Big believes the statement was true.
TRUE
The FTC was also granted the power to challenge false advertising of food, drugs, and cosmetics, regardless of the advertiser's knowledge of the advertisement's truth or falsity.
Q:
The inclination to reason by analogy is driven by the perceived need to balance individual justice with regulatory justice.
Q:
Legislators welcome a new precedent as an added weapon in their arsenal of past cases.
Q:
A state has police power simply by virtue of its existence as a legitimate governmental authority.
Q:
Jane, a director of ABC Co., can profit from the purchase and sale of ABC securities in a period of six weeks.
Q:
If ABC Co. and XYZ Co. agree to charge consumers a fixed but fair price for their products, the courts will judge the legality of the practice by the rule-of-reason approach.
Q:
Auto Supply refuses to sell hoses to Small Retail Co. unless Small also buys brake shoes from Auto. This agreement is outlawed by the Clayton Act.
Q:
Tye, a director at Big Co., suspects wrongdoing within Big Co. and after investigation, uncovers legal violations. Discuss the steps that must be taken under current law in light of this discovery.
Q:
Mannix owned 200 shares of Leo Deliveries Inc. Leo had 600 shares total. Leo decided to increase its capital stock to 1,200. Assuming that Mannix elected to exercise his preemptive rights, how many shares would he be entitled to?
Q:
Joe sells his stock in Big Co. to Mary. Discuss what Mary must do to be recognized as a shareholder in Big Co.
Q:
Chris, Miller, and Kacy created a limited liability company by filing the articles of organization, appointing a statutory agent, and paying the appropriate filing fee. They also agreed to run the LLC themselves, making it a member-managed LLC. Chris entered an agreement whereby he purchased 1,000 barrels of oil. Neither Miller nor Kacy believe that Chris paid a good price for the oil. Nevertheless, Chris argues that the LLC is bound by the contract he entered. Is Christ correct? Explain.
Q:
Gibbons v. Ogden in 1824 held that commercial activity that occurred within a state was subject to federal regulation if that completely in-state activity affected interstate commerce.
Q:
Shareholders of Mitas Corp. are concerned that the directors are not performing their tasks properly for the benefit of the corporation. Discuss what must be done by the shareholders before bringing a derivative suit.
Q:
Sam, a manager at Small Co., is confronted with a difficult business decision. Discuss what Sam must do to meet the duty of due diligence in making his decision.
Q:
To encourage individuals to serve on boards of directors, legislatures have enacted a variety of measures to protect good faith and due diligent activities of directors. Discuss the types of measures enacted by state legislation.
Q:
Dave, a manager for Small Co., has authority to contract for credit sales of up to $100,000. Dave decides to extend $300,000 of credit for Christmas merchandise to a new customer with solid financial statements. Discuss if Small Co. is bound by this transaction and how Small Co. might choose to be bound if not already bound.
Q:
Jalenos owned voting stock in Altech Inc. He submitted a 700-word shareholder proposal to management one week before the next shareholders' meeting. The proposal called for the firing of Carter, who was the president of Altech. Management rejected Jalenos' proposal. Point out the problems with Jalenos' proposal.
Q:
Seventy shareholders of a large chemical plant entered into a pooling agreement to vote against the corporation's plan to acquire a smaller chemical manufacturing company. On the day of the vote, 25 of the shareholders in the pooling agreement broke the agreement and voted for the acquisition. Brian, one of the shareholders in the pooling agreement who voted against the acquisition, said he was going to bring a lawsuit for breach of contract against the shareholders who broke the agreement. Can Brian expect to win such a lawsuit? Why or why not?
Q:
Michelson was chairman of the board and chief executive officer of a computer manufacturing firm. When considering whether to purchase CompuPrint, the manufacturer of computer printers, Michelson examined CompuPrint's financial records, consulted with legal and financial experts, and conducted an in-depth study of the marketplace and decided that it would be profitable for his corporation to purchase CompuPrint. If CompuPrint turns out to be a poor investment and a court hears a case challenging Michelson's decision, the court will most likely judge his conduct under the:
A. business judgment rule.
B. insider trading rule.
C. fairness rule.
D. shareholder protection rule.
Q:
Linda, a currency trader for United Traders, has specific instructions not to take a position on any currency in excess of $1 million. Linda sees what she believes to be a sure thing and takes a $20 million position. Unfortunately, the transaction goes bad and costs United $60 million. Does Linda have any liability to United?
A. Yes, she violated specific instructions and is liable for the loss.
B. No, this is normal market practice.
C. Yes, she engaged in insider trading.
D. No, she is protected by the business judgment rule.
Q:
Some jurisdictions consider managers responsible if they exceed their authority only if the violation results in negligent or intentional conduct. This duty is referred to as the:
A. duty of diligence.
B. duty of loyalty.
C. duty of care.
D. duty of obedience.
Q:
Koto, a successful accountant, has been invited to join the board of directors of Big Co. Koto is concerned that she will face personal liability for her decisions while on the board of Big. How can Big, by itself, limit her liability at this point in time?
A. Protective measures in the charter
B. Protective measures in the bylaws
C. Protective measures in the articles of organization
D. Protective measures in the members' agreement
Q:
Alan, a corporate manager, decides he would like to pursue, for himself, a business opportunity he knows his corporation would also be interested in. Under the corporate opportunity rule, Alan may:
A. pursue the business opportunity only if he offers it to other corporate managers and also allows them to pursue it.
B. never pursue the business opportunity as long as he is employed by the corporation.
C. pursue the business opportunity if he first offers it to the corporation and the corporation rejects it.
D. pursue the business opportunity without informing the corporation of it.
Q:
Aqua LLC is a member-managed LLC. Andrew, a member, agrees to resolve a dispute with a customer by submitting the claim to binding arbitration. This action by Andrew:
A. binds Aqua.
B. is not binding on Aqua.
C. binds Aqua if the claim is under $1,000.
D. is not binding on Aqua until approved by the court.
Q:
_____ refers to the actual document that is used to request the right to vote the other shareholders' votes.
A. Proxy solicitation
B. Pooling agreement
C. Cumulative voting
D. Voting trust
Q:
To submit a shareholder proposal, a shareholder must own _____ percent or _____ dollars in market value of the voting stock of the corporation.
A. 5; 5,000
B. 3; 1,000
C. 1; 2,000
D. 1; 5,000
Q:
When shareholders join together in a temporary arrangement, it is called a:
A. voting trust.
B. cumulative voting arrangement.
C. shareholder proposal.
D. pooling agreement.
Q:
If Drake, a shareholder of Sweet Corp., feels that he has been deprived of the right to purchase some of the corporation's newly issued stock, he:
A. may bring a derivative suit against Sweet's corporate manager.
B. may bring a direct suit against Sweet's corporate manager.
C. may bring both a derivative suit and a direct suit against Sweet's corporate manager.
D. has no legal recourse against Sweet's corporate manager.
Q:
In order to bring a derivative suit, when must a shareholder own stock?
A. At the time of the injury only.
B. At the time of the suit only.
C. Both at the time of the injury and the time of the suit.
D. At the time of the injury, suit, and trial.
Q:
Pogisa is a director at Trendz Corp. After studying and consulting with experts, Pogisa votes to have Trendz sell a tract of land for $500 per acre. Within a year, the land is worth $2,000 per acre and Trendz shareholders want to sue Pogisa for her vote to sell the land. What legal protection, if any, does Pogisa have?
A. The fairness rule
B. The business judgment rule
C. The insider trading rule
D. The actual authority rule
Q:
In terms of shareholder voting control, this voting method states that each share of stock has as many votes as there are directors to be elected.
A. Voting trusts
B. Proxy voting
C. Pooling agreements
D. Cumulative voting
Q:
The right to cast another shareholder's vote is called:
A. cumulative voting.
B. proxy voting.
C. a pooling agreement.
D. a shareholder proposal.
Q:
Which of the following theories intends to make management more responsive to shareholders by giving shareholders greater voting control and making it easier for them to take managers to court?
A. Governmental control
B. Special interest group control
C. Independent director control
D. Corporate democracy
Q:
The theory that holds that managers should be insulated from the influence of shareholders is the:
A. special interest group control theory.
B. state control theory.
C. managerial control theory.
D. shareholder democracy theory.
Q:
Which of the following theories points out that officers and the directors of a corporation are in the best position for judging not only the needs of the corporation but also the needs of the community and the needs of society at large?
A. Special Interest Group Control
B. Governmental Control
C. Corporate democracy
D. Managerial Control
Q:
Amanda owns 10% of the stock of Modern Co. and has the common law right to purchase a proportionate share of every new offering of stock by the corporation.
Q:
A manager of a manager-managed LLC is protected by the business judgment rule but not the fairness rule.
Q:
If managers choose to run an LLC on their own, then management rights are appointed among the members, according to the capital contributions made by each member to the LLC.
Q:
For most business decisions, the quorum, or minimum number of directors necessary to conduct business, is usually:
A. three-quarters of the total number of directors.
B. two-thirds of the total number of directors.
C. half the number of total directors.
D. one more than half of the total number of directors.
Q:
This theory of corporate governance is based on the idea that corporate decision making affects more individuals and groups than just the shareholders and the managers of the corporation.
A. Corporate democracy
B. Governmental control
C. Special interest group control
D. Managerial control
Q:
This theory of corporate management is based on the belief that because corporate decision making influences more individuals and groups than just the shareholders and the managers, corporate decisions should be made by an impartial group of corporate outsiders.
A. Governmental control
B. Special interest group control
C. Corporate democracy
D. Managerial control
Q:
It is mandated by law that only a shareholder can be a trustee in case of the voting trust.
Q:
A derivative suit is based on a direct injury to a shareholder.