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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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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 Delaware General Corporation Law, e-mail is not a legally-recognized official form of business communication.
Q:
All corporate actions can be taken only through board initiative.
Q:
Directors are agents for the corporation by virtue of that office.
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?
Q:
Why might a U.S. investor choose to incorporate its business in the country where it is conducting its overseas operations? What special constraints might exist?
Q:
If articles of incorporation provide for a limited life:
A. the corporation automatically terminates at the end of the designated time.
B. the corporation must appeal to the Secretary of State for dissolution.
C. the corporation dissolves only by amendment to the contract.
D. the corporation terminates at the end of the designated time only with the written consent of all shareholders.
Q:
Which of the following statements is true for the dissolution of a corporation by agreement?
A. It doesn't require the state's consent to dissolve.
B. A corporation can be dissolved by oral consent of all shareholders.
C. If two corporations consolidate into a new corporation, only the old one with major shareholders is dissolved.
D. A corporation that merges into another is dissolved.
Q:
Under the Model Business Corporation Act, a shareholder may ask a court to dissolve a corporation when:
A. a corporation uses assets for public welfare.
B. directors are in conflict, their deadlock cannot be broken by shareholders, and the corporation faces ruin.
C. directors are maintaining registered agents without the approval of the shareholders.
D. creditors are acting unfairly or illegally.
Q:
Which of the following would be a justification for involuntary dissolution of a corporation by a creditor?
A. Misapplication or waste of corporate assets.
B. Directors are in conflict, deadlock cannot be broken by shareholders, and the corporation faces ruin.
C. Corporation is insolvent and not paying its debts.
D. Directors are acting illegally or unfairly.
Q:
Explain the promoters' liability to third parties before the corporation is formed.
Q:
What must be included in the articles of incorporation according to the MBCA?
Q:
Which of the following is true for a close corporation?
A. The shareholders are large in number.
B. Shareholders usually live in different geographic areas.
C. Only few of the shareholders are active in the business.
D. There is no established market for the stock.
Q:
One of the basic principles of corporation law is that:
A. shareholders are not free to dispose of their shares by gift.
B. shareholders are given the authority to manage the business.
C. majority rule applies to both shareholder and director action.
D. majority rule applies only to director action.
Q:
Which of the following is a useful way of preventing unwanted persons from entering a corporation?
A. Novation
B. Consent restraint
C. Piercing the veil
D. Estoppel
Q:
______ is a basic restriction governing the transferability of shares in a close corporation.
A. Piercing the veil
B. Quo warranto
C. Right of first refusal
D. Ultra vires
Q:
In a ____, the promoters substantially complied with all mandatory provisions.
A. de jure corporation
B. de facto corporation
C. corporation by estoppel
D. close corporation
Q:
A de facto corporation exists where:
A. the promoters had substantially complied with all mandatory provisions.
B. an honest attempt was made to comply with the mandatory provisions of the corporate statue, yet the attempt still failed in some material respect.
C. a person holds himself out to be a representative of a corporation, yet no real attempt to incorporate has been made.
D. the corporation can be challenged by a third party.
Q:
According to the traditional judicial rule, under which of the following situation can courts pierce the corporate veil?
A. When there is undercapitalization coupled with strict adherence to corporate formalities.
B. When there is strict adherence to corporate formalities such as holding shareholders' but not directors' meetings.
C. When there is undercapitalization.
D. When shareholders mixed their personal dealings and corporate transactions as if all were professional.
Q:
In a de jure corporation:
A. the promoters have substantially complied with all mandatory provisions.
B. the promoters have only complied with directory provisions.
C. the business intends to be treated as a corporation.
D. the omission of directory provisions will destroy the enterprise's corporate identity.
Q:
Under the revised MBCA, if there are business debts following a defective incorporation, liability for the debts will be imposed upon:
A. all purported shareholders who acted as if a corporation had been formed.
B. promoters, managers, or purported shareholders who only participated in management and policy decisions in the business.
C. all shareholders and directors who participated actively or inactively.
D. promoters, managers, and shareholders who participated in management and policy decisions, and also knew of the defective incorporation.
Q:
Which of the following steps governing the incorporation process is included in the MBCA?
A. Preparation, signing, and authenticating the articles of incorporation.
B. Filing the articles with the attorney general.
C. Filing the articles with the secretary of state and paying part of the required fees.
D. Contributing a minimum of $5,000 to receive a certificate of incorporation.
Q:
According to the MBCA, which of the following may be included in the articles of incorporation?
A. The name of the corporation.
B. The name and address of each incorporator.
C. The number of shares of capital stock that the corporation shall have authority to issue.
D. The duration of the corporation.
Q:
The bylaws of a corporation:
A. usually set up procedures for the holding of shares.
B. do not involve financial matters such as declaring and paying dividends.
C. establish rules for the conduct of internal affairs.
D. need not be consistent with state laws or the articles of incorporation.
Q:
Which of the following statements is true about the ultra vires doctrine?
A. It is the only stringent limitation on the enforceability of contracts entered into by corporations.
B. It permits corporate directors to freely prevent enforcement of unattractive contracts.
C. It permits the state attorney general to prevent enforcement of corporate contracts that extend beyond the corporation's authorized powers.
D. It does not permit the corporation to bring a suit for damages to the corporation against the officers of the corporation who have entered into an ultra vires contract.
Q:
Under the revised MBCA's liability rules for defective incorporation:
A. the filing of the articles of incorporation, evidenced by a return of the copy stamped by secretary of state, is conclusive proof of incorporation.
B. liability will never be imposed on promoters who participated in management and policy decisions.
C. the issuance of the certificate of incorporation is conclusive proof of incorporation to the corporate status, except a quo warranto action brought by the secretary of state.
D. managers will be released from any liability in excess of their initial investment.
Q:
Helen is a promoter who, prior to forming Tile Co., contracted to purchase tile-manufacturing machinery from Owen Machinery Co. The contract was negotiated and entered into in the name of Tile Co. Subsequently, a certificate of incorporation was issued to Tile Co. In view of the facts stated which of the following statements is true?
A. When Tile received its certificate of incorporation, it became liable for the contract with Owen.
B. Helen is liable for the contract with Owen Machinery Co.
C. If Tile's board of directors issue a suitable resolution, Helen will be relieved from all liability for the contract with Owen.
D. Since Tile was not in existence at the time the contract was negotiated, the contract is void.
Q:
Massachusetts courts require that the parties expressly create a(n) _____ before a corporation can be held liable for preincorporation contracts.
A. adoption agreement
B. novation
C. incorporation regulation
D. operating agreement
Q:
Before a corporation comes into existence:
A. it can be liable as principal.
B. it cannot ratify a contract made by the promoter.
C. it is illegal to pay promoters for their services.
D. it is liable if the board acts to adopt the contract.
Q:
Under general incorporation laws:
A. incorporation is a legislative privilege, not a right.
B. the secretary of state has to issue a certificate of incorporation.
C. incorporation is decided by shareholders.
D. incorporation is a legislative privilege and a right.
Q:
All business corporations derive their existence from:
A. the Commerce Clause of the U.S. Constitution.
B. the common law.
C. the state in which they are incorporated.
D. the federal government.
Q:
Which of the following states has traditionally been considered attractive for incorporation?
A. Delaware
B. New York
C. California
D. Iowa