Q&A Hero

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.

Q: Nate is a director of Ordinary Business, Inc. At directors' meetings in most states, Nate's vote may be cast a. by mail, by proxy, or in person. b. by mail or in person only. c. by proxy or in person only. d. in person only.

Q: Avian Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Avian's board could transact its business is a. all of the directors authorized in the articles or bylaws. b. a majority of the number authorized in the articles or bylaws. c. any odd number. d. one.

Q: Sam and Tina incorporate their business as U.S. Products, Inc. The first board of directors may be appointed by the firm's a. board of directors. b. incorporators. c. officers. d. shareholders.

Q: Shares issued for less than their stated values are no-par shares.

Q: A $10 issued par-value share that is sold initially for $12 is watered stock.

Q: Damages awarded in a shareholder's derivative suit are paid into the corporation's treasury.

Q: A right of first refusal remains with a corporation indefinitely.

Q: Shareholders have no right to inspect corporate books and records.

Q: Shareholders must return an illegal dividend if they knew that it was illegal when it was received.

Q: Stock warrants are transferable options to acquire a given number of shares from the corporation at a stated price.

Q: If a stock certificate is lost or destroyed, the shareholder's ownership interest in the corporation is lost with it.

Q: Shareholder voting agreements are valid.

Q: Cumulative voting is a method of voting designed to allow minority shareholders representation on the board of directors.

Q: Shareholders' meetings must occur at least twice a year.

Q: Shareholders are ultimately personally responsible for corporate debts.

Q: Corporate directors and officers are insurers of business success.

Q: A board of directors cannot delegate any of its functions to corporate officers.

Q: A minimum number of directors must be present before a board can transact business.

Q: A board of directors generally conducts business without holding formal meetings.

Q: A person must be a shareholder of a corporation to serve as a director.

Q: Few legal qualifications exist for directors.

Q: A corporation can name its first board of directors in the articles of incorporation.

Q: No state permits a corporate board to have fewer than three directors.

Q: Arnold is a director and the majority shareholder of Beta Investments Corporation. Arnold buys, for $1,500, an option to purchase a tract of real estate for $50,000. Arnold forms a new corporation, Commercial Property, Inc., to hold the option. As the majority shareholder, and thus controlling director, of Beta, Arnold orders Beta to authorize the purchase of the land from Commercial Property for $100,000. Arnold then has Commercial Property buy the land and sell it to Beta, and loan the money to Beta for the purchase at a 10 percent interest rate. Diana, a minority shareholder in Beta, complains to Beta's board, which takes no action. Diana files a suit against Arnold on Beta's behalf. Will Diana prevail? Explain.

Q: Glen is a director and shareholder of Eagle Corporation and of Fine Products, Inc. A resolution comes before the Eagle board to compete with Fine Products. What is Glen's responsibility?

Q: Cole is a shareholder of Delta, Inc. Cole will be deemed to have a fiduciary duty to Delta and its minority shareholders if he has a. a restriction on the transferability of his shares. b. a right of first refusal. c. a sufficient number of shares to exercise de facto control. d. watered stock.

Q: Fact Pattern 39-1 Ray is a shareholder of Small Business Company (SBC). When the directors 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 39-1. Any damages recovered by Ray's suit will go to a. Ray. b. SBC. c. SBC's directors. d. the state in which SBC is incorporated.

Q: Fact Pattern 39-1 Ray is a shareholder of Small Business Company (SBC). When the directors 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 39-1. Ray's suit is a shareholder's a. business-judgment rule suit. b. derivative suit. c. duty-of-care suit. d. duty-of-loyalty suit.

Q: American Products, Inc., limits the sale of its shares by reserving the option to buy any shares offered for resale by its shareholders. This is a. a preemptive right. b. a right of first refusal. c. a shareholder's derivative right. d. a stock-subscription agreement.

Q: In all states, Beta Company and other corporations can pay dividends from a. gross profits. b. net profits. c. retained earnings. d. surplus.

Q: Lara owns 100 shares of Mighty Company. Mighty issues 10,000 new shares. According to her stock certificates, Lara is entitled to buy another 100 shares at the time of the new issue. This is an example of a. participation rights. b. preemptive rights. c. the right of first refusal. d. voting rights.

Q: Fiona owns one share of stock in Great Corporation, as evidenced by a stock certificate. Fiona loses the certificate. Her ownership of the stock is a. forfeited immediately. b. forfeited within ten days of a third party's claim to ownership. c. forfeited within thirty days if she cannot find the certificate. d. not affected.

Q: Tom is a shareholder of Unit Company. As a shareholder, Tom does not have a. a right to compensation. b. dividend rights. c. inspection rights. d. preemptive rights.

Q: Applied Innovations, Inc., has thirty-five shareholders. The minimum number that must be present at a meeting for a shareholders' vote is a. a proxy. b. a quorum. c. eighteen. d. thirty-five.

Q: Edie is a shareholder of Fast Food, Inc. As a shareholder, she must approve a. amending the articles of incorporation. b. declaring a corporate dividend. c. hiring a chief executive officer. d. issuing additional shares.

Q: Fran is a director of Global Enterprises, Inc. To the corporation, Fran owes a duty of a. care and loyalty. b. care only. c. loyalty only. d. neither care nor loyalty.

Q: Frosty Corporation distributes beverages in the greater Northwest. Frosty's board of directors can delegate some of its functions to a. Frosty's incorporators. b. Frosty's officers. c. Frosty's shareholders. d. no one.

Q: Opal and Pete are two of ten authorized directors of Quality Company. The minimum number of directors that can customarily declare a dividend on Quality stock is a. two. b. five. c. six. d. zero.

Q: Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coast's employees include its a. board of directors. b. incorporators. c. officers. d. shareholders.

Q: Visual Company makes DVD players. Visual is like most corporations in that its officers are hired by the firm's a. board of directors. b. incorporators. c. other officers. d. shareholders.

Q: Irma, Jim, and Kelly are the directors of Liberty, Inc. Liberty has nine officers and forty-six shareholders. Dividends are ordered by the firm's a. board of directors. b. incorporators. c. officers. d. shareholders.

Q: Rosa and Sam are directors of Tech, Inc. The right of Rosa and Sam to be notified of special meetings of the board is the right to a. compensation. b. indemnification. c. participation. d. preemption.

Q: Rita is a director of Standard Corporation. Rita's rights, as a director, do not include a right to a. indemnification. b. inspection of books. c. participation. d. preemption.

Q: Lou and Mary act as the incorporators for National Corporation. After the first board of directors is chosen, subsequent directors are elected by a majority vote of National's a. board of directors. b. incorporators. c. officers. d. shareholders.

Q: Cody and Dina form Eagle Corporation. Eagle has a board of directors, a chief executive officer, a chief operating officer, and fifty-two shareholders. Eagle is governed by its a. board of directors. b. incorporators. c. officers. d. shareholders.

Q: A shareholder that owns sufficient shares to exercise de facto control over a corporation owes a fiduciary duty to the minority shareholders.

Q: Par-value shares do not have a specific face value.

Q: A $10 issued par-value share that is sold initially for $8 is watered stock.

Q: When shareholders are deadlocked, a court may order the dissolution of a corporation.

Q: Persons whose names appear on a corporation's shareholder records as owners are ordinarily entitled to vote.

Q: When shares are transferred, the new owner obtains the right to vote the shares before the new ownership is recorded in corporate stock books.

Q: Under some circumstances, a corporation can refuse a shareholder's request to inspect corporate records.

Q: Dividends may be paid from any corporate funds at the discretion of the directors.

Q: Preemptive rights entitle shareholders to bring a derivative suit against the corporation.

Q: The ownership right to stock exists independently of the stock certificate.

Q: Shareholders may not vote by proxy.

Q: Directors are required to use a reasonable amount of supervision over the corporate officers.

Q: A board of directors generally makes major corporate policy decisions.

Q: Corporate officers can be empowered to make decisions relating to ordinary corporate affairs.

Q: A director is always a fiduciary of a corporation.

Q: Shareholders may not vote to remove members of the board of directors.

Q: A director can be removed from a corporate board for cause.

Q: A director is elected by a majority vote of the other members of the board.

Q: Some states permit some corporations to eliminate the board of directors.

Q: Corporate officers govern every corporation.

Q: Dan is a promoter for the soon-to-be-incorporated firm of E-Business, Inc. Dan signs a contract with Smith & Jones, Accountants, to render their services before E-Business is incorporated and for one year after the incorporation. E-Business is incorporated. Three months later, after Smith & Jones has continued performing under the contract, the E-Business board of directors tells the accountants that it is canceling their contract. Smith & Jones files a suit against Dan and E-Business, alleging breach of contract. Will Smith & Jones prevail?

Q: Alpha, Inc., is a small business. Bob, Carly, and eleven other members of the Alpha family own all of its stock. Currently, Alpha's income is taxed at the corporate level and, after being distributed to the family members, at the shareholder level. Can Alpha retain its corporate status but otherwise avoid this double taxation? If so, how?

Q: Lyn is a holder of preferred stock in Macro, Inc. Lyn has priority over holders of Macro common stock as to a. increases in value over time. b. payments of dividends. c. the date on which Macro must repurchase the shares. d. upward changes in the market price of the shares.