Question 1

Unless otherwise designated as irrevocable, proxies last for ________ and can be withdrawn at any time.

Accepted Answer

A)   6 months
B)   11 months
C)   One year
D)   Two years
E)   Three yearsF) All of the above
G) B) and C)

Question 2

A director may be removed for which of the following reasons?

Accepted Answer

A)   At the will of the president.
B)   In the discretion of the shareholders upon majority vote.
C)   In the discretion of the shareholders upon a two-thirds vote.
D)   In the discretion of other directors upon a majority vote.
E)   For cause.F) C) and D)
G) B) and E)

Question 3

[Machine Malfunction] Michael, the president of a health club operation called Head-to-Toe Health Club, convinced the board of directors to approve a large purchase of a certain fitness machine called "Perfect Body." Michael had carefully investigated the machine and did a presentation to the board on its purported benefits. Unfortunately, after the purchase, it was announced that "Perfect Body" was actually a very dangerous machine that should not be used. The manufacturer of "Perfect Body" went bankrupt, and Head-to-Toe lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Michael and the directors. In an attempt to appease the ring leader of the shareholders, Simone, the board of directors agrees to allow her to purchase stock of the company at below its fair market value. Simone purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Michael and the board members.
-Under which of the following should Michael and the board of directors defend themselves in an action brought by shareholders for harming the corporation?

Accepted Answer

A)   The superior judgment rule.
B)   The research and investigation rule.
C)   The business judgment rule.
D)   The rule of corporate integrity.
E)   There is no defense.F) D) and E)
G) None of the above

Question 4

Daily management of a corporation is the direct responsibility of the shareholders.

Accepted Answer

A) True 
 B)False

Question 5

Ursula is an executive at a corporation. She becomes angry at her co-owners and begins making bad investments, buying up companies she thinks will soon go bankrupt. When she is sued for a breach of fiduciary duty, can the business judgment rule protect her?

Accepted Answer

A)   Yes, because she was acting within the scope of her authority.
B)   Yes, because the business judgment rule protects directors and officers from being held accountable for bad decisions.
C)   No, because the business judgment rule is an exception to the fiduciary duty of board members.
D)   No, because the business judgment rule does not apply to executives.
E)   No, because she did not act in good faith.F) A) and E)
G) A) and B)

Question 6

There are two types of self-dealing in which officers and directors might engage. List and describe both types, as well as the penalty for doing so.

Accepted Answer

The first, business self-dealing, occurs...

Question 7

Who actually owns a corporation?

Accepted Answer

A)   Directors and officers
B)   Officers and shareholders
C)   Directors only
D)   Officers only
E)   ShareholdersF) B) and E)
G) B) and C)

Question 8

While incorporating, the future owners of the corporation want to restrict stock transferability to ensure that existing shareholders have the right to buy any shares of stock offered for sale by a shareholder within a specified time period. The right they should establish in their corporate bylaws is referred to as the ________

Accepted Answer

A)   Right of adequate refusal
B)   Right of first refusal
C)   Right of first purchase
D)   Right of first acknowledgement
E)   Superior right of purchaseF) D) and E)
G) A) and B)

Question 9

[Kite Sales] Tatiana is president of a business that manufactures kites. The kites of her company, ABC Kites, are sold to large toy stores. After Tatiana learned a great deal about kites at ABC, she started to make kites at home. She started selling kites to friends. She also started to make inquiries regarding selling her kites to larger toy stores in the area, and she began making a few sales to them. Her plan was to start small and then leave ABC after she had increased sales. She did not work on her side project while she was on the clock with ABC. Some of the directors learned about her kite sales and accused her of wrongdoing. Tatiana denied any wrongdoing and pointed out that she did not work on her project while she was on the job with ABC.
-What remedy will be imposed on Tatiana, if any, for her home kite sales?

Accepted Answer

A)   Nothing because Tatiana did not engage in any wrongdoing.
B)   She will be required to cede to the corporation all the profits she earned as a result of the breach.
C)   She will be required to cede to the corporation only profits she earned as a result of the breach that the corporation can prove by a preponderance of the evidence it lost as a result of her actions.
D)   She will be required to cede to the corporation any profits she earned as a result of the breach unless she can by a preponderance of the evidence prove that the corporation lost no sales as a result of her actions.
E)   She will be required to cede to the corporation half of any profits she earned as a result of the breach.F) A) and D)
G) C) and E)

Question 10

Under the common law, shareholders have ________ which give preference to shareholders to purchase shares of new issues of stock.

Accepted Answer

A)   first rights
B)   superior rights
C)   preemptive rights
D)   initial rights
E)   shareholder's rightsF) C) and D)
G) B) and D)

Question 11

In a closely held corporation, a breach of the duty of a majority shareholder to act with care and loyalty when selling his or her shares is known as ________.

Accepted Answer

A)   Oppressive conduct
B)   Majority holder misconduct
C)   Minority oppression
D)   Minority discrimination
E)   Disloyal procedureF) A) and B)
G) A) and C)

Question 12

A director of a corporation knowingly releases a dangerous drug that will kill 10 percent of those who take the medication. He was concerned when the drug was being developed so he told the head of medical testing not to let him know if the drug had any adverse side effects. Since he was not told of the side effects, he felt he could not be required to report them to the FDA. Which of the following is true of his liability?

Accepted Answer

A)   He cannot be held responsible because the corporation released the drug.
B)   He cannot be held responsible because he was unaware of the dangers of the drug.
C)   He can be held responsible for his own torts and crimes and for the crimes of other employees whom they have failed to adequately supervise.
D)   He cannot be held responsible if the board of directors approved the release of the drug.
E)   He cannot be held responsible because the illegal actions of hiding the drug's side effects were done by a subordinate.F) A) and E)
G) All of the above

Question 13

Which of the following is true of a shareholder's legal duties.

Accepted Answer

A)   All shareholders have a fiduciary duty not to compete with the company
B)   No shareholders ever have any legal duties
C)   Shareholders typically have few legal duties, but majority shareholders can sometimes have fiduciary duties to the corporation and to minority shareholders
D)   Shareholders typically have few legal duties, but minority shareholders can sometimes have fiduciary duties to the corporation and to majority shareholders
E)   Shareholders have a fiduciary duty to each other, but not to the corporation.F) B) and D)
G) A) and B)

Question 14

Beloxion is an outside director who has business contacts with the Carmenita Corporation. Beloxion would be considered a(n)  ________.

Accepted Answer

A)   associated director.
B)   accompanying director.
C)   intermediary director.
D)   affiliated director.
E)   unaffiliated directors.F) All of the above
G) A) and D)

Question 15

[Machine Malfunction] Michael, the president of a health club operation called Head-to-Toe Health Club, convinced the board of directors to approve a large purchase of a certain fitness machine called "Perfect Body." Michael had carefully investigated the machine and did a presentation to the board on its purported benefits. Unfortunately, after the purchase, it was announced that "Perfect Body" was actually a very dangerous machine that should not be used. The manufacturer of "Perfect Body" went bankrupt, and Head-to-Toe lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Michael and the directors. In an attempt to appease the ring leader of the shareholders, Simone, the board of directors agrees to allow her to purchase stock of the company at below its fair market value. Simone purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Michael and the board members.
-Stock such as that issued to Simone is called which of the following?

Accepted Answer

A)   No-par stock
B)   Reduced stock
C)   Watered stock
D)   Less-value stock
E)   Unapproved stockF) A) and D)
G) A) and C)

Question 16

Prior to an annual meeting, which of the following items, containing proposals made by shareholders, are sent to shareholders?

Accepted Answer

A)   Meeting agenda
B)   Proxy materials
C)   Presidential materials
D)   Officer materials
E)   Meeting proposalsF) A) and B)
G) C) and E)

Question 17

In the Case Opener, a majority shareholder voted to award a bonus to her son, the president of the company, over the objection of minority shareholders. Which of the following was the result on appeal?

Accepted Answer

A)   That in awarding the bonus, the majority shareholder violated the duty of loyalty she owed to the company.
B)   That in awarding the bonus, the majority shareholder violated the duty of care she owed to the company.
C)   That in awarding the bonus, the majority shareholder violated the business judgment rule.
D)   That the majority shareholder was guilty of no violation in awarding the bonus.
E)   That the majority shareholder's vote to award the bonus would be upheld only if she submitted additional proof that the bonus was deserved.F) A) and D)
G) A) and E)

Question 18

Which of the following was the result on appeal in McCann v. McCann, the case in the text involving whether a corporation engaged in a "squeeze-out" as to a minority shareholder?

Accepted Answer

A)   That the business judgment rule does not apply in such situations and that so long as there is any business reason for a transaction, a corporation cannot be found liable for a "squeeze-out" resulting in dismissal of the plaintiff's claims.
B)   That while the business judgment rule applied, the corporation submitted sufficient evidence to establish legitimate reasons for all questioned transactions and that it, therefore, could not be held liable to the complaining minority shareholder.
C)   That a material question of fact as to whether the directors could be found to have engaged in a "squeeze-out" of the beneficiary, causing him harm beyond every other shareholder, and that the case would be remanded for further proceedings.
D)   That because he owned over 20% of the stock, the failure to grant the complaining minority shareholder a seat on the board in and of itself was sufficient under the facts presented to establish that the corporation was guilty of behavior constituting an illegal "squeeze-out."
E)   That the failure to declare a dividend when sufficient assets existed with which to do so in and of itself was sufficient under the facts presented to establish that the corporation was guilty of behavior constituting an illegal "squeeze-out."F) None of the above
G) B) and D)

Question 19

If a director has caused harm to the business by violating a fiduciary duty, a shareholder can file a direct suit against the director.

Accepted Answer

A) True 
 B)False

Question 20

Dividends are considered ________ if they are paid when the corporation is insolvent.

Accepted Answer

A)   illegal
B)   invalid
C)   irresponsible
D)   debts
E)   creditsF) A) and B)
G) A) and C)

Exam 39: Corporations: Directors, Officers, and Shareholders

Which of the following is true of a shareholder's legal duties.

Correct Answer
verified

A director may be removed for which of the following reasons?

Correct Answer
verified

Ursula is an executive at a corporation. She becomes angry at her co-owners and begins making bad investments, buying up companies she thinks will soon go bankrupt. When she is sued for a breach of fiduciary duty, can the business judgment rule protect her?

Correct Answer
verified

Correct Answer
verified

Prior to an annual meeting, which of the following items, containing proposals made by shareholders, are sent to shareholders?

Correct Answer
verified

Daily management of a corporation is the direct responsibility of the shareholders.

Correct Answer
verified

If a director has caused harm to the business by violating a fiduciary duty, a shareholder can file a direct suit against the director.

Correct Answer
verified

There are two types of self-dealing in which officers and directors might engage. List and describe both types, as well as the penalty for doing so.

Correct Answer
verified
The first, business self-dealing, occurs...
View Answer

Who actually owns a corporation?

Correct Answer
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Unless otherwise designated as irrevocable, proxies last for ________ and can be withdrawn at any time.

Correct Answer
verified

Dividends are considered ________ if they are paid when the corporation is insolvent.

Correct Answer
verified

Correct Answer
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In the Case Opener, a majority shareholder voted to award a bonus to her son, the president of the company, over the objection of minority shareholders. Which of the following was the result on appeal?

Correct Answer
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Correct Answer
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Which of the following was the result on appeal in McCann v. McCann, the case in the text involving whether a corporation engaged in a "squeeze-out" as to a minority shareholder?

Correct Answer
verified

In a closely held corporation, a breach of the duty of a majority shareholder to act with care and loyalty when selling his or her shares is known as ________.

Correct Answer
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Correct Answer
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Beloxion is an outside director who has business contacts with the Carmenita Corporation. Beloxion would be considered a(n) ________.

Correct Answer
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Under the common law, shareholders have ________ which give preference to shareholders to purchase shares of new issues of stock.

Correct Answer
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Correct Answer
verified

Exam 39: Corporations: Directors, Officers, and Shareholders

Which of the following is true of a shareholder's legal duties.

Correct AnswerverifiedShow Answer

A director may be removed for which of the following reasons?

Correct AnswerverifiedShow Answer

Ursula is an executive at a corporation. She becomes angry at her co-owners and begins making bad investments, buying up companies she thinks will soon go bankrupt. When she is sued for a breach of fiduciary duty, can the business judgment rule protect her?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Prior to an annual meeting, which of the following items, containing proposals made by shareholders, are sent to shareholders?

Correct AnswerverifiedShow Answer

Daily management of a corporation is the direct responsibility of the shareholders.

Correct AnswerverifiedShow Answer

If a director has caused harm to the business by violating a fiduciary duty, a shareholder can file a direct suit against the director.

Correct AnswerverifiedShow Answer

There are two types of self-dealing in which officers and directors might engage. List and describe both types, as well as the penalty for doing so.

Correct AnswerverifiedThe first, business self-dealing, occurs...View AnswerShow Answer

Who actually owns a corporation?

Correct AnswerverifiedShow Answer

Unless otherwise designated as irrevocable, proxies last for ________ and can be withdrawn at any time.

Correct AnswerverifiedShow Answer

Dividends are considered ________ if they are paid when the corporation is insolvent.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the Case Opener, a majority shareholder voted to award a bonus to her son, the president of the company, over the objection of minority shareholders. Which of the following was the result on appeal?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following was the result on appeal in McCann v. McCann, the case in the text involving whether a corporation engaged in a "squeeze-out" as to a minority shareholder?

Correct AnswerverifiedShow Answer

In a closely held corporation, a breach of the duty of a majority shareholder to act with care and loyalty when selling his or her shares is known as ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Beloxion is an outside director who has business contacts with the Carmenita Corporation. Beloxion would be considered a(n) ________.

Correct AnswerverifiedShow Answer

Under the common law, shareholders have ________ which give preference to shareholders to purchase shares of new issues of stock.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The first, business self-dealing, occurs...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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