Question 1

[Self-Centered President] Allison is president of "We Manage You," a corporation set up to manage physician practices. Allison has never been very concerned with minority shareholders because she believes that they have little influence over the company since they cannot even elect a director. She is told, however, that her state just instituted the practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares, while majority shareholders own 8,000 shares. Allison tells her vice president, Marco, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells Marco that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders Marco to destroy some documents subpoenaed in a criminal investigation against the company for illegal dumping. When Marco protests, Allison tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the duties of an officer. She explains to him that only the corporation can be charged with liability in such cases.
-Is Allison correct that she owes no duties to shareholders?

Accepted Answer

A)   Yes, she is correct because it is the directors who owe duties to shareholders.
B)   No, she is incorrect because she owes a duty of care to shareholders although she owes no other duties.
C)   No, she is incorrect because she owes a duty of loyalty to shareholders although she owes no other duties.
D)   No, she is incorrect because she owes both a duty of care and a duty of loyalty to shareholders.
E)   She is partially correct. She owes both a duty of care and a duty of loyalty to minority shareholders, but no duties to majority shareholders because the law assumes that they have the power to protect their own interests.F) A) and E)
G) All of the above

Question 2

In most states, a corporation's bylaws can negate preemptive rights.

Accepted Answer

A) True 
 B)False

Question 3

When the corporation will not issue physical stock certificates, shares are ________.

Accepted Answer

A)   Approved
B)   Unapproved
C)   Unacknowledged
D)   Acknowledged
E)   UncertificatedF) None of the above
G) All of the above

Question 4

For no-par shares, Ryan a shareholder, must pay ________.

Accepted Answer

A)   depreciated values.
B)   the 12 month average of the stock.
C)   premium prices.
D)   value that is assessed by the officers.
E)   fair market value.F) B) and C)
G) A) and B)

Question 5

How is the number of corporate directors determined?

Accepted Answer

A)   In the discretion of the president of the corporation.
B)   By vote of the stockholders.
C)   According to the corporate articles or bylaws.
D)   According to the number of shares issued.
E)   According to the amount of profit projected by incorporators for the first year.F) B) and E)
G) C) and D)

Question 6

Hans receives a dividend from his closely held corporation, causing the company to go insolvent. He was aware of the fact that the dividend would result in insolvency. Which of the following is true?

Accepted Answer

A)   He is not liable, because shareholders are protected from liability
B)   He is liable for losses to the extent of his investment.
C)   He is personally liable and must return the funds to the corporation
D)   He is liable only if he was a director
E)   He is liable because he violated the business judgment rule.F) A) and B)
G) A) and C)

Question 7

Directors and officers have a fiduciary duty of care.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is NOT within the primary role of directors?

Accepted Answer

A)   Appointing, supervising and removing corporate officers
B)   Declaring pay and corporate dividends for shareholders
C)   Making financial decisions
D)   Authorizing corporate policy decisions
E)   Elect and remove other directorsF) A) and E)
G) A) and D)

Question 9

In regard to cumulative voting, it is not guaranteed by RMBCA, but occurs only if the corporation's ________ provides for it.

Accepted Answer

A)   voting proxy
B)   articles of incorporation
C)   bylaws
D)   shareholder's voting memorandum
E)   board of directorsF) A) and C)
G) C) and E)

Question 10

In the text case Auerbach v. Bennett a shareholder brought a derivative action after an internal audit of the GTE Corporation suggested that the corporation's management had paid significant amounts in bribes and kickbacks over a period of several years. Which of the following was the result on appeal?

Accepted Answer

A)   The court ruled that the business judgment rule exempted the directors from liability.
B)   The court ruled that the business judgment rule exempted the directors from liability only so long as the directors could establish that the shareholders did not lose money on account of their actions.
C)   The court ruled that the business judgment rule exempted the directors from liability unless the shareholder could establish that the shareholders lost money on account of their actions.
D)   The court ruled that the business judgment rule did not apply because illegality was involved and that the corporation was, therefore, liable.
E)   The court ruled that the business judgment rule shielded the lawsuit insofar as foreign wrongdoing was alleged, but not for wrongdoing committed in the U.S.F) A) and E)
G) All of the above

Question 11

The Revised Model Business Corporation Act forbids directors' meetings being held via telephone.

Accepted Answer

A) True 
 B)False

Question 12

Jamira was hired by the board of directors to run the day-to-day business of a corporation. She is an agent of the corporation. Jarmia's role can best be described as a(n) ________?

Accepted Answer

A)   Director.
B)   Affiliated director.
C)   Outside director.
D)   Officer.
E)   Shareholder.F) A) and D)
G) D) and E)

Question 13

A(n)  ________ can be brought on behalf of individual shareholders if corporate directors fail to sue when the corporation has been harmed either by an individual, another corporation, or a director.

Accepted Answer

A)   action in harm suit
B)   shareholder action suit
C)   shareholder's direct suit
D)   shareholder's derivative suit
E)   active allocation suitF) A) and E)
G) B) and E)

Question 14

Which of the following is NOT true of shareholder liability?

Accepted Answer

A)   Shareholders are liable for the debts of a corporation to the extent of their investment
B)   Shareholders are liable for a breach of contract if a stock subscription agreement was signed and no stock was purchased
C)   Shareholders are liable for watered stock
D)   Shareholders are liable for violations of the business judgment rule
E)   Shareholders are personally liable for receiving illegal dividends.F) B) and E)
G) A) and B)

Question 15

The text case Patrick v. Allen discussed whether the business judgment rule exempted directors of a corporation from liability for renting land to a private golf course, of which several directors were members, at a price sufficient to cover only property taxes. Which of the following was the result?

Accepted Answer

A)   That the directors could not benefit from the rule because the business judgment rule applies to officers, not directors.
B)   That while the business judgment rule applies to directors, it did not apply to provide protection to the directors because they stood to benefit personally.
C)   That the business judgment rule applied to shield the directors from liability because no fraud was involved in the transaction.
D)   That the business judgment rule applied to shield the directors from liability because the directors received no money directly from the golf course.
E)   That the business judgment rule applied to shield the directors from liability because the transaction was properly recorded on the company's books and not hidden.F) A) and D)
G) C) and E)

Question 16

Which groups owe a duty of care to the corporation, and what does that duty require?

Accepted Answer

Directors and officers owe a duty of car...

Question 17

Which of the following rights does not apply to corporate directors?

Accepted Answer

A)   The right of compensation
B)   The right of participation
C)   The right of inspection
D)   The right of indemnification
E)   The right of obedienceF) A) and B)
G) A) and C)

Question 18

There are four rights of directors explained in the text. Please list and describe each of these four rights.

Accepted Answer

The rights of compensation, participatio...

Question 19

If a director makes a decision that inadvertently harms the company, shareholders can hold the director liable for the bad decision under all circumstances.

Accepted Answer

A) True 
 B)False

Question 20

[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.
-Regarding the liability of Simone, if any, for purchasing the stock at below its fair market value, which of the following is true?

Accepted Answer

A)   If the board wanted to offer it to her, they had that right, and there is no consequence to Simone.
B)   She is liable for double the stated corporate value of the stock in addition to any price she already paid.
C)   She is liable for the stated corporate value of the stock in addition to any price she already paid.
D)   She is liable for paying the difference between the price she paid for the shares and the stated corporate value of the shares.
E)   She is liable for paying the difference between the price she paid for the shares and the stated corporate value of the shares plus a $10,000 penalty.F) A) and B)
G) A) and C)

Exam 39: Corporations: Directors, Officers, and Shareholders

Correct Answer
verified

In regard to cumulative voting, it is not guaranteed by RMBCA, but occurs only if the corporation's ________ provides for it.

Correct Answer
verified

If a director makes a decision that inadvertently harms the company, shareholders can hold the director liable for the bad decision under all circumstances.

Correct Answer
verified

The Revised Model Business Corporation Act forbids directors' meetings being held via telephone.

Correct Answer
verified

Jamira was hired by the board of directors to run the day-to-day business of a corporation. She is an agent of the corporation. Jarmia's role can best be described as a(n) ________?

Correct Answer
verified

Which of the following is NOT true of shareholder liability?

Correct Answer
verified

Which of the following is NOT within the primary role of directors?

Correct Answer
verified

There are four rights of directors explained in the text. Please list and describe each of these four rights.

Correct Answer
verified
The rights of compensation, participatio...
View Answer

Which groups owe a duty of care to the corporation, and what does that duty require?

Correct Answer
verified
Directors and officers owe a duty of car...
View Answer

In most states, a corporation's bylaws can negate preemptive rights.

Correct Answer
verified

Which of the following rights does not apply to corporate directors?

Correct Answer
verified

How is the number of corporate directors determined?

Correct Answer
verified

Directors and officers have a fiduciary duty of care.

Correct Answer
verified

For no-par shares, Ryan a shareholder, must pay ________.

Correct Answer
verified

Hans receives a dividend from his closely held corporation, causing the company to go insolvent. He was aware of the fact that the dividend would result in insolvency. Which of the following is true?

Correct Answer
verified

When the corporation will not issue physical stock certificates, shares are ________.

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

A(n) ________ can be brought on behalf of individual shareholders if corporate directors fail to sue when the corporation has been harmed either by an individual, another corporation, or a director.

Correct Answer
verified

Exam 39: Corporations: Directors, Officers, and Shareholders

Correct AnswerverifiedShow Answer

In regard to cumulative voting, it is not guaranteed by RMBCA, but occurs only if the corporation's ________ provides for it.

Correct AnswerverifiedShow Answer

If a director makes a decision that inadvertently harms the company, shareholders can hold the director liable for the bad decision under all circumstances.

Correct AnswerverifiedShow Answer

The Revised Model Business Corporation Act forbids directors' meetings being held via telephone.

Correct AnswerverifiedShow Answer

Jamira was hired by the board of directors to run the day-to-day business of a corporation. She is an agent of the corporation. Jarmia's role can best be described as a(n) ________?

Correct AnswerverifiedShow Answer

Which of the following is NOT true of shareholder liability?

Correct AnswerverifiedShow Answer

Which of the following is NOT within the primary role of directors?

Correct AnswerverifiedShow Answer

There are four rights of directors explained in the text. Please list and describe each of these four rights.

Correct AnswerverifiedThe rights of compensation, participatio...View AnswerShow Answer

Which groups owe a duty of care to the corporation, and what does that duty require?

Correct AnswerverifiedDirectors and officers owe a duty of car...View AnswerShow Answer

In most states, a corporation's bylaws can negate preemptive rights.

Correct AnswerverifiedShow Answer

Which of the following rights does not apply to corporate directors?

Correct AnswerverifiedShow Answer

How is the number of corporate directors determined?

Correct AnswerverifiedShow Answer

Directors and officers have a fiduciary duty of care.

Correct AnswerverifiedShow Answer

For no-par shares, Ryan a shareholder, must pay ________.

Correct AnswerverifiedShow Answer

Hans receives a dividend from his closely held corporation, causing the company to go insolvent. He was aware of the fact that the dividend would result in insolvency. Which of the following is true?

Correct AnswerverifiedShow Answer

When the corporation will not issue physical stock certificates, shares are ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A(n) ________ can be brought on behalf of individual shareholders if corporate directors fail to sue when the corporation has been harmed either by an individual, another corporation, or a director.

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 rights of compensation, participatio...
View Answer

Correct Answer
verified
Directors and officers owe a duty of car...
View Answer

Correct Answer
verified

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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