Q&A Hero

Q: The Securities and Exchange Commission (SEC) was created by the: A. Securities Exchange Act of 1934. B. Securities Investor Protection Act of 1970. C. Investment Company Act of 1940. D. Securities Act of 1933.

Q: As per the test laid down by the Supreme Court (in United States v. Chiarella), the definition of insiders includes not only officers and directors of the company but also anyone who has been entrusted with corporate information for a corporate purpose.

Q: Securities Exchange Act Rule 10b-5 liability attaches to anyone who trades in securities for personal profit using confidential information misappropriated in a breach of fiduciary duty owed to the source of the information.

Q: The state of Delaware has adopted business combination moratorium statutes to deter tender offers from being made.

Q: The ultimate purpose of the 1934 Act is to keep investors fully informed to allow them to make investment decisions when securities are sold by an issuer to investors.

Q: As per the 1934 Act, Section 16(a) prohibits statutory insiders from disclosing their ownership of their company's securities for the first 10 days of ownership.

Q: Rule 10b-5 relating to liability to false statements in filed documents applies to only those transactions in all securities, which are registered under the 1933 Act or the 1934 Act. FALSE

Q: The most important elements for violation of Rule 10b-5 of the 1933 Securities Act are misstatement or omission of material fact and negligence.

Q: Section 11 of the 1933 Act provides civil liabilities for damages when a 1933 Act registration statement on its effective date misstates or omits a material fact.

Q: The Sarbanes-Oxley Act of 2002 extends the statute of limitations to three years after discovery of facts constituting a violation of Section 11 of the 1933 Act and seven years after the violation.

Q: The maximum penalty for any person who willfully violates the Securities Act of 1933 or its rules and regulations is a $20,000 fine and 10 years' imprisonment.

Q: Prior to the filing of a 1933 Act registration statement, the issuer may use a Rule 134 tombstone advertisement to make investors aware of the upcoming offering of securities.

Q: The period of time between the filing and the effective date of a share offering is called the waiting period.

Q: An insurance policy is exempt from registration under the 1933 Act.

Q: Securities Act Rule 506 requires an issuer to sell to no more than 35 accredited investors.

Q: Section 5 of the 1933 Act provides an exemption from registration for transactions of securities by any person other than an issuer, underwriter, or dealer.

Q: The Securities Act of 1933 regulates the sale of securities when they are sold from the issuer to a public purchaser.

Q: While auditing the financial statements of Merlyn Company, Arturo Artinez discovers nonpublic, confidential information that Merlyn's earnings will be larger than earlier projected. Arturo informs his sister Selena about this, telling her, "You can make a lot of money using this information because it isn't public yet. Be discreet, however, because I'm not supposed to give you this information." Selena uses the information to purchase 20,000 shares of Merlyn. Three weeks later when, Merlyn releases the financial statements showing its actual earnings, the price of its shares rises and Selena earns a $120,000 profit. Has Selena violated Rule 10b-5 of the Securities Exchange Act?

Q: Under the Securities Act of 1933, the definition of a security excludes a promissory note that matures not more than nine months from the date of issuance.

Q: The purpose of security regulation is to make issuers and sellers of security have a duty to disclose important information.

Q: Securities and Exchange Commission (SEC) has the power to impose civil fines up to $500,000 and issue cease and desist orders.

Q: The Uniform Securities Act permits an issuer to register by coordination, which means the issuer: A. can file the 1933 Act registration statement with the state securities administrator. B. becomes exempt from registration under state securities registration law. C. needs to file under the state securities registration law only and not the 1933 Act. D. need not register the securities statement once he/she has registered under the 1933 Act.

Q: Harmer Company has filed a registration statement under the 1933 Act for purposes of issuing $5,000,000 of debentures. The registration statement has not been declared effective. Harmer wants to issue a press release concerning its plans to expand its operations. It also wants to telephone several large investors and tell them why they should buy the debentures. Will these activities cause Harmer to violate Section 5 of the Securities Act?

Q: Jereboah Company is a nonpublic company that wants to sell $2.7 million of preferred shares under Rule 506 of Regulation D of the Securities Act of 1933. Jereboah plans to sell to 42 investors, including 10 mutual funds. The other 32 investors are individual investors with various levels of experience in making securities investment decisions. Jereboah also hopes to attract additional investors using an advertisement in The Wall Street Journal. May Jereboah use Rule 506? Assuming it can, what disclosure must Jereboah make to the investors?

Q: Icarus Company is considering making an offering of its common shares under the Securities Exchange Act of 1933 Regulation A. What are the requirements it must meet?

Q: Kirrah Company makes a registered offering of its common shares under the Securities Act of 1933. A year after the offering, the federal government cancels a contract with Kirrah in compliance with the contract. The contract had provided and was expected to continue to provide 30 percent of Kirrah's business. The material risks section of the registration statement failed to state that the federal government provided 30 percent of Kirrah's business and that the federal government had the right to terminate the contract at any time. Among others, Amy Arston, the president and chief executive officer of Kirrah, is sued by purchasers of the shares under Section 11 of the Securities Act. What is Amy's due diligence defense under Section 11? Is Amy likely to be able to prove she met that defense?

Q: Rule _____ of the SEC prohibits insider trading on nonpublic corporate information. A. 10b-5 B. 14e-3 C. 14a-8 D. 10c-7

Q: Which of the following is true about the Williams Act? A. It regulates tender offers only when the bidder intends to hold at least 2 percent of the subject company's shares. B. It requires bidders to solicit shares from at least 100 shareholders. C. It does not permit tendering shareholders to withdraw their tendered shares. D. The aim of the Williams Act is to protect investors and to give the bidder and the subject company equal opportunities to present their cases to the shareholder.

Q: Which of the following is correct concerning the Foreign Corrupt Practices Act (FCPA)? A. Under the FCPA, a company may be fined up to $5 million. B. Under the FCPA, directors participating in violations are liable for prison terms up to 10 years. C. The FCPA bribery provisions apply only to American firms with equity securities registered under the 1934 Act. D. Facilitating or grease payments are not prohibited by the FCPA.

Q: The "fraud-on-the-market-theory" used in some cases to establish liability under Rule 10b-5 of the Securities Act of 1934 is an indirect way of establishing which of the following elements of proof? A. The defendant acted with negligence. B. The defendant acted with scienter. C. The plaintiff's reliance. D. The plaintiff's due diligence.

Q: Atria Corporation wishes to dissolve. How can it do so?

Q: What are the various ways through which a corporation can be dissolved? The various ways through which a corporation can be dissolved are: Voluntary dissolution: This kind of dissolution happens through the action of a corporation's directors and shareholders. Voluntary dissolution becomes effective once the corporation submits the articles of dissolution with the secretary of state and the articles of dissolution are filed by the secretary of state. Administrative dissolution: It requires that the secretary of state give written notice to the corporation of the grounds for dissolution. If, within 60 days, the corporation has not corrected the default or demonstrated that the default does not exist, the secretary dissolves the corporation by signing a certificate of dissolution. Judicial dissolution: The shareholders, secretary of state, or the creditors of a corporation may ask a court to order the involuntary dissolution of a corporation.

Q: Under Rule 10b-5 of the Securities Act of 1934, a plaintiff has the burden of proof to establish that the defendant acted: A. with negligence. B. with scienter. C. with malice. D. in concert with others.

Q: Under what circumstances can a shareholder have liability for corporate debts?

Q: According to the Model Nonprofit Corporation Act (MNCA), which of the following nonprofit corporations can abolish or limit the right of a member to inspect corporate records? A. A tennis club B. A church C. A golf country club D. A cooperative grocery store

Q: After dissolution of a corporation and liquidation of its assets, proceeds of the sale of assets is distributed in the following order: A. preferred shareholders, common shareholders, creditors. B. creditors, preferred shareholders, common shareholders. C. common shareholders, creditors, preferred shareholders. D. preferred shareholders, creditors, common shareholders.

Q: According to the Statutory Close Corporation Supplement to the MBCA who does a shareholder have a fiduciary responsibility to? A. To all the other shareholders of the corporations B. To the Secretary of State C. To individual citizens in the state the corporation is incorporated D. To the CEO of the corporation

Q: Bev Stratton owns 100 shares of Maxom Company, which are traded on the New York Stock Exchange. Maxom's board of directors has approved a merger of Maxom with Vert Company. Bev believes the merger is economically unjustified and intends to seek her dissenters' right. What must Bev do to enforce her dissenters' right?

Q: Gnossis Company has 15,000 outstanding common shares and a total equity of $250,000. Gnossis has an additional 30,000 common shares that are authorized, but not issued or outstanding. Gnossis has $225,000 in excess liquidity that it does not need to pay its currently maturing obligations. Gnossis has paid all currently due dividends to preferred shareholders. What is the maximum share dividend that Gnossis may make to its common shareholders?

Q: Amanda is a shareholder of Abec Corporation. She received an illegal dividend from Abec. Must she return that dividend to Abec? A. Yes, but only if she was aware that the dividend was illegal. B. Yes, regardless of whether she was aware that the dividend was illegal. C. No, once a dividend has been distributed, it may not be recalled. D. No, a shareholder has no liability regarding distributions from the corporation.

Q: Some courts have held that certain shareholders are fiduciaries of each other. These are shareholders of: A. close corporations. B. open corporations. C. publicly traded corporations. D. nonprofit corporations.

Q: What is the term for when controlling shareholders pay themselves high salaries while not employing or not paying out dividends to minority shareholders? A. Quid pro quo B. Squeeze-out C. Collateral D. Liquidity

Q: Tom, Brady, and Alex are members of a golf country club (a nonprofit corporation). Tom holds 5 percent of voting power, Brady holds 8 percent of voting power, and Alex holds 1 percent of voting power in the club. They would like to call a special meeting of the club to discuss renovation of some of its facilities. Who amongst them can call such a meeting? A. Brady and Alex B. Alex and Tom C. Alex, Tom, and Brady D. Tom and Brady

Q: Provided that most of the directors of a corporation are independent, if shareholders bring a derivative action against the directors, the burden of proving that bringing the action is in the best interest of the corporation lies on the: A. company secretary. B. secretary of state. C. board of directors. D. shareholders.

Q: When a majority of the directors of a corporation are not independent and the shareholders bring a derivative action against the directors, the burden of proving that the Zapata test has been met lies on the: A. company secretary. B. secretary of state. C. corporation. D. shareholders.

Q: If a shareholder is successful in a derivative suit then the shareholder is entitled to have its attorney fees paid by? A. The Corporation B. The Secretary of State C. The Incorporator D. The Arbitrator

Q: AceCom Corporation issues dividends to its 30 shareholders. Each shareholder is well aware that the corporation will be insolvent and unable to pay its creditors following the dividend distribution. Efone is one such creditor. Under the Model Business Corporation Act (MBCA), primary liability to Efone: A. does not lie with the shareholders because they can never be held liable to creditors of the corporation. B. lies with the shareholders because they received the distribution from the corporation with knowledge of the impending insolvency. C. lies with the directors because they authorized the unlawful distribution of dividends. D. does not lie with the directors because they placed the interests of the shareholders above everything else.

Q: Henry brought a lawsuit against NewAge Inc., claiming that the CEO of NewAge had misappropriated funds last year, as a result of which NewAge ended the year in the red. However, Henry was not a shareholder of NewAge last year and his only motive of buying NewAge shares was to bring this lawsuit in order to gain out-of-court settlements for himself. This kind of lawsuit is known as a: A. double derivative suit. B. derivative action. C. strike suit. D. class action.

Q: Shareholders of a corporation brought a class action against the president, alleging that they missed out on dividends and an increase in the value of their shares because the president misappropriated funds of the corporation. This suit was successful and the president paid $10 million in damages. This money will go to: A. the shareholders who brought the class action. B. the treasury of the corporation. C. the state, as a fine. D. the federal government, as a fine.

Q: Shareholders may bring a suit on behalf of the corporation against the board of directors. Such a suit is generally called a(n) _____ suit. A. class action B. derivative action C. shareholder action D. injunction

Q: For which of the following would a shareholder derivative action be appropriate? A. The shareholder alleges that the board of directors has imprudently managed the corporation. B. The shareholder has been refused a request that his/her accountant be permitted to look at the corporate accounting records. C. The shareholder alleges that the corporation has violated the shareholder's preemptive right. D. The shareholder alleges that the corporation has been paying dividends to a previous shareholder from whom the shareholder purchased his/her shares.

Q: A corporation's decision to issue a dividend, and the size of that dividend, is made by the: A. shareholders. B. board of directors. C. officers of the corporation. D. creditors of the corporation.

Q: Klingon Corporation has only one class of shares, its common shares. Klingon has assets of $200,000 and liabilities of $160,000. It has $40,000 of excess liquidity that it does not need to pay currently maturing obligations. What is the maximum property dividend that Klingon may pay to its common shareholders? A. $60,000 B. $10,000 C. $40,000 D. $30,000

Q: A _____ dividend may be revoked by the board of directors after it has been declared. A. share B. cash C. property D. scrip

Q: A share split within the same class of shares generally: A. increases the net value of the shares following the split. B. decreases the net value of the shares following the split. C. has no effect on the net value of the shares following the split. D. reduces the capital surplus and increases the number of shares authorized.

Q: Repurchase of _____ shares by a corporation is involuntary on the shareholder's part. A. split B. fractional C. outstanding D. preferred

Q: MacTech Corporation is a subsidiary of Clickon Corporation, which owns 90 percent shares of MacTech. The management of Clickon is not happy with the way MacTech is being managed. They believe that MacTech is losing out a huge chunk of potential business to rivals due to mismanagement. As a solution, the board of directors of Clickon approves a merger between Clickon and MacTech and they send a copy of the merger plan to MacTech's shareholders. This form of merger is called a(n): A. semi-merger. B. short-form merger. C. incomplete merger. D. half-merger.

Q: A dissenting shareholder seeking payment of the fair value of his/her shares (dissenters' rights) must have the right to vote on the action to which he/she objects. In which of the following cases does a shareholder have dissenters' rights despite his/her lack of voting power? A. Short-form mergers B. Significant amendments of the articles of incorporation C. Share exchanges D. Sales of all the assets

Q: Under the Model Business Corporation Act (MBCA), shareholders have a qualified but not absolute right to inspect: A. the articles of incorporation and bylaws. B. an alphabetical listing of the shareholders entitled to notice of a meeting. C. the number of shares owned by the shareholders. D. shareholder minutes more than three years old.

Q: The Model Business Corporation Act (MBCA) provides that the _____ right of a shareholder does not exist except to the extent provided by the articles of incorporation. A. preemptive B. information C. dissenters' D. liquidation

Q: A shareholder's preemptive right allows him to: A. increase his proportionate voting power. B. maintain his dissenters' right. C. increase the value of his shares. D. maintain his proportionate share of dividends.

Q: The LexCon Corporation takes over the Zebra Corporation. By applying which principle will LexCon become the owner of all the shares of Zebra Corporation? A. Merger B. Acquisition C. Share trading D. Share exchange

Q: Which of the following is true about mergers? A. The shareholders of the surviving corporation must approve the merger. B. The MBCA does not recognize mergers done solely for the profit motive. C. A merger may be invalidated if it freezes out minority shareholders. D. Shareholders of the acquired corporation must be paid a premium on their shares.

Q: The typical dissolution of a corporation requires approval of the: A. board of directors. B. creditors of the company. C. merger company. D. shareholders.

Q: When the board of directors of a parent corporation approves its merger with its subsidiary and sends a copy of the merger plan to the subsidiary's shareholders, such a merger is called a(n): A. semi-merger. B. half-merger. C. incomplete merger. D. short-form merger.

Q: Under the Model Business Corporation Act (MBCA), a corporation that retains at least _____ percent of its business activity and either its income or revenue has not disposed of substantially all its assets. A. 10 B. 25 C. 50 D. 45

Q: A voting trust: A. must be available for inspection by shareholders at the corporation's offices. B. need not be made public and may be kept secret from other shareholders. C. is limited in duration to 20 years, but may be extended for another 10-year period. D. will be specifically enforced by the courts if a shareholder refuses to vote as agreed.

Q: Catz Corporation has two majority shareholders and five minority shareholders. The five minority shareholders created a voting trust in November 2011 to control Catz through the concentration of shareholder voting power in the voting trustees. Under the Model Business Corporation Act (MBCA), this voting trust will be valid till: A. September 2014. B. October 2021. C. September 2026. D. October 2016.

Q: Normally, how long is the ordinary proxy valid for voting under the Model Business Corporation Act (MBCA)? A. 9 months B. 1 year C. 6 months D. 11 months

Q: Which of the following corporate decisions requires an approval vote of the shareholders? A. Merger B. Share trading C. Purchasing land for office D. Joint venture

Q: The Model Business Corporation Act (MBCA) does not recognize: A. mergers. B. acquisitions. C. consolidations. D. joint ventures.

Q: The two most common classes of shareholders are: A. Government and common B. Common and preferred C. Preferred and government D. Watered down and common

Q: Tracy is attending the annual general meeting of shareholders of Acor Corporation. Seven directors are going to be elected from twenty nominees during the meeting through cumulative voting. One thousand shares will be voted. What is the minimum number of shares that Tracy needs to have to be able to elect three directors? A. 374 B. 375 C. 376 D. 377

Q: Camm Corp. has 10,000,000 common shares outstanding. Its four directors are elected by cumulative voting. To elect one director, a shareholder must own at least: A. 5,000,001 shares. B. 2,000,001 shares. C. 2,500,001 shares. D. 5,000,000 shares.

Q: Karen is attending the annual general meeting of shareholders of Express Corporation. Six directors are going to be elected from seventeen nominees during the meeting through straight voting. Karen owns 372 shares of Express. What is the maximum number of nominees Karen can vote for? A. 1 B. 6 C. 10 D. 17

Q: _____ voting allows a majority shareholder to elect the entire board of directors. A. Preference B. Cumulative C. Ranked D. Straight

Q: Which of the following is correct concerning the election of directors? A. Straight voting is the cleanest way to allocate equity ownership of the corporation among shareholders. B. In cumulative voting, each share has one vote for each new director to be elected. C. Cumulative voting can prevent harmful coalitions in close corporations. D. Under straight voting, the voting power of minority shareholders is increased.

Q: What is the term for a shareholders' right to offer resolutions, to speak for and against ideas at a shareholders meeting? A. The right of full participation B. The right to proxy C. The right to profit D. The right to incorporate

Q: The formula for determining the minimum number of shares required to elect a desired number of directors under cumulative voting is _____ where X = number of shares needed to elect the desired number of directors, S = total number of shares voting at the shareholders' meeting, R = number of director representatives desired, and D = total number of directors to be elected at the meeting. A. X - 1 = (S R)/(D + 1) B. X = (S R)/(D - 1) C. X - 1 = (S R)/(D - 1) D. X = (S R)/(D + 1)

Q: Under the Model Business Corporation Act (MBCA), notice of a(n) _____ meeting of shareholders must list the purpose of the meeting. A. special B. quarterly C. general D. annual