Business Law

Q: _________________ are accredited investors. A. Natural persons whose annual income has been at least $200,000 for the two previous years and expects to make at least $200,000 in the current year B. Corporations or partnerships with total assets in excess of $5 million C. Insiders of the issuers, such as executive officers or directors D. Colleges and universities E. All of these.

Q: Which of the following must occur in order for the exemption involving intrastate issues to apply? A. Issuers must do at least 80 percent of their business within the state. B. Issuers must have at least 80 percent of their assets within the state. C. Issuers must plan to use at least 80 percent of the profits within the state. D. Issuers must have their main offices in the state. E. All of these.

Q: ___________________ is a person who controls, is controlled by, or is in common control with the issuer. A. An affiliate B. An associate C. A partner D. A holder E. A tipper

Q: ______________________ begins when the SEC declares the registration statement effective, and ends when the issuer sells all securities offered or withdraws them from sale. A. The posteffective period B. The acknowledgement period C. The approved period D. The sell period E. The investment period

Q: Which of the following permits qualified issuers to register securities that they will sell on a delayed or continuous basis in the future? A. Delayed registrations B. Continuous registrations C. Approved registrations D. Shelf registrations E. None of these because that practice is illegal

Q: A(n) _____________ investor is a private investor who is allowed to accept private securities offerings under certain specific guidelines set by the SEC. A. securities B. prospectus C. accredited D. due diligent E. insider

Q: ________________ are securities which do not have to go through the registration process. A. Limited offers and intrastate issues B. Intrastate issues and resale securities C. Resales of securities and limited offers D. Limited offers, intrastate issues, and resales of securities E. Limited offers only

Q: Once an issuer files a registration statement and prospectus, the ______ period begins. A. advertising B. post-filing C. waiting D. approval E. prospectus

Q: A ______ prospectus has a warning written in red print at the top of the page warning investors that the registration has been filed with the SEC but has not yet been approved. A. red-line B. red-herring C. red-fish D. bait E. None of these because a prospectus may not be issued prior to approval

Q: A(n) _______________ announces a forthcoming sale of securities during the waiting period though a brief advertisement. A. proxy advertisement B. special offering C. unsolicited advertisement D. tombstone advertisement E. None of these because no ads may be issued during the waiting period

Q: Mary is a director of a company that develops expensive residential subdivisions. The company is considering attempting to purchase a large section of land on which to put a development. Mary happens to own some of the land. What duty, if any, does she have regarding disclosure and why or why not; what steps, if any should be taken by the board when considering the matter; and may the board take action that benefits Mary personally?

Q: Two security services, ABC Security and Knight Security, propose to merge. The proposed merger receives majority shareholder approval. Richard, a minority shareholder who owns 10% of the stock in Knight Security, however, is very much opposed to the merger. He tells the other shareholders in Knight Security that unless they convince him otherwise, he will block the merger. What are Richard's rights as a dissenting shareholder, and does he have the power to block the merger?

Q: Investment banking firms that purchase securities from the issuing corporation with the intent of selling them to brokerage houses that then sell them to the public are known as ______________. A. underwriters B. offerors C. issuers D. accredited purchasers E. None of these because that practice is illegal

Q: Warren was the president of a corporation whose articles of incorporation specified that the corporation's purpose was to market dairy products. Warren, however, convinced the board of directors to support him in opening a furniture store. Warren proceeded to enter into contracts with furniture suppliers. When some of the shareholders discovered that the corporation was going into the furniture business, they wanted the furniture venture ended. Unfortunately, the corporation had already entered into a contract for upholstery supplies that had been delivered. What is the term for acts of a corporation beyond its express and implied powers, and what remedies does the Revised Model Business Corporation Act provide when a corporation commits such act? What is the most likely result if the supplier of the upholstery supplies sues for payment?

Q: What are the requirements for being a director? Must a director own stock in the corporation?

Q: Set forth the ways discussed in the text in which the directors and officers of Enron failed in their duty of care.

Q: Skateboard Growth. Both Bernie and John were presidents of small businesses manufacturing and selling skateboards. Bernie's store was called "Skateboard City" and John's business was called "Skateboard for Health." Because a large sports store was coming into town, they, along with the boards of directors decided that it would be a good idea to combine the businesses. They decided to retain the name "Skateboard for Health" and simply amend the articles of consolidation. Bernie was concerned, however, with the change because he was contemplating filing a lawsuit against Hank who had purchased 10 custom skateboards and had not paid for them. He was excited, however, about the prospect of not being liable for a lawsuit he expects to be filed by Greg who fell when a wheel came off on a skateboard sold by Bernie's corporation resulting in a serious ankle sprain and medical bills. After investigation, Bernie is aware that the wheel was negligently attached to the skateboard. Bernie told John that one reason he wanted to retain John's name was to prevent Greg from being able to recover against him. Which of the following is true in most states regarding Bernie's concern that the surviving company might not be able to sue Hank for the price of the skateboards? A. The surviving company will not be able to sue Hank. B. The surviving company will be able to sue Hank only if Hank purchased the skateboards within 30 days of the joinder of the businesses. C. The surviving company will be able to sue Hank only if Hank approves in writing the joinder of the businesses. D. The surviving company will be able to sue Hank only if Hank is notified by certified letter of the joinder of the businesses. E. The surviving company will retain the right to sue Hank.

Q: Skateboard Growth. Both Bernie and John were presidents of small businesses manufacturing and selling skateboards. Bernie's store was called "Skateboard City" and John's business was called "Skateboard for Health." Because a large sports store was coming into town, they, along with the boards of directors decided that it would be a good idea to combine the businesses. They decided to retain the name "Skateboard for Health" and simply amend the articles of consolidation. Bernie was concerned, however, with the change because he was contemplating filing a lawsuit against Hank who had purchased 10 custom skateboards and had not paid for them. He was excited, however, about the prospect of not being liable for a lawsuit he expects to be filed by Greg who fell when a wheel came off on a skateboard sold by Bernie's corporation resulting in a serious ankle sprain and medical bills. After investigation, Bernie is aware that the wheel was negligently attached to the skateboard. Bernie told John that one reason he wanted to retain John's name was to prevent Greg from being able to recover against him. Which of the following is true regarding Bernie's belief that Greg will be unable to collect anything for the accident after the joinder of the businesses? A. Bernie is correct that Greg will be unable to win in litigation against the surviving company so long as the joinder is completed before Greg files the lawsuit. B. Bernie is correct that Greg will be unable to win in litigation against the surviving company regardless of whether the lawsuit occurs before or after the joinder as long as no judgment is entered prior to the joinder. C. Bernie is correct that Greg will be unable to sue the surviving company unless Greg files in court an objection to the joinder and prevails. D. Bernie is correct that Greg will be unable to win in litigation against the surviving company unless Greg can establish fraud in connection with the joinder. E. Bernie is incorrect, and the joinder will have no effect on the lawsuit.

Q: Discuss the rights of corporations under the Bill of Rights.

Q: Machine Malfunction. Bruno, the president of a corporation operating work out facilities, convinced the board of directors to approve a large purchase of a type of fitness machine called "Perfect Body." Bruno 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 the corporation lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Bruno and the directors. The board of directors agrees to allow Frances, the ringleader of the shareholders, to purchase stock of the company at below its fair market value. She purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Bruno and the board members. Under which of the following should Bruno and the board of directors defend themselves in an action brought by shareholders for harming the corporation? 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.

Q: Machine Malfunction. Bruno, the president of a corporation operating work out facilities, convinced the board of directors to approve a large purchase of a type of fitness machine called "Perfect Body." Bruno 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 the corporation lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Bruno and the directors. The board of directors agrees to allow Frances, the ringleader of the shareholders, to purchase stock of the company at below its fair market value. She purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Bruno and the board members. Which of the following is true regarding liability of Frances, if any, for purchasing the stock at below its fair market value? A. If the board wanted to offer it to her, they had that right; and there is no consequence to Frances because she proceeded with complaints of the shareholders. 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.

Q: Kite Sales. Wendy is president of a business that manufactures kites. The kites of her company, ABC Kites, are sold to large toy stores. After Wendy learned a great deal about kites, she started to make kites at home and to promote them to large toy stores. She also started selling kites to friends. Some of the directors learned about her kite sales and accused her of wrongdoing. Wendy denied any wrongdoing. In which of the following objectionable activities was Wendy involved, if any, in selling and marketing the kites? A. She was not involved in any objectionable activities. B. She was involved in objectionable self-dealing. C. She was involved in objectionable personal-profit allocation. D. She was involved in objectionable private-profit allocation. E. She was involved in objectionable corporate profit reduction.

Q: Kite Sales. Wendy is president of a business that manufactures kites. The kites of her company, ABC Kites, are sold to large toy stores. After Wendy learned a great deal about kites, she started to make kites at home and to promote them to large toy stores. She also started selling kites to friends. Some of the directors learned about her kite sales and accused her of wrongdoing. Wendy denied any wrongdoing. What remedy will be imposed on Wendy, if any, for her home kite sales? A. Nothing because Wendy did not engage in any wrongdoing. B. She will be required to cede to the corporation half of any 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 that the corporation lost no sales as a result of her actions. E. She will be required to cede to the corporation all the profits she earned as a result of the breach.

Q: Shaky Bicycles. Rhonda, an incorporator who filed the articles of incorporation for ABC Corporation, a corporation set up to sell bicycles, listed the correct town and street but incorrectly put the wrong street number in the document. Helen, a manufacturer of bicycle parts, had sold a number of parts to ABC Corporation. Unfortunately, the corporation was not making any profit, and Helen was not paid in a timely manner. Rhonda told her that the corporation was not liable because it was not validly formed due to the address mistake. Bernice, another creditor of ABC Corporation, also claimed that a shareholder of Shaky Bicycles, Slick, was personally liable to her. Bernice alleged that Slick committed fraud against her when he told her that ABC Corporation was making large amounts of money, that if she would only loan $50,000 to the corporation he would marry her, and that the corporation would make so much money that she would be wealthy in six months. She loaned the funds, but the corporation has been unable to repay her. Slick told her that he is sorry, but that her only avenue of recovery is through the corporation. Assuming ABC's corporate status is in place, which of the following is Bernice's best theory in order to hold Slick personally liable to her? A. That the corporate veil should be pierced because Slick committed fraud through the corporation. B. That in equity Slick should be held personally liable. C. That Slick should be personally liable because of his status as a shareholder. D. That the corporate environment should be removed because Slick committed fraud through the corporation. E. None of these. There is no theory under which she could hold Slick personally liable to her.

Q: Self-Centered President. Tina is the new president of "We Manage You," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a 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. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George 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 George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina 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. How many votes will the minority shareholders have in the election? A. 2,000 B. 4,000 C. 6,000 D. 10,000 E. 20,000

Q: Self-Centered President. Tina is the new president of "We Manage You," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a 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. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George 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 George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina 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 Tina accurate that she owes no duties to shareholders? A. Yes, she is accurate because it is the directors who owe a duty to shareholders. B. No, she is inaccurate because she owes a duty of care to shareholders although she owes no other duties. C. No, she is inaccurate because she owes a duty of loyalty to shareholders although she owes no other duties. D. No, she is inaccurate and owes both a duty of care and a duty of loyalty to shareholders. E. She is partially accurate. 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.

Q: Self-Centered President. Tina is the new president of "We Manage You," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a 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. Tina tells her vice president, George, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells George 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 George to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When George protests, Tina 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 Tina correct in that officers cannot be held criminally responsible for their actions on behalf of a corporation? A. Yes, she is correct. B. She is correct only so long as the corporation is solvent. C. She is correct only if the board of directors has accepted all liability for acts of officers. D. She is correct only if environmental or employment matters are involved. E. She is incorrect.

Q: Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Would the proposed business qualify as an S corporation if it were incorporated in Delaware? A. No, because there must be at least 100 shareholders involved. B. No, because a business must operate as a partnership for at least two years before converting to an S corporation and also because it must be incorporated under the state law of the location of the principal place of business. C. No, because a business must operate as a regular corporation for at least two years before converting to an S corporation. D. Yes, so long as more than one class of shares is issued. E. Yes, so long as only one class of shares is issued.

Q: Shaky Bicycles. Rhonda, an incorporator who filed the articles of incorporation for ABC Corporation, a corporation set up to sell bicycles, listed the correct town and street but incorrectly put the wrong street number in the document. Helen, a manufacturer of bicycle parts, had sold a number of parts to ABC Corporation. Unfortunately, the corporation was not making any profit, and Helen was not paid in a timely manner. Rhonda told her that the corporation was not liable because it was not validly formed due to the address mistake. Bernice, another creditor of ABC Corporation, also claimed that a shareholder of Shaky Bicycles, Slick, was personally liable to her. Bernice alleged that Slick committed fraud against her when he told her that ABC Corporation was making large amounts of money, that if she would only loan $50,000 to the corporation he would marry her, and that the corporation would make so much money that she would be wealthy in six months. She loaned the funds, but the corporation has been unable to repay her. Slick told her that he is sorry, but that her only avenue of recovery is through the corporation. Which of the following would a court likely rule regarding the status of ABC Corporation as a corporation? A. That the business was a de jure corporation. B. That the business was a de facto corporation. C. That the business was a corporation by estoppel. D. That the business was a veiled corporation. E. That the business was not a corporation at all.

Q: Shaky Bicycles. Rhonda, an incorporator who filed the articles of incorporation for ABC Corporation, a corporation set up to sell bicycles, listed the correct town and street but incorrectly put the wrong street number in the document. Helen, a manufacturer of bicycle parts, had sold a number of parts to ABC Corporation. Unfortunately, the corporation was not making any profit, and Helen was not paid in a timely manner. Rhonda told her that the corporation was not liable because it was not validly formed due to the address mistake. Bernice, another creditor of ABC Corporation, also claimed that a shareholder of Shaky Bicycles, Slick, was personally liable to her. Bernice alleged that Slick committed fraud against her when he told her that ABC Corporation was making large amounts of money, that if she would only loan $50,000 to the corporation he would marry her, and that the corporation would make so much money that she would be wealthy in six months. She loaned the funds, but the corporation has been unable to repay her. Slick told her that he is sorry, but that her only avenue of recovery is through the corporation. Which of the following is the likely result of Helen's attempt to hold the corporation liable for her debt? A. She will likely be successful. B. She will be successful only if ABC Corporation removes its de jure status. C. She will be successful only if ABC Corporation removes its de facto status. D. She will be successful only if ABC Corporation has at least 50 shareholders. E. She will likely be unsuccessful.

Q: Which of the following is available to Garrett, a major shareholder in ABC Corporation who believes that the corporation has wrongfully failed to declare a dividend to shareholders? A. A shareholder's derivative suit B. A shareholder's direct suit C. A consolidation suit D. A mandated suit E. None of these because as a shareholder, Garrett can only complain to state authorities

Q: Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Are Jack and Bobby correct that tax liability will likely be greater with a corporate form of business (not an S corporate form) and why? A. No, they are incorrect because with only three shareholders, tax liability with a corporation would likely be less than tax liability with a partnership. B. No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the net income of the corporation was not over $250,000. C. No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the gross income of the corporation was not over $150,000. D. No, they are incorrect because with only three shareholders, tax liability would be exactly the same with a corporation as with a partnership so long as the gross income of the corporation was not over $100,000. E. Yes, they are correct because the corporate form of business would result in double taxation with the corporation being taxed on income and shareholders being taxed again on dividends they receive.

Q: Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon in Tennessee. They would all like to avoid personal liability for debts of the business and for wrongful acts of each other. They would also like to avoid taxation as much as possible. Mona is in favor of a corporation and asks if there is any problem with that form of business. Jack and Bobby say that they want to receive profit distributions and that they are concerned about excessive taxation with a corporation. Jack and Bobby urged the formation of a partnership even in the face of personal liability. Mona did some research and suggested an S corporation to Jack and Bobby. Would an S corporation provide the favorable tax treatment that the parties desire in a corporate form of business? A. No, because an S corporation is taxed in the same way as a regular corporation. B. Yes, but the S corporation is not needed because either a partnership or a regular corporation in their situation would provide the same benefits as an S corporation. C. Yes, with the only tax benefit being the avoidance of double taxation. D. Yes, because the S corporation would avoid the double taxation problem involved with a regular corporation and provide other tax benefits as well. E. No, because while the parties could form an S corporation, the tax benefits of an S corporation are only available to corporations with at least 100 shareholders.

Q: Which of the following was the result on appeal in J-Mart Jewelry Outlets Inc., v. Standard Design, the case in the text in which a creditor of a defunct corporation sued the major shareholder seeking to pierce the corporate veil and hold the shareholder personally responsible for corporate debts after the shareholder paid off his personal credit cards using corporate funds and paid the corporation $1 for a new Cadillac? A. That insufficient evidence existed that the shareholder controlled the corporation and that the corporate veil could not be pierced. B. That the corporate veil could not be pierced because the shareholder was not also an inside director. C. That the corporate veil could not be pierced because the shareholder was not either an insider or outside director. D. That the corporate veil could be pierced and that evidence supported abuse of the corporate form. E. That the corporate veil could be pierced regardless of whether evidence of abuse of the corporate form existed because of the unfairness involved.

Q: Which of the following was the result on appeal in Campbell, Kessser, and Williams v. Pothas Corporation, the case in the text in which the defendant alleged that golden parachute agreements were not enforceable because they violated public policy? A. That based on significant case law ruling such agreements in violation of public policy, the agreements would be declared void under principles of stare decisis. B. That based on a Congressional committee report, the contracts would be declared void. C. That the defendant did not receive its benefit in regard to the contracts and that the golden parachute agreements were, therefore, voidable by the defendant. D. That the agreements were valid and did not violate public policy. E. That the agreements were valid but only because a merger was involved.

Q: ABC Corporation suffered damages when a supplier failed to deliver as agreed. The president of ABC did not institute suit as Garrett, a major shareholder, believed was proper. Garrett complained to the board of directors, but they refused to do anything. Which of the following is an option to Garrett in regard to a lawsuit against the supplier? A. A shareholder's derivative suit B. A shareholder's direct suit C. A consolidation suit D. A mandated suit E. None of these because as a shareholder, Garrett has no right to insist on litigation

Q: When the government or private parties get a court order to dissolve a corporation it is a(n) _________________________. A. consolidation B. voluntary dissolution C. involuntary dissolution D. hostile takeover E. leveraged buyout

Q: In a hostile takeover situation, what does the term "going private" reference? A. A leveraged buyout B. A management buyout C. An approved buyout D. A corporate buyout E. A closely managed buyout

Q: Death of a corporation occurs in which of the following phases? A. Dissolution and trial B. Dissolution and proceedings C. Dissolution and liquidation D. Reforming and liquidation E. Notification and liquidation

Q: When the directors or shareholders of a corporation initiate dissolution procedures it is a(n) ___________________________. A. consolidation B. voluntary dissolution C. involuntary dissolution D. hostile takeover E. leveraged buyout

Q: In which of the following does an aggressor pay cash to target shareholders? A. Hostile tender offer B. Cash tender offer C. Immediate tender offer D. Substantial tender offer E. Asset tender offer

Q: ______________________ occurs when a target corporation offers to buy its shareholders' stock. A. A self-tender offer B. A leveraged buyout C. A cross-tender offer D. A challenge-tender offer E. An illegal tender offer

Q: ____________________ occurs when a group within a corporation, usually management, buys all outstanding corporate stock held by the public. A. An asset purchase B. A leveraged buyout C. A management buyout D. A corporate buyout E. An illegal buyout

Q: In which of the following are two or more corporations combined with neither of the original corporations continuing to exist legally? A. A merger B. A consolidation C. A combination D. An alteration E. A reorganization

Q: In a consolidation, shareholders of the new corporation create new articles of incorporation called _____. A. revised articles of incorporation B. merged articles of incorporation C. articles of consolidation D. revised articles of consolidation E. none of these because new articles of incorporation are not created in a consolidation

Q: Which of the following is generally false when a consolidation occurs? A. The new corporation has independent legal status. B. The shareholders of the new corporation create new articles of incorporation. C. The consolidated entity assumes the debts of the original corporations. D. The consolidated entity obtains the original corporations' assets. E. The consolidated entity does not obtain the original corporations' rights, powers, and privileges.

Q: Which of the following is generally used to determine the value of stock when a dissenting shareholder exercises an appraisal right when a proposed merger is involved? A. The value of shares on the day after the shareholder vote. B. The value of shares on the day before the shareholder vote. C. The value of shares on the day of the shareholder vote. D. The value of shares 10 days before the shareholder vote. E. The value of shares on the day the proposed merger was announced.

Q: In a merger situation, which of the following is a term for the corporation that does not continue to exist? A. The declined corporation B. The removed corporation C. The absorbed corporation D. The concealed corporation E. The deceased corporation

Q: In a merger situation, which of the following is a term for the remaining corporation? A. The resulting corporation B. The winning corporation C. The approved corporation D. The surviving corporation E. The remaining corporation

Q: Which of the following is generally false regarding the surviving entity in a merger situation? A. The surviving entity remains a single corporation. B. The shareholders of the surviving entity must amend its articles of incorporation according to the specific conditions of the merger. C. The surviving entity does not become liable for debts of the absorbed corporation. D. The surviving entity obtains the absorbed corporation's assets. E. The surviving entity obtains the absorbed corporation's rights, powers, and privileges.

Q: In which of the following does a shareholder sue alleging that he or she has suffered damages caused by the corporation? A. Investigative action B. Shareholder's action suit C. Shareholder's direct suit D. Shareholder's derivative suit E. Active allocation suit

Q: Which of the following occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist? A. A merger B. A consolidation C. A combination D. An alteration E. A reorganization

Q: If corporate directors fail to sue when the corporation has been harmed by an individual, another corporation, or a director, individual shareholders can file a(n) _____ on behalf of the corporation. A. investigative action B. shareholder action suit C. shareholder's direct suit D. shareholder's derivative suit E. active allocation suit

Q: Which of the following is true regarding stock certificates? A. Each certificate includes the corporation's name. B. Each certificate includes the number of shares represented by the certificate. C. A shareholder's ownership in the corporation does not depend on her possession of the physical stock certificate. D. Each certificate includes the corporation's name, each certificate includes the number of shares represented by the certificate, and a shareholder's ownership in the corporation does not depend on her possession of the physical stock certificate. E. Each certificate includes the corporation's name and each certificate includes the number of shares represented by the certificate, but a shareholder's ownership in the corporation does depend on her possession of the physical stock certificate.

Q: ________________ give preference to shareholders to purchase shares of a new issue of stock. A. Acknowledged rights B. Superior rights C. Preemptive rights D. Selective rights E. Benefit rights

Q: ________________ may be redeemed for a certain number of shares at a specified price within a given time period. A. Preemptive shares B. Share allowances C. Allocated shares D. Stock warrants E. None of these because such a practice is illegal under federal securities laws

Q: Which of the following references a right of a corporation or its shareholder to purchase any shares of stock offered for resale by a shareholder within a specified period of time? A. Right of adequate refusal B. Right of first refusal C. Right of first purchase D. Right of first acknowledgement E. Superior right of purchase

Q: Stocks that are issued to individuals below their fair market value are called _______________. A. no-par stocks B. reduced stocks C. watered stocks D. less-value stocks E. unapproved stocks

Q: Which of the following are rights of corporate directors? A. The right of compensation and participation B. The right of participation and inspection C. The right of inspection and compensation D. The right of indemnification and participation E. The right of compensation, participation, inspection, and indemnification

Q: Which of the following may be issued to shareholders as proof of ownership in the corporation? A. Stock subscriptions B. Stock acknowledgements C. Paper documentation D. Stock certificates E. Acknowledgement documents

Q: Which of the following is false regarding the liability of directors and officers for criminal behavior? A. Directors and officers can be held personally responsible for their own crimes. B. Directors and officers can be held personally responsible for the crimes of other employees within the organization when they have failed to adequately supervise the employee's behavior. C. An officer can be held criminally liable for conduct of an employee if the court determines that a responsible person would have known about and could have prevented the illegal activity. D. Directors and officers who use insider information to trade the corporation's stock for a profit can be held liable for breaching their fiduciary duty. E. According to the responsible person doctrine, a court may not find a corporate officer criminally liable for conduct of an employee unless the officer profited personally from the illegal activity.

Q: _______________ has/have a fixed face value noted on the stock certificate. A. No-par value shares B. Par-value shares C. Watered stock D. Valued stock E. No-valued stock

Q: How much must a shareholder who signs a stock subscription pay for no-par shares? A. The depreciated value B. At least the value on the last sale C. The value as set by the board of directors D. The value as voted upon by shareholders E. The fair market value

Q: The Securities and Exchange Commission has established that any shareholder who owns more than _____ worth of stock in the corporation can submit proposals to be included in proxy materials. A. $4,000 B. $3,000 C. $2,000 D. $1,000 E. None of the these because shareholders may not present proposals in proxy materials

Q: Generally, a quorum of shareholders exists when shareholders holding more than _____ percent of the outstanding shares are present. A. 80 B. 70 C. 60 D. 50 E. 25

Q: Which of the following is a form of self-dealing? A. Business self-dealing B. Personal self-dealing C. Corporate self-dealing D. Business self-dealing, personal self-dealing, and corporate self-dealing E. Business self-dealing and personal self-dealing, but not corporate self-dealing

Q: Decisions of courts in _____ have a significant impact in issues involving matters such as shareholder rights because more than half of U.S. public traded corporations are incorporated there. A. New York B. California C. Florida D. Delaware E. New Jersey

Q: _____ own(s) the corporation. A. Directors B. Officers C. Shareholders D. Affiliates E. The state

Q: ________________ are outside directors who do not have business contacts with the corporation. A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: Which of the following is false regarding officers of a corporation? A. Officers are executive managers. B. Officers run the day-to-day business of the corporation. C. In most cases an individual may serve as both a director and an officer. D. The rules of agency do not apply to the work of officers. E. Qualifications required of officers are set forth in the corporate articles and bylaws.

Q: Which of the following are directors who are also officers or employees of the corporation? A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: ___________________ are directors who are not officers or employees of the corporation. A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: ______________ are outside directors who have business contacts with the corporation. A. Approved directors B. Outside directors C. Inside directors D. Affiliated directors E. Unaffiliated directors

Q: Although most state statutes allow for longer terms, for how long do directors typically serve? A. Three years B. Two years C. One year D. Four years E. Five years

Q: A director may be removed _____. 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-third vote D. in the discretion of other directors upon a majority vote E. for cause

Q: Which of the following is a term for a requirement that a minimum number of directors be present at a meeting for decisions made at the meeting to be valid? A. Quorum B. Substantial group C. Adequate group D. Adequate assembly E. None of these because there are no such requirement so long as all directors had notice and an opportunity to attend the meeting at issue

Q: While ordinary decisions made by directors require a ______ vote, more important decisions sometimes require a(n) _____ vote. A. majority; two-third B. majority; three-fourth C. two-third; three fourth D. one-third; majority E. majority; unanimous

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