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Business Law
Q:
In certain instances of fraud, a court may "pierce the corporate veil" to hold the shareholders individually liable.
Q:
If a corporation fails, the shareholders are all individually liable.
Q:
If the corporate directors fail to sue in the corporate name to redress a wrong suffered by the corporation, then the shareholders can do nothing.
Q:
Persons whose names appear in a corporation's stock book are ordinarily entitled to notice of shareholders' meetings and the right to vote.
Q:
Every shareholder is entitled to inspect corporate records for a proper purpose.
Q:
Dividends can be paid only in stock in other corporations.
Q:
The ownership right to stock exists independently of a stock certificate.
Q:
A preemptive right is a preference over other shareholders to cast the determining vote on fundamental changes affecting the corporation.
Q:
Shareholder voting agreements are usually held to be invalid and unenforceable.
Q:
Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.
Q:
The articles of corporation cannot exclude or limit shareholders' voting rights.
Q:
Shareholders' meetings must occur at least annually.
Q:
Shareholders do not need to approve fundamental changes affecting the corporation before the changes can be effected.
Q:
Shareholders own a corporation.
Q:
A director does not need to disclose any conflict of interest before voting on a proposal.
Q:
Directors can use corporate funds and confidential information for personal advantage as long as they disclose that they are doing so.
Q:
Corporate directors and officers are insurers of business success.
Q:
If a director fails to use a reasonable amount of supervision over corporate officers and employees, then the director can be held liable for negligence.
Q:
A board of directors can delegate some functions to corporate officers.
Q:
A director is a fiduciary of a corporation.
Q:
Corporate officers can usually be removed by the board of directors without cause.
Q:
A corporate officer cannot act as an agent of the corporation.
Q:
Quorum requirements are the same in all jurisdictions.
Q:
The minimum number of members of a body of officials that must be present before business can validly be transacted is known as a quorum.
Q:
Hiring corporate officers and determining their compensation are decisions that would be made by a corporation's board of directors.
Q:
Pursuing a new product line is a decision that would be made by shareholders.
Q:
After the first board, the directors are chosen by the corporate officers.
Q:
A director can be elected by the other members of the board.
Q:
In most states, a director cannot be removed from a corporate board for a breach of duty.
Q:
A director usually serves on a corporation's board for a life term.
Q:
Some states permit a corporate board to have fewer than three directors.
Q:
The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.
Q:
A corporation's officers and other executive employees are hired by corporate shareholders.
Q:
A board of directors govern every corporation.
Q:
Mitch is a director and officer of Numero Uno, Inc. Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduciary duty to the corporation. What is Mitch's best defense against this accusation? Later, the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation. Mitch is a director and shareholder of One-of-a-Kind. What is Mitch's responsibility in this situation?
Q:
Guy is Hot Java Company's majority shareholder. Guy decides to sell his Hot Java stock. The sale will be an effective transfer of the control of the company. Does Guy owe a duty to Hot Java or its minority shareholders in this situation?
Q:
Cole is a shareholder of Donut Holes, Inc. Cole will be deemed to have a fiduciary duty to Donut Holes and its minority shareholders if he has
a. a restriction on the transferability of his shares.
b. a right of first refusal.
c. a sufficient number of shares to exercise de facto control.
d. voting rights.
Q:
Larry is a shareholder for Custom Colors, Inc. If Custom Colors fails, Larry will
a. be liable for Custom Colors' debts.
b. not be liable for Custom Colors' debts.
c. be able to reclaim his initial investment in Custom Colors.
d. be able to reclaim his initial investment in Custom Colors plus damages.
Q:
Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Any damages recovered by Ray's suit will go to
a. Ray.
b. SBC.
c. SBC's directors.
d. the state in which SBC is incorporated.
Q:
Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
Ray's suit is a shareholder's
a. business-judgment rule suit.
b. derivative suit.
c. duty-of-care suit.
d. duty-of-loyalty suit.
Q:
Kelly transfers shares of stock that she owns in Lone Starz Company to Max. A shareholders' meeting takes place before Max's ownership is entered in Lone Starz's stock book. A vote at the meeting can be cast by
a. Kelly and Max.
b. Kelly only.
c. Max only.
d. neither Kelly nor Max.
Q:
Bea is a shareholder of Candy Confections Corporation. The right to inspect corporate books and records is
a. held by Bea only if she is a director.
b. held by Bea, without restrictions.
c. held by Bea, with some restrictions.
d. not held by Bea.
Q:
Natalie is a shareholder of Off-Road Vehicle Company. As a shareholder, Natalie does not have
a. a right to compensation.
b. dividend rights.
c. inspection rights.
d. preemptive rights.
Q:
Generally, Sports Fitness Club Company and other corporations can pay dividends if
a. the corporation can continue to pay its debts as they come due.
b. the amount of the dividends exceed the corporation's net worth.
c. the shareholders approve.
d. the corporation's assets equal its total liabilities.
Q:
Ida, Jerzy, and Kit are the directors of Liberty Convenience Stores, Inc. Liberty has nine officers and forty-six shareholders. Dividends are ordered by the firm's
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.
Q:
Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can
a. buy a prorated share of a new issue of stock before other buyers.
b. choose to have Matchless act exclusively in a certain area.
c. "preempt" managerial decisions that affect shareholders.
d. sell a prorated share of a new issue of stock before other sellers.
Q:
Because stock is intangible personal property, a stockholder's ownership of the stock
a. exists independently of the stock certificate itself.
b. cannot exist without a tangible stock certificate.
c. cannot exist without the original stock certificate.
d. cannot be transferred to another person.
Q:
Fiona owns one share of stock in SK8 Boards Corporation, as evidenced by a stock certificate. Fiona loses the certificate. Her ownership of the stock is
a. forfeited immediately.
b. forfeited within ten days of a third party's claim to ownership.
c. forfeited within thirty days if she cannot find the certificate.
d. not affected.
Q:
Jaycee is a shareholder for Designer Pet Clothes, Inc. Designer Pet Clothes uses cumulative voting to elect directors. This means that the number of Jaycee's votes is determined by
a. how long Jaycee has been a shareholder.
b. the number of members of the board to be elected multiplied by the total number of voting shares Jaycee holds.
c. the number of shareholders present at the most recent shareholders' meeting.
d. the number of shareholders' meetings Jaycee has attended in the past year.
Q:
Thor Power Products Corporation permits its directors to be elected by cumulative voting. This
a. allows minority shareholders to be represented on the board.
b. assures directors that they will be selected by their peers.
c. guarantees Thor's executive officers of the final choice.
d. ensures against persons who may "cloud" the corporate direction.
Q:
Corporate business matters are presented at a shareholders' meeting in the form of
a. resolutions.
b. proxies.
c. articles of incorporation.
d. bylaws.
Q:
Niche Stores, Inc., must hold a shareholders' meeting
a. once a month.
b. once a year.
c. once every two years.
d. only when it is called by the board of directors.
Q:
Rosa and Sean are directors of Tech, Inc. Rosa's written authorization to Sean to vote Rosa's shares at a Tech shareholders' meeting is
a. a violation of the duty of care.
b. a preemptive right.
c. a proxy.
d. a quorum.
Q:
Louise is a director for Icy Ices, Inc. Louise is also a director for Creamy Creams, Inc. When Icy Ices enters into a contract with Creamy Creams, Louise
a. must resign from one of the boards.
b. must resign from both boards.
c. must make a full disclosure of any conflicts of interest and abstain from voting on the proposed transaction.
d. need not do anything.
Q:
Etta is a director of Trendy Stuff Corporation. Without informing Trendy, Etta goes into business with GR8 Things, Inc., in competition with Trendy. Etta is liable for breach of
a. no duty or rule
b. the business judgment rule.
c. the duty of care.
d. the duty of loyalty.
Q:
Josh is a director of Sippy Soups, Inc. Josh opposes a tender offer that is in Sippy's best interest because its acceptance would cost him his position as a director. Josh is liable for a breach of duty of
a. no duty or rule.
b. the business judgment rule.
c. the duty of care.
d. the duty of loyalty.
Q:
Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not
a. authorize major corporate policy decisions.
b. decide to issue stock and bonds, and declare dividends.
c. select and remove corporate officers.
d. subordinate the corporation's welfare to their personal interests.
Q:
Dave is an officer for Sweet Somethings Candies, Inc. In 2012, chocolate hearts were very popular. Acting within his managerial authority and the powers of the corporation, Dave signs a contract for an increase in chocolate heart production for 2013. In 2013 chocolate hearts do not sell well and Sweet Somethings Candies loses money. Dave is most likely
a. liable for breach of duty of care.
b. liable for breach of duty of loyalty.
c. none of the choices.
d. liable for violation of the business judgment rule.
Q:
Rafi, a director of Super Service Station Corporation, does not attend a board meeting for three years. During that time, Twyla, Super's president, makes improper loans that cost the company $100,000. Rafi is most likely
a. liable for negligence or mismanagement.
b. liable for violation of the business judgment rule.
c. not liable because missing meetings is an honest mistake.
d. not liable because missing meetings is only poor judgment.
Q:
Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coast's employees include its
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.
Q:
Frawsty Corporation distributes beverages in the greater Northwest. Frawsty's board of directors can delegate some of its functions to
a. Frawsty's incorporators.
b. Frawsty's officers.
c. Frawsty's shareholders.
d. no one.
Q:
Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is
a. a fiduciary.
b. a forum.
c. a proxy.
d. a quorum.
Q:
Nina is a director of Omega, Inc. Under the standard of due care owed by directors of a corporation, Nina's decisions must be
a. ambiguous and questionable.
b. arguable and defensible.
c. informed and reasonable.
d. perfect and unassailable.
Q:
Mickey is a director of Fine Art Dealers, Inc. Mickey is trained in art valuation. Fine Art Dealers makes several purchases in which it pays too much money for artwork. Mickey approves all the transactions without reading the details. Mickey is most likely
a. liable for breach of the duty of care.
b. not liable for breach of the duty of care.
c. liable for breach of duty of loyalty.
d. liable for violation of the business judgment rule.
Q:
RayAnn is a corporate officer for Timmy's Trees, Inc. As a corporate officer, RayAnn is
a. the head of the board of directors.
b. involved in the day-to-day operations of Timmy's Trees.
c. not involved in the day-to-day operations of Timmy's Trees.
d. in charge of selecting members of the board of directors.
Q:
The board of directors of Integral Components Corporation consists of Frida, Gayla, and Hart. A quorum is the minimum number of these directors
a. who must be at odds in a dispute to call for its resolution.
b. who must be present to validly transact business.
c. that the shareholders may remove from office at any one time.
d. whose positions must be vacant to warrant an election.
Q:
Great Gates, Inc. has a board of ten directors. Great Gates' bylaws do not state any quorum requirements. In most states, a quorum for Great Gates will be defined as
a. two directors.
b. six directors.
c. nine directors.
d. ten directors.
Q:
Doyle and Emily are officers of Fresh Bottled Water Corporation. As corporate officers, their compensation is determined by Fresh's
a. directors.
b. incorporators.
c. other officers.
d. shareholders.
Q:
Dennis is a promoter for the soon-to-be-incorporated firm of eBroadcast Sports, Inc. Dennis signs a contract with Fitz & Geraldo, Accountants, to render their services before eBroadcast Sports is incorporated and for one year after the incorporation. eBroadcast Sports is incorporated. Three months later, after Fitz & Geraldo has continued performing under the contract, the eBroadcast Sports board of directors tells the accountants that it is canceling their contract. Fitz & Geraldo files a suit against Dennis and eBroadcast Sports, alleging breach of contract. Will Fitz & Geraldo prevail?
Q:
Starr Cardio, Inc., is a small business. Ted, Uma, and eleven other members of the Starr family own all of its stock. Currently, Starr's income is taxed at the corporate level and, after being distributed to the family members, at the shareholder level. Can Starr retain its corporate status but otherwise avoid this double taxation? If so, how?
Q:
Qiara is a holder of preferred stock in Rio Grande Irrigation & Development, Inc. Qiara has priority over holders of Rio common stock as to
a. nothing.
b. payments of dividends.
c. the date on which Rio must repurchase the shares.
d. upward changes in the market price of the shares.
Q:
Blair and Chanel are holders of common stock in Discount Retail Stores, Inc. Like other holders of common stock, they have a residual position in the overall financial structure of Discount Retail, because they
a. are guaranteed to receive more than the amount of their investment.
b. are the last to receive returns for their investment.
c. have priority to the firm's assets if it becomes insolvent.
d. reside in the state of the firm's incorporation.
Q:
Lyla is a common shareholder in Norman's Nutty Nuts Corporation. As a common shareholder, Lyla is
a. guaranteed regular payments of dividends.
b. not guaranteed any payments of dividends.
c. not given any voting rights.
d. liable for all of Norman's Nutty Nuts's debts.
Q:
Urban Commerce, Inc., issues bonds, which are also known as
a. cumulative investments.
b. fixed-income securities.
c. equity securities.
d. preferred stock.
Q:
Perfect Tone Phones, Inc. is a corporation. Perfect Tone's implied powers enable it to
a. amend the articles of incorporation.
b. bring a derivative suit.
c. declare dividends.
d. borrow funds, extend credit, and make charitable contributions.
Q:
O.K. Oil holds itself out to others as being a corporation but makes no attempt to incorporate. In this circumstance, O.K. is most likely
a. a corporation by estoppel.
b. a de facto corporation.
c. a de jure corporation.
d. ultra vires.
Q:
Luke is an owner of Lucky Luke's Corporation. Luke uses the corporate entity of Lucky Luke's to perpetuate fraud. In this case, a court is likely to expose Luke to personal liability by
a. piercing the corporate veil.
b. issuing a de facto judgment.
c. issuing a de jure judgment.
d. issuing a ultra vires judgment.
Q:
Memphis Music Makers Incorporated has a stated purpose to sell musical instruments. If chief executive officer Tabitha contracts with Frenzied Firearms in Memphis Music Makers's name to sell a shotgun, she has likely committed
a. an ultra vires act.
b. a de facto act.
c. a de jure act.
d. a legal act.
Q:
When a conflict arises among the documents that involve Express Flights Corporation, the first priority for resolving the conflict is given to
a. resolutions of the board of directors.
b. Express Flights's bylaws.
c. state statues.
d. the U.S. Constitution.
Q:
Wings2Go Corporation fails to hold an organizational meeting. In this circumstance, at common law Wings2Go is most likely
a. a corporation by estoppel.
b. a de facto corporation.
c. a de jure corporation.
d. ultra vires.