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Law
Q:
After a reverse share split, corporation law permits a corporation to repurchase any _____ shares, even if the shareholders do not consent.
A. preferred
B. fractional
C. outstanding
D. issued
Q:
What is the term for a publicly held corporation a raider attempts to take over through tender offer?
A. The target
B. The enemy
C. The bylaw
D. The liquidation
Q:
When Reese Group of Hotels (RGH) was on the verge of facing a hostile takeover bid by rivals Blossoms Group (which held a 14.98 percent stake in RGH), Rely's came forward and bought a 14.12 percent stake in RGH, thereby relieving RGH from the hostile takeover risk. This kind of tender offer defense is called:
A. Greenmail.
B. The lock-up option.
C. White Knight.
D. Pac-Man.
Q:
The board of directors of Filex Corporation at a regular meeting of the board entered into a contract with Ginger Grant, one of the directors. This contract called for Filex to purchase 120 acres of land from Ginger. There were ten members on the board, eight of whom were present at the meeting. One of the directors present was Ginger. All the other directors were disinterested in the transaction and not related to Ginger. After a lengthy discussion, six directors voted in favor of the contract and two voted against it. Ginger voted for the contract. Which of the following is true?
A. The contract between Ginger and the corporation is illegal and invalid.
B. The contract is valid since it was approved by a majority of a quorum of the board.
C. The contract becomes void if the corporation proves that the contract was unfair to it.
D. The contract is voidable unless Ginger proves that the contract is fair to the corporation.
Q:
While at home, Kyle Kinston, the president and chief executive officer of Remstat, Inc., is called by the CEO of Viokam Corporation, who asks Kinston if Remstat would be interested in buying about 25 percent of the outstanding shares of Viokam. Remstat is a billion dollar conglomerate that has contemplated acquiring Viokam for some time, but Kinston tells Viokam's CEO that Remstat is not interested. Kinston tells the CEO, however, that KKIM, Inc., is willing to buy the shares. Kinston is the 100 percent shareholder of KKIM. Viokam sells the shares to KKIM for $35 million. A year later, KKIM sells the shares for $55 million to a mutual fund company. When Remstat's directors discover KKIM's purchase and sale of the Viokam shares, they sue Kinston on behalf of the corporation. Which of the following is correct?
A. Kinston has exceeded her authority to act for the corporation.
B. Kinston has self-dealt with the corporation.
C. Kinston has done nothing wrong.
D. Kinston has usurped a corporate opportunity.
Q:
A special term used to define a freeze-out of shareholders of a publicly owned corporation is:
A. oppression.
B. novation.
C. right of appraisal.
D. going private.
Q:
Ted is the president of Soprano Corporation (SC). Ted decided to have SC manufacture large, gas-guzzling SUV automobiles just before gasoline prices rose dramatically. As a result, SC lost billions of dollars. The shareholders of SC want to sue Ted for this bad decision that cost them billions. However, Ted had made a reasonable investigation before making this decision, he had a rational basis for it, and he had no conflicts of interest regarding this decision. What would be the probable outcome if the shareholders file a suit?
A. Ted is liable under the vicarious liability rule.
B. Ted is liable under the ultra vires rule.
C. Ted is not liable under the business judgment rule.
D. Ted is not liable under the corporate protection rule.
Q:
Raider Corporation (RC) attempted to take over Targetnorth Corporation (TC) using a tender offer. The tender offer price was twice the market price for TC shares. TC management opposed this takeover, as a result of which it failed. Shareholders of TC who had hoped to sell their shares at a large profit want to sue the management of TC for spoiling the takeover. If they sue TC management, will the shareholders succeed?
A. Yes, if they can show that TC management did not carefully study the RC tender offer.
B. Yes, if they can show that they would have been much better off accepting the tender offer.
C. No, the business judgment rule protects management in all cases of resisting a takeover.
D. No, even if the shareholders can show that management resisted the takeover in their own self-interest.
Q:
_____ is a tender offer defense where the target corporation turns the tables on the tender offeror or raider by making a tender offer for the raider's shares.
A. Greenmail
B. Lock-Up Option
C. White Knight
D. Pac-Man
Q:
Raider Corporation (RC) attempted to take over Targetnorth Corporation (TC) using a tender offer. The tender offer price was twice the market price for TC shares. As a defense to this, TC proposed to buy its shares owned by RC at triple the market price provided RC agreed not to purchase any more TC shares for the next five years. This kind of tender offer defense is called:
A. Greenmail.
B. the lock-up option.
C. White Knight.
D. Pac-Man.
Q:
What is the standard applied to examine managers' duty of care?
A. The degree of care expected from an intelligent person faced with a complex problem.
B. The care expected from a shopkeeper while selling expensive goods.
C. The care expected from an ordinarily prudent man in similar circumstances.
D. The degree of care expected from a prudent businessman during economic downturn.
Q:
Under the business judgment rule, corporate managers:
A. must not make uninformed decisions.
B. may have conflicts of interest.
C. are not required to make reasonable investigations.
D. may not benefit even as shareholders.
Q:
What is meant by rational basis?
A. A decision has the consent of all board members.
B. A decision has been taken after protracted negotiations.
C. A decision has a logical connection to the facts.
D. A decision has been taken after a long discussion.
Q:
The _____ rule has been criticized frequently as providing too much protection for the managers of corporations.
A. co-determination
B. vicarious liability
C. Wall Street
D. business judgment
Q:
Which of the following is correct concerning the management of close corporations?
A. The MBCA Statutory Close Corporation Supplement grants the shareholders unlimited power to restrict the discretion of the board of directors.
B. Modern close corporation statutes require close corporations to comply with most management formalities.
C. The MBCA Statutory Close Corporation Supplement permits a close corporation to dispense with shareholders and directors.
D. The California General Corporation Law permits a close corporation to be managed as if it were a sole proprietorship.
Q:
The board of directors of a nonprofit corporation must have at least _____ director(s).
A. one
B. three
C. eight
D. five
Q:
Directors and officers owe what kind of duty to the corporation?
A. Fiduciary duty based on trust
B. Duty to make a profit
C. A duty to be innovative
D. A duty to be generous
Q:
Who amongst the following owes a fiduciary duty to the corporation?
A. Directors
B. Employees
C. Shareholders
D. Secretary of state
Q:
Many corporation statutes, unlike the MBCA, state that the same person may not hold the offices of _____ and _____.
A. president; treasurer
B. president; secretary
C. vice-president; secretary
D. vice-president; treasurer
Q:
The most perplexing issue with regard to the authority of officers is whether an officer has _____ authority merely by virtue of the title of his office.
A. express
B. implied
C. apparent
D. inherent
Q:
What officer of the corporation has custody of the corporation's funds?
A. Treasurer
B. Chief Information Officer
C. Secretary
D. Vice President
Q:
A supermajority vote is rarely required to:
A. decide with which suppliers the corporation should deal.
B. terminate the employment contract of an employee-shareholder.
C. reduce the level of dividends.
D. change the corporation's line of business.
Q:
The proxy solicitation process usually results in:
A. the chief executive officer controlling the corporation.
B. shareholders dominating the management of the corporation.
C. corporate democracy working at its best.
D. the board of directors dominating the management of the corporation.
Q:
Passive investors follow the _____ rule: Either support management or sell the shares.
A. co-determination
B. vicarious liability
C. Wall Street
D. business judgment
Q:
Directors' meetings:
A. require a majority number of directors to attend, called a quorum.
B. are always called after reasonable notice to the directors.
C. are always required in order for the board to take action.
D. permit directors to cast up to three votes each.
Q:
The person who is designated to vote on behalf of the shareholder is called a(n):
A. sharebroker.
B. agent.
C. voter.
D. proxy.
Q:
_____ voting may permit minority shareholders to obtain representation on the board of directors.
A. Preference
B. Cumulative
C. Ranked
D. Straight
Q:
According to several state statutes including the California statute, what is the least number of directors required to form the board of directors?
A. 5
B. 9
C. 1
D. 3
Q:
What was the original purpose of staggered terms?
A. To permit continuity of management.
B. To help insurgent shareholders transform the management of the corporation.
C. To help minority shareholders exercise cumulative voting power.
D. To make it easier for the corporation to remove existing directors.
Q:
Rules of the New York Stock Exchange (NYSE) and the NASDAQ, which apply to firms listed on the NYSE or NASDAQ, require that audit committees comprise only of _____.
A. inside directors
B. independent directors
C. outside directors
D. top level officers
Q:
The _____ requires periodic shareholder approval of executive compensation.
A. Dodd-Frank Wall Street Reform and Consumer Protection Act
B. Burnett Act
C. Sarbanes-Oxley Act
D. Debbie Smith Act
Q:
Which of the following committees of a board of directors reviews and approves salaries of high-level corporate executives?
A. Executive committee
B. Compensation committee
C. Nomination committee
D. Audit committee
Q:
_____ voting permits a holder of more than 50 percent of the shares of a corporation to dominate the corporation.
A. Preference
B. Cumulative
C. Ranked
D. Straight
Q:
Under the Model Business Corporation Act (MBCA), ultra vires may be asserted by:
A. a shareholder seeking to enjoin a corporation from executing a proposed action that is ultra vires.
B. a federal judge who may have the power to dissolve a corporation that exceeds its powers.
C. the management suing the corporation for damages caused by exceeding the corporation's powers.
D. the secretary of state who may have the power to enjoin an ultra vires act.
Q:
The ultra vires doctrine states that:
A. the corporation may engage in any lawful business.
B. a corporation is liable for an employee's tort that is connected to the authorized conduct of the employee.
C. any action of a corporation beyond its stated powers is void.
D. the board of directors must manage the corporation.
Q:
A nonprofit corporation will limit its powers pursuant to what?
A. The nonprofit corporation's purpose clause
B. The nonprofit corporation's articles of organization
C. The majority vote of the general class of shareholders
D. The majority vote of the preferred class of shareholders
Q:
Which of the following corporate actions is included in a corporation's board of directors' authority?
A. Adopting and amending bylaws
B. Amending the articles of incorporation
C. Approving merger of the corporation
D. Approving voluntary dissolution
Q:
Under the doctrine of respondeat superior, a corporation is liable for an employee's tort that is reasonably connected to the authorized conduct of the employee.
Q:
Under the MBCA, only directors of a corporation are entitled to mandatory indemnification rights.
Q:
The traditional objective of the business corporation has been to:
A. act in a socially and morally responsible manner.
B. act consistently with the purpose clause of the corporation.
C. serve the community in which the business resides.
D. enhance corporate profits and shareholder gain.
Q:
Most states have enacted _____ statutes, which broaden the legal objectives of corporations.
A. Good Samaritan
B. corporate constituency
C. control share acquisition
D. business combination
Q:
The traditional view is that a corporation is not liable for a crime because criminal guilt requires presence of intent.
Q:
Delta Corporation's board of directors is considering a resolution that may cause severe liability to the directors. Wayne, a board member, disagrees with the decision. Unless he clearly registers his dissent, he may be liable.
Q:
The term for outsiders who attempt to gain control of a corporation is called raiders.
Q:
Directors and officers are liable to the business for losses resulting from their lack of due care.
Q:
The two easiest ways to freeze out minority shareholders are the freeze-out acquisition and the share split.
Q:
The total fairness test permits a shareholder to require the corporation to purchase his shares at a fair price.
Q:
Alvin and Billy own 70 percent of Beta Corporation. Claude owns 30 percent of Beta Corporation. Alvin and Billy consistently vote and act in ways that benefit them, but harm Claude. Claude may claim oppression as a minority shareholder.
Q:
The most common committee created from board of directors is an executive committee, which typically is given the power to act when the board of directors is not in session.
Q:
Unless the articles of incorporation state otherwise, directors cannot be removed with or without cause.
Q:
Officers of a corporation, like a vice president, are also agents of the corporation.
Q:
An officer or director of a corporation may be liable if they acted beyond their scope and corporation property was damaged or wasted.
Q:
In order to facilitate the operation of the board of directors, many tasks and decisions are delegated to a committee of the board.
Q:
A director has a right to inspect corporate books and records that contain corporate information essential to the director's performance of her duties.
Q:
Directors should be shareholders of the corporation on whose board they serve.
Q:
Straight voting permits a single holder of more than 30 percent of the shares of a corporation to dominate the management of the corporation.
Q:
The Model Business Corporation Act has made the inclusion of purpose clause in the articles compulsory.
Q:
The primary source of power for a corporation is the GATT (General Agreement on Trade and Tariffs).
Q:
The primary corporate objective is to make money for the shareholders.
Q:
Corporate constituency statutes permit the board of directors to consider the interests of persons other than the corporation's shareholders when the directors make corporate decisions.
Q:
Under the MBCA, an incorporator may become jointly and severally liable for preincorporation contracts just by being an incorporator.
Q:
A passive investor who believes she has invested in a corporation has no liability for the obligations of the business if the corporation has not in fact been formed.
Q:
As per the Model Nonprofit Corporation Act (MNCA), a nonprofit corporation need not have members for its existence.
Q:
If the secretary of state's office approves a company's articles of incorporation then it is return with a stamp indicated filed' and with a receipt for the fees paid.
Q:
Regardless of what state a corporation files in, that business will need to produce an annual report and pay fees to the state.
Q:
An organizer is the individual that incorporates a business.
Q:
A promoter is not an agent of the future corporation.
Q:
Two corporations in a state may have the same names.
Q:
Promoters are personally liable on a preincorporation contract but are released from liability when the corporation adopts the contract.
Q:
Only when the promoter is liable on the preincorporation contract is the other party liable on the contract.
Q:
Under the Model Business Corporation Act (MBCA), a prospective shareholder may not revoke a preincorporation subscription for a one-year period, in the absence of a contrary provision in the subscription.
Q:
A corporation is required to reimburse a promoter for his reasonable expenses incurred on behalf of the corporation prior to incorporation.
Q:
The board of directors of Laylow Corporation issued 1,000 shares representing 10 percent of the corporation to Don in exchange for an unsecured promissory note to pay Laylow $50,000 within the next 20 years. Don is the son of Charles, owner of 70 percent of the shares of the corporation. The total book value of the corporation at the time Laylow issued the shares was $5,000,000. Alan and Bob, owners of 20 percent of the total shares, discovered the transaction one month after it occurred. Alan and Bob sued Don on behalf of Laylow Corporation seeking to invalidate the transaction. Should the court invalidate it? Discuss.
Q:
Corporations are generally liable on preincorporation contracts signed by their promoters.
Q:
Pamela is a corporate promoter for Nulla Corporation, a corporation yet to be formed. Pamela determines that Nulla will need to lease a building in which to conduct its business. Pamela owns an office building that is suitable for Nulla. What should Pamela do if she wants to make a contract for Nulla to lease the building from her?
Q:
Pedro is a corporate promoter for Nolo Corporation, a corporation yet to be formed. Pedro spends $40,000 of his own money and devotes 400 hours to bring Nolo and its business into existence. When Nolo is incorporated, Pedro asks the board of directors to issue some of its common shares to Pedro as compensation for his expenses and services. Would such an issuance be legal?
Q:
ABC is a nonprofit corporation formed by Alex. As its promoter, Alex made a few contracts with Johnsons Inc. The following year, Alex formed another for-profit company. Meanwhile, Johnsons Inc., claimed that Alex has not honored the contracts he made with them as promoter of ABC. Is Alex liable for those contracts? If not, what remedies are available for Johnsons Inc.?
Q:
What article of the Uniform Commercial Code (UCC) governs the issuance of stocks by a corporation?
A. Article 8
B. Article 2
C. Article 13
D. Article 9
Q:
When close corporation shareholders want to ensure that there is a market for their shares upon their deaths, they should use a:
A. buy-and-sell agreement.
B. right of first refusal.
C. consent restraint.
D. provision disqualifying purchasers.
Q:
What is the term for an agreement that makes the shareholder sell his shares back to the corporation at a price determined in the agreement and binds the corporation to purchase the shares?
A. Option agreement
B. Buy and sell agreement
C. Fiduciary agreement
D. International agent agreement