Chapter 35 Quiz

Chp 35 Quiz Corporate Directors, Officers & Shareholders

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 1. Ron and Nancy form Eagle Equipment Corporation. Eagle has a board of directors, a chief executive officer, a chief operating officer, and fifty-two shareholders. Eagle is governed by its
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

____ 2. Mike and Dorothy incorporate their business as American Products, Inc. The first board of directors may be appointed by American's
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

____ 3. Junior is a director of Massachusetts Manufacturing Corporation. Which of the following is not an automatic right of Junior, as a director?
a. Participation
b. Inspection of books
c. Compensation
d. None of the above

____ 4. Bob and Jenny act as the incorporators for National Sales, Ltd. After the first board of directors is chosen, subsequent directors are elected by a majority vote of National's
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

____ 5. James and Dolly are directors of Madison Properties, Inc. Voting by James and Dolly at corporate directors' meetings
a. must be done in person.
b. does not require that a quorum of directors be present.
c. may be done by proxy in all states.
d. may be cumulative.

____ 6. Tom and Aaron are directors of Jefferson, Inc. Which of the following is the right of Tom and Aaron to be notified of special meetings of the board?
a. Indemnification
b. Participation
c. Preemptive right
d. Dissent

____ 7. Ray is chairman of the board of a drug company. The corporation and Ray individually have been sued by a consumer who became ill after using a product produced by the corporation. The corporation may
a. pay Ray's legal fees only if Ray is successful in defending the suit.
b. pay Ray's legal fees regardless of the outcome of the suit.
c. pay Ray's legal fees only if payment is unanimously approved by the shareholders.
d. not pay Ray's legal fees.

____ 8. Geotech, Inc., sells software by mail order. In most states, the minimum number of directors that must be present before Geotech's board could transact its business is
a. the total number of directors authorized in the articles or bylaws.
b. a majority of the number of directors authorized in the articles or bylaws.
c. one director.
d. none of the directors.

____ 9. John and Gail are directors of Adams Corporation. With respect to Adams, the most important right of John and Gail is the right of
a. compensation.
b. indemnification.
c. inspection.
d. participation.

____ 10. Andy and Flora are directors of Jackson Paper Company. Dick and Jane are Jackson officers. Rachel and Henry, as well as the directors and officers, are Jackson shareholders. Jackson stock dividends are ordered by
a. the directors.
b. the shareholders.
c. a majority of the shareholders.
d. the officers.

____ 11. Joe and Diana form Consumer Goods, Inc. Ultimate responsibility for policymaking decisions necessary to the management of corporate affairs rests with Consumer's
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

____ 12. James and Quincy are directors of Monroe Investments Corporation. Monroe has fifty-two shareholders. A dividend on Monroe stock can be declared by
a. one member of the board.
b. a majority vote of the board.
c. a majority vote of the board and majority vote of the shareholders.
d. a unanimous vote of the board and majority vote of the shareholders.

____ 13. 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.

____ 14. U.S. Electronics Company manufactures television sets. U.S. Electronics is like most corporations in that its officers are hired by the firm's
a. board of directors.
b. incorporators.
c. shareholders.
d. none of the above.

____ 15. Martin and Van are officers of Buren Information Corporation. As corporate officers, the rights of Martin and Van are
a. the same as those held by the corporate directors.
b. determined by their employment contracts.
c. specified in state corporation statutes.
d. the same as those held by the corporate shareholders.

____ 16. George is a director of Washington Corporation. Which of the following describes George's position with regard to Washington?
a. Agent
b. Principal
c. Fiduciary
d. Trustee

____ 17. Halle is a director of Berry Foods, Inc. Halle
a. may never sit on the board of a firm that makes contracts with Berry Foods.
b. may never contract with Berry Foods.
c. owes a fiduciary duty to Berry Foods.
d. may contract as she sees fit.

____ 18. Frosty Drinks Corporation distributes soft drinks in the Midwest. Frosty's board of directors can delegate some of its functions to the firm's
a. incorporators.
b. officers.
c. shareholders.
d. none of the above.

____ 19. William is a director of Harrison Lumber, Inc. Under the standard of due care owed by directors of a corporation, William must
a. attend meetings and use perfect judgment.
b. attend meetings and inspect corporate records.
c. carry out his or her responsibilities in an informed, businesslike manner.
d. not mismanage the corporation.

____ 20. John is a director of Tyler Toys, Inc. Without informing Tyler, John goes into business with Child's Play, Inc., in competition with Tyler. John is liable for
a. breach of the duty of care.
b. breach of the duty of loyalty.
c. violating the business judgment rule.
d. indemnification of the corporation.

____ 21. Roland is a director of HMI, Inc. Which of the following actions by Roland would constitute a breach of his duty of loyalty to the corporation?
a. On the advice of the HMI's attorney and accountant, Roland votes for the purchase of a controlling interest in Omcon Company. The purchase causes HMI to suffer significant losses.
b. Roland knows that the board of directors is going to meet to decide on the purchase of a controlling interest in Omcon Company. Roland does not approve of the purchase but fails to attend the meeting-although he does register his dissent to the action with the secretary of the board.
c. Roland becomes a director of a noncompeting corporation.
d. Roland purchases stock in a competing corporation.

____ 22. Smith is elected a director of Lodi Corporation. Smith does not attend a board meeting for three years. During that time, the president of the company makes some improper loans costing the company $40,000. Smith
a. may be liable for violation of the business judgment rule.
b. may be liable for negligence or mismanagement.
c. is not liable because missing the meetings was an honest mistake.
d. is not liable because missing the meetings was only poor business judgment.

____ 23. Millard and Locke are shareholders of Fillmore Transport, Inc. Which of the following Fillmore actions would require their approval?
a. Hiring of a chief executive officer
b. Declaring a corporate dividend
c. Amending the articles of incorporation
d. All of the above

____ 24. Great 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.

____ 25. Al owns 100 shares in Dole, Inc., and has 100 separate stock certificates, one representing each share. Twenty-five of the certificates are eaten by Al's dog, Spot.
a. Al now owns only 75 shares of Dole, Inc.
b. Al's interest in Dole, Inc., has been lost.
c. Al still owns 100 shares of Dole, Inc.
d. Spot now owns 25 shares of Dole, Inc.

____ 26. Zach and Taylor are shareholders of Buena Vista Company. As shareholders, they do not have
a. a right of compensation.
b. dividend rights.
c. preemptive rights.
d. stock warrant rights.

____ 27. Betty owns 100 shares of MegaCorp, Inc. MegaCorp makes a new issue of 10,000 shares. According to her stock certificate, Betty is entitled to buy another 100 shares at the time of the new issue. This is an example of
a. the right of first refusal.
b. preemptive rights.
c. indemnification rights.
d. participation rights.

____ 28. Nick, a shareholder of Alpha Corporation, receives a stock warrant. This is
a. a certificate served on Nick by government officials authorizing them to inspect the records of Alpha.
b. a stock certificate.
c. a transferable option to acquire a given number of shares from Alpha at a stated price.
d. Nick's right to request that a stock certificate be issued in his name.

____ 29. As a corporation, Beta Company can pay its dividends from
a. accumulated surplus.
b. gross profits.
c. net profits.
d. retained earnings.

____ 30. Mary is a shareholder of Consumer Products Corporation. The right to inspect corporate books and records is
a. held by Mary, without restrictions.
b. held by Mary, subject to some restrictions.
c. held by Mary only if she is also a director.
d. not held by Mary.

____ 31. Anderson Family Enterprises is a closely held corporation and thus may limit the sale of its shares to outsiders
a. by reasonable restrictions on transfer.
b. by requiring that shares may be transferred only to certain shareholders.
c. in all cases.
d. in no case.

____ 32. Ethan transfers shares of stock that he owns to Luigi. A shareholder's meeting takes place before Luigi's ownership is entered in the corporate stock book, and Ethan and Luigi both want to exercise voting rights at the meeting. Who is entitled to vote at the meeting, Ethan or Luigi?
a. Luigi
b. Ethan
c. Both a and b
d. None of the above

____ 33. Alan is a shareholder of Interstate Transport Company (ITC). When the directors fail to undertake any action to redress a wrong suffered by ITC, Alan files a suit on ITC's behalf. This suit is a shareholder's
a. business-judgment rule suit.
b. derivative suit.
c. duty-of-liability suit.
d. duty-of-loyalty suit.

____ 34. Ellen is a shareholder of International Business Corporation (IBC). Ellen might incur personal liability for IBC obligations if she
a. bought no-par shares.
b. bought stock for less than its stated value.
c. failed to fulfill her fiduciary duty to majority shareholders.
d. received a dividend knowing that it was paid from retained earnings and failed to return the dividend to IBC.

____ 35. Joe is a shareholder of American Computers, Inc. Joe will be deemed to have a fiduciary duty to American Computers and to the minority shareholders if Joe has
a. a right of first refusal.
b. a sufficient number of shares to exercise de facto control of the corporation.
c. watered stock bought for less than half price.
d. none of the above.