Question 1

Mitch is a director and officer of Numero Uno, Inc. Mitch makes a market?ing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduci?ary duty to the corporation. What is Mitch's best defense against this ac?cu?sation? 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?

Accepted Answer

The best defense in this context is the business judgment rule. As long as a director or officer does what is necessary to be informed, and acts in good faith, in what he or she considers to be the best interests of the corporation, and with the care that an ordinarily prudent person would use in similar circumstances, he or she is not liable simply because a decision has a negative result. As for the resolution involving a different corporation, a director cannot support a business that competes directly with a corporation on the board of which the director sits. The director's fiduciary duty requires him to fully disclose the conflict of interest. Most likely, the director in these circumstances will have to resign from one of the boards.

Question 2

Shareholders do not need to approve fundamental changes affecting the corporation before the changes can be effected.

Accepted Answer

A) True 
 B)False

Question 3

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Accepted Answer

A) True 
 B)False

Question 4

Niche Stores, Inc., must hold a shareholders' meeting

Accepted Answer

A)   once a month.
B)   once a year.
C)   once every two years.
D)   only when it is called by the board of directors.

Question 5

Some states permit a corporate board to have fewer than three directors.

Accepted Answer

A) True 
 B)False

Question 6

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

Accepted Answer

A)   a fiduciary.
B)   a forum.
C)   a proxy.
D)   a quorum.

Question 7

Cole is a shareholder of Donut Holes, Inc. Cole will be deemed to have a fiduci?ary duty to Donut Holes and its minority share?holders if he has

Accepted Answer

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. C

Question 8

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?

Accepted Answer

Yes. A single shareholder-or a few shareholders acting together-who owns enough stock to exercise de facto control over a corporation owes the corporation and its minority shareholders a fiduciary duty when transferring those shares. A breach of this fiduciary duty by those who control a closely held corporation can constitute what is known as oppressive conduct. A breach of this duty may also occur if a majority shareholder attempts to exclude minority shareholders from receiving certain benefits from participating in the firm. Thus, for example, refusing to perform a valuation of the company, or denying the minority shareholders access to corporate information to which they would otherwise be entitled, would constitute a violation of this duty.

Question 9

Shareholders' meetings must occur at least annually.

Accepted Answer

A) True 
 B)False

Question 10

A director can be elected by the other members of the board.

Accepted Answer

A) True 
 B)False

Question 11

The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

A director usually serves on a corporation's board for a life term.

Accepted Answer

A) True 
 B)False

Question 14

Corporate officers can usually be removed by the board of directors without cause.

Accepted Answer

A) True 
 B)False

Question 15

Doyle and Emily are officers of Freshé Bottled Water Corporation. As cor?porate officers, their compensation is determined by Freshé's

Accepted Answer

A)   directors.
B)   incorporators.
C)   other officers.
D)   shareholders.

Question 16

Corporate directors and officers are insurers of business success.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

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.

Question 19

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which

Accepted Answer

A)   governs Spex.
B)   is governed by the Spex incorporators.
C)   is governed by the Spex officers.
D)   is governed by the Spex shareholders.

Question 20

Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

Accepted Answer

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.

Exam 35: Corporate Directors, Officers, and Shareholders

Shareholders do not need to approve fundamental changes affecting the corporation before the changes can be effected.

Correct Answer
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Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Correct Answer
verified

Niche Stores, Inc., must hold a shareholders' meeting

Correct Answer
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Some states permit a corporate board to have fewer than three directors.

Correct Answer
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Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

Correct Answer
verified

Cole is a shareholder of Donut Holes, Inc. Cole will be deemed to have a fiduci?ary duty to Donut Holes and its minority share?holders if he has

Correct Answer
verified
C

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?

Shareholders' meetings must occur at least annually.

Correct Answer
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A director can be elected by the other members of the board.

Correct Answer
verified

The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.

Correct Answer
verified

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.

Correct Answer
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A director usually serves on a corporation's board for a life term.

Correct Answer
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Corporate officers can usually be removed by the board of directors without cause.

Correct Answer
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Doyle and Emily are officers of Freshé Bottled Water Corporation. As cor?porate officers, their compensation is determined by Freshé's

Correct Answer
verified

Corporate directors and officers are insurers of business success.

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
verified

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which

Correct Answer
verified

Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

Correct Answer
verified

Exam 35: Corporate Directors, Officers, and Shareholders

Shareholders do not need to approve fundamental changes affecting the corporation before the changes can be effected.

Correct AnswerverifiedShow Answer

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Correct AnswerverifiedShow Answer

Niche Stores, Inc., must hold a shareholders' meeting

Correct AnswerverifiedShow Answer

Some states permit a corporate board to have fewer than three directors.

Correct AnswerverifiedShow Answer

Odell is a director of Price Rite, Inc. As a director, with respect to the corporation, Odell is

Correct AnswerverifiedShow Answer

Cole is a shareholder of Donut Holes, Inc. Cole will be deemed to have a fiduci?ary duty to Donut Holes and its minority share?holders if he has

Correct AnswerverifiedC

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?

Shareholders' meetings must occur at least annually.

Correct AnswerverifiedShow Answer

A director can be elected by the other members of the board.

Correct AnswerverifiedShow Answer

The initial board of directors of a corporation is normally elected at the first annual shareholders' meeting by a majority vote of the shareholders.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A director usually serves on a corporation's board for a life term.

Correct AnswerverifiedShow Answer

Corporate officers can usually be removed by the board of directors without cause.

Correct AnswerverifiedShow Answer

Doyle and Emily are officers of Freshé Bottled Water Corporation. As cor?porate officers, their compensation is determined by Freshé's

Correct AnswerverifiedShow Answer

Corporate directors and officers are insurers of business success.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear. As a Spex director, Rhea sits on the board, which

Correct AnswerverifiedShow Answer

Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can

Correct AnswerverifiedShow Answer

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C

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