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Exam 39: Corporations: Directors, Officers, and Shareholders

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Question 1

Multiple Choice

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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

F) A) and E)
G) A) and B)

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Question 2

True/False

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In most states, a corporation's bylaws can negate preemptive rights.

A) True
B) False

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Question 3

Multiple Choice

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Which of the following is not a right of corporate directors?

A board of directors may take no action that benefits a director in his or her personal capacity.

What are the requirements for being a director?

Which of the following gives preference to shareholders to purchase shares of a new issue of stock?

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?

For which of the following may a director generally be removed?

Which of the following was the result on appeal in the Case Opener, the case in which a majority shareholder voted to award a bonus to her son, the president of the company, over the objection of minority shareholders?

Which of the following are outside directors who have business contacts with the corporation?

"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 at ABC, she started to make kites at home. She started selling kites to friends. She also started to make inquiries regarding selling her kites to larger toy stores in the area, and she began making a few sales to them. Her plan was to start small and then leave ABC after she had increased sales. She did not work on her side project while she was on the clock with ABC. Some of the directors learned about her kite sales and accused her of wrongdoing. Wendy denied any wrongdoing and pointed out that she did not work on her project while she was on the job with ABC. -What duty, if any, did Wendy violate?

Set forth and describe the two types of self-dealing in which officers and directors might engage and the penalty for doing so.

Which of the following was the result on appeal in Auerbach v. Bennett the case in the text in which a shareholder brought a derivative action after an internal audit of the GTE Corporation suggested that the corporation's management had paid significant amounts in bribes and kickbacks over a period of several years?

Although some states allow for longer terms under certain circumstances, for how long do directors typically serve?

Which of the following owns a corporation?

"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 at ABC, she started to make kites at home. She started selling kites to friends. She also started to make inquiries regarding selling her kites to larger toy stores in the area, and she began making a few sales to them. Her plan was to start small and then leave ABC after she had increased sales. She did not work on her side project while she was on the clock with ABC. Some of the directors learned about her kite sales and accused her of wrongdoing. Wendy denied any wrongdoing and pointed out that she did not work on her project while she was on the job with ABC. -In which of the following objectionable activities was Wendy involved, if any, in selling the kites?

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.

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.

"Self-Centered President." Tina is president of "We Manage You," a corporation set up to manage physician practices. Tina has never been very concerned with minority shareholders based on her belief that they have little influence over the company because they cannot even elect a director. She is told, however, that her state just instituted the 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 dumping. 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?

"Machine Malfunction." Bruno, the president of a health club operation called ABC Health Club, 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 ABC lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Bruno and the directors. In an attempt to appease her, the board of directors agrees to allow Frances, the ring leader of the shareholders, to purchase stock of the company at below its fair market value. Frances 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?