You have been asked by two fellow graduates to join them in incorporating a closely held corporation that would commence a consulting business.One was in your class,so you know him quite well,but the other is graduating from a different school.You have been discussing the law to review the protection it gives you.Read each of the following statements separately and indicate which is true.
A)If you have pre-emptive rights and the directors decide to issue a new allotment of shares,the corporation must offer you a portion of the new issue to allow you to keep your proportional share of the corporation.
B)A shareholder's agreement allows shareholders and not officers to manage the corporation.
C)As a shareholder,you will have the right to vote for the officers of the corporation.
D)If you were voted out as a director by the others,who could show that it was in the best interest of the corporation,you could sell your shares to any interested buyer without interference from the other directors.
E)If you each take one-third of the first allotment of the shares,you will necessarily be a minority shareholder,and have no voting rights in electing the directors of the corporation.

Question

Quizplus · Accepted Answer

Pre-emptive rights give shareholders the right to purchase a proportional share of any new issue of shares to maintain their percentage ownership, which is consistent with statement A.

Answer: C
 As a shareholder, you have the right to vote for the officers of the corporation. This is consistent with statement C.

Answer: D
 If you are voted out as a director, you still retain your ownership of the shares, but you might not have the ability to vote on any matters of the corporation. However, you still have the right to sell your shares to anyone without interference from the other directors, which is consistent with statement D.

The other statements (B and E) are not correct. A shareholder's agreement may outline certain management responsibilities, but ultimately, officers manage the corporation. Additionally, minority shareholders still have the right to vote in the election of directors, even if they do not have a majority stake.

You Have Been Asked by Two Fellow Graduates to Join