Question 1

Fiona owns one share of stock in GR8 Boards Corporation, as evidenced by a stock certificate. Fiona loses the certificate. Her ownership of the stock is

Accepted Answer

Fiona's ownership of the stock is not affected by losing the certificate. She can still prove her ownership through other means, such as contacting the company's registrar and requesting a new certificate or providing other documentation of her ownership. Losing the certificate does not forfeit her ownership of the stock.

Question 2

Kelly transfers shares of stock that she owns in Little Company to Max. A shareholders' meeting takes place before Max's ownership is entered in Little's stock book. A vote at the meeting can be cast by

Accepted Answer

Since Max's ownership has not yet been entered into Little's stock book, he is not yet officially a shareholder and cannot cast a vote at the meeting. Kelly, as the current shareholder, would still be able to cast a vote.

Question 3

Chip is a director of Diners Restaurants, Inc. Chip would breach his duty of loyalty if he

Accepted Answer

Buying stock in a competing firm could create a conflict of interest, which breaches the duty of loyalty.

Question 4

Denise, Ervin, and Flem occupy the positions of directors on the board of Gallery Corporation. As directors, they may not

Accepted Answer

As directors, Denise, Ervin, and Flem have a duty of loyalty to Gallery Corporation and are therefore prohibited from supporting businesses that directly compete with Gallery. The other options listed are within the scope of the directors' responsibilities.

Question 5

Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad can

Accepted Answer

Shareholders have the right to vote to amend the articles of incorporation or bylaws. Option A is typically reserved for the board of directors, while option B is within the purview of the board of directors and executive management. Option C involves the selection and removal of corporate officers, which is also typically handled by the board of directors.

Question 6

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

Accepted Answer

Shareholders who have enough shares to exercise de facto control over a corporation, regardless of their official titles or positions, are deemed to have fiduciary duties to the corporation and its minority shareholders. The other options, such as a restriction on transferability, a right of first refusal, or watered stock, do not automatically confer fiduciary duties on a shareholder.

Question 7

Natalie is a shareholder of Off-Road Vehicle Company. As a share?holder, Natalie does not have

Accepted Answer

Shareholders generally do not have a right to compensation, as they are owners of the company and their returns come in the form of dividends or increases in the value of their shares.

Question 8

In all states, Sports Club Company and other corporations can pay dividends from

Accepted Answer

Dividends are generally paid from the corporation's retained earnings, which are the profits that have been accumulated and not distributed to shareholders as dividends in the past. This is because paying dividends from gross profits or net profits would not leave the company with sufficient funds to operate or invest in its growth, while paying dividends from surplus is not a common practice and may not be allowed under state laws. Therefore, the best choice is C, retained earnings.

Question 9

Fact Pattern 39-1A 
Ray is a shareholder of Small Biz Company . When the direc?tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
-Refer to Fact Pattern 39-1A. Ray's suit is a shareholder's

Accepted Answer

Ray's suit is a derivative suit, as he is filing a lawsuit on behalf of the firm to redress a wrong suffered by it. Shareholders can file derivative suits when the directors fail to take action in the company's best interest. The business-judgment rule, duty-of-care, and duty-of-loyalty relate to the conduct of directors and officers themselves, rather than the actions of a shareholder.

Question 10

Bea is a shareholder of Candy Corporation. The right to inspect corporate books and records is

Accepted Answer

Shareholders have the right to inspect corporate books and records, but it may be subject to some restrictions set forth by state law or the corporation's bylaws. Therefore, the correct answer is C, stating that Bea can inspect corporate books and records, but with some restrictions. Being a director is not a requirement to exercise this right.

Question 11

Dolly and Elbert are shareholders of Friendly Credit, Inc. As shareholders, they must approve

Accepted Answer

Shareholders typically have the right to approve major corporate changes, such as amending the articles of incorporation, but not routine business decisions like declaring dividends or hiring executives.

Question 12

Odell, Prince, and Quinn are shareholders of Rite Corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be

Accepted Answer

Shareholders' agreements are generally valid and enforceable unless they violate any state or federal laws or go against the corporation's bylaws or articles of incorporation. The agreement among Odell, Prince, and Quinn is valid as long as it does not violate any laws or the corporation's governing documents.

Question 13

Luke is a director of Motor Parts Corporation. Luke makes decisions with respect to Motor Parts in good faith, in what Luke believes is the firm's best interest, and without violating any duties owed to it. If, despite these circumstances, Luke exercises poor business judgment, under the business judgment rule Luke is

Accepted Answer

The business judgment rule provides that directors and officers of a corporation are immune from personal liability for their business decisions, as long as those decisions are made in good faith, in what the officer or director believes is the best interest of the corporation, and without any conflicts of interest. Therefore, even if Luke exercises poor business judgment, he will not be held liable under the business judgment rule, as long as he meets the aforementioned criteria.

Question 14

Orin is a shareholder of Pinkwater Corporation. In some states, Orin might in?cur personal liability for Pinkwater obligations if he

Accepted Answer

The answer of Orin is a shareholder of Pinkwater Corporation....

Question 15

Eddie is a shareholder of Fast Food, Inc. As a shareholder, he must approve

Accepted Answer

Shareholders typically have the right to approve major changes to the corporation, such as amending the articles of incorporation.

Question 16

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

Accepted Answer

According to corporate law, a shareholders' meeting must be held at least once a year.

Question 17

Rusty and Sylvia are shareholders of Triad Hotel Corporation. Triad's directors fail to declare a dividend. Rusty and Sylvia could succeed in asking a court to order the directors to meet and declare a dividend

Accepted Answer

Shareholders may request a court to order the directors to declare a dividend if they can prove that withholding a dividend is an abuse of the directors' discretion, even if Triad has insufficient earnings or cash reserves earmarked for different purposes.

Question 18

Thor Power Products Corporation permits the election of its directors by cumulative voting. This

Accepted Answer

Cumulative voting allows minority shareholders to combine their votes and cast them all for one candidate, increasing the chances of that candidate being elected to the board. This gives minority shareholders a better chance of being represented on the board.

Question 19

Fact Pattern 39-1A 
Ray is a shareholder of Small Biz Company . When the direc?tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
-Refer to Fact Pattern 39-1A. Any damages recovered by Ray's suit will go to

Accepted Answer

Ray filed a suit on SBC's behalf and not his own personal behalf. Therefore, any damages recovered should go to SBC, the entity that suffered the wrong.

Question 20

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

Accepted Answer

Preemptive rights allow shareholders to buy a prorated share of a new issue of stock before other buyers.

Quiz 39: Corporationsdirectors, Officers, Shareholders