Law of Business Organizations Final Exam

Astate - PJ

As a shareholder, you may not appoint another person to vote for you.

a. true

b. false

b. false

The shareholder contract is not a document signed by the shareholder and by the corporation.

a. true

b. false

a. true

Dividends may only be distributed as cash.

a. true

b. false

b. false

Stock dividends

a. must be voted on by the officers

b. must be voted on by the board

c. must be distributed in any year in which a corporation shows a profit

d. must be voted on by the shareholders

b. must be voted on by the board

Any stock that has a preference over another class of stock is called

a. split stock

b. preferred stock

c. dividend stock

d. common stock

b. preferred stock

Sue believes that Ted, an officer of ABC Corporation in which she owns stock, breached his duty to the corporation by setting up a business to compete with ABC, resulting in significant profits to Ted. Sue believes other shareholders, officers, and directors, have aided and assisted Ted in this endeavor. Therefore, Sue sues Ted alleging breach of fiduciary duty. She does not inform other officers, directors, or shareholders because she does not want them to interfere. Which of the following is the most likely result in regard to her lawsuit?

a. her lawsuit should be dismissed because she is pursuing a type of derivative action but did not take appropriate steps in regard to seeking action on the part of the corporation

b. she may proceed with her action as a derivative action, and she has no duty to seek input from any other shareholders, officers, or directors

c. she will be allowed to proceed with her action as an individual action, but she must seek to join all directors other than Ted in the action

d. she will be allowed to proceed with her action as an individual action, and she has no duty to seek input from any other shareholders, officers, or directors

a. her lawsuit should be dismissed because she is pursuing a type of derivative action but did not take appropriate steps in regard to seeking action on the part of the corporation

Requesting access to company records with the goal of making a copy of the shareholder list in order to wage a proxy contest to unseat present management is considered a proper purpose.

a. true

b. false

a. true

Equity securities

a. have a due date for the balance owed

b. transfer ownership interest in the corporation

c. create a debtor-creditor relationship

d. are typically subject to a periodic interest charge

b. transfer ownership interest in the corporation

What was the result in Trinity Wall Street v. Wal-Mart Stores, the case in the text in which an Episcopal Parish sued to require Wal-Mart to include in proxy materials a shareholder proposal seeking that Wal-Mart's Board of Directors be required to develop and implement standards for management to use in deciding whether to sell a product that endangers public safety, has substantial potential to impair the reputation of Wal-Mart and/or would reasonably be considered by many to be offensive to the family and community values integral to Wal-Mart's promotion of its brand?

a. the court ruled against the plaintiff and refused to require the inclusion of the shareholder proposal in proxy materials because the proposal involved a controversial political issue, not an issue for shareholder resolution

b. the court ruled against the plaintiff and refused to require the inclusion of the shareholder proposal in proxy materials because the proposal involved Wal-Mart’s business, what it sold on its shelves, not corporate governance

c. the court ruled in favor of the plaintiff and required the inclusion of the shareholder proposal in proxy materials because the matter was integral to the company’s promotion of its brand and to the value of corporate shares

d. the court ruled in favor of the plaintiff and required the inclusion of the shareholder proposal in proxy materials because the issue was directly aimed at improving corporate governance

b. the court ruled against the plaintiff and refused to require the inclusion of the shareholder proposal in proxy materials because the proposal involved Wal-Mart’s business, what it sold on its shelves, not corporate governance

Kirby subscribed to purchase 10,000 shares of stock to be issued by Alpha Corporation, an existing corporation. Alpha Corporation accepted the subscription. The price set forth in the subscription agreement was $10 per share. When the time came for Kirby to pay the amount of his subscription, Kirby paid only $6 per share, claiming that such an amount represented the fair value of the shares. Alpha Corporation delivered the stock certificates to Kirby for $6 per share. Is Kirby liable to Alpha Corporation for the other $4 per share?

a. yes, because Alpha Corporation’s stock does not have a par value

b. no, because regardless of what the subscription price was, he cannot be forced to pay more than the fair market value of the shares.

c. yes, because regardless of the fair value, a purchaser is liable for stocks issued for less than the par value

d. no, but he is liable for another $2 per share

c. yes, because regardless of the fair value, a purchaser is liable for stocks issued for less than the par value

Sally received a stock dividend from an insolvent corporation in which she owned several shares. Unaware of the corporation's insolvency, Sally cashed the check. Because the corporation was insolvent at the time of payment, the dividend was paid illegally. What liability does Sally incur for the dividend?

a. sally is liable for the dividend because the corporation was insolvent at the time of payment

b. sally is liable for the dividend simply because she is a stockholder

c. sally is not liable for the dividend because she was unaware of the corporation’s insolvency

d. sally is not liable for the dividend because she was unaware the dividend was illegal

a. sally is liable for the dividend because the corporation was insolvent at the time of payment

Under the MBCA, owners of a nonvoting class of stock do not have a right to vote under any circumstances.

a. true

b. false

b. false

The directors of Acme Corporation (Acme) unanimously approved a merger agreement between Acme and Generic, Incorporated. The Model Business Corporation Act (MBCA) is in effect in the state where both corporations are incorporated. The two corporations begin performing the various duties set out in the merger agreement. Certain shareholders of Acme then institute suit to block the merger. The shareholders maintain that the proposed merger should have been submitted to them for approval. Nothing in Acme's articles of incorporation requires the directors to submit such matters to the shareholders. The directors claim that the merger was carefully considered and is in the best interests of the corporation. Under these circumstances, __________.

a. the directors will prevail if they can prove that the merger was in the corporation’s best interests

b. the shareholders will not be successful in their suit because the directors have acted in the best interests of the corporation

c. the shareholders will most likely be successful in their suit because under the MBCA, approval of all classes of shares is required for a merger or consolidation

d. the directors will prevail because the MBCA gives them the right to overrule the shareholders’ decisions in mergers

c. the shareholders will most likely be successful in their suit because under the MBCA, approval of all classes of shares is required for a merger or consolidation

A stock split is

a. not a dividend

b. not an increase in the number of shares outstanding

c. not allowed without a vote of the shareholders, even in instances in which the articles of incorporation authorize a share split

d. not a change in par value

a. not a dividend

Turner Corporation is holding a meeting of its shareholders to elect directors to its board. The corporation permits shareholders to cumulate their votes. A group of shareholders are looking to elect a director who would represent their concerns on the board. If 400 shares are being voted and four directors are to be elected, how many shares does the group need to elect its preferred candidate as director?

a. 101

b. 81

c. 100

d. 80

a. 101

Romano, a shareholder of Specific General, Incorporated (Specific General), wishes to communicate with other shareholders concerning matters related to the corporation. He requests Specific General's management to provide him with a list of all shareholders of the corporation. Citing administrative burden, management informs Romano that shareholders cannot review such records. Management turns down repeated requests from Romano, citing the same reason. In this case, Romano __________.

a. can bring suit to enforce his right to examine the shareholder list, since he has a proper purpose

b. must appeal for an amendment to the corporation’s bylaws to make public all shareholder information

c. will be penalized 10 percent of value of his shares if he loses an appeal against management, particularly if the appellate court concludes that his case was baseless and therefore frivolous

d. cannot hold Specific General liable because the Model Business Corporation Act (MBCA) discourages the disclosure of shareholder information

a. can bring suit to enforce his right to examine the shareholder list, since he has a proper purpose

Which of the following is false regarding shareholder voting?

a. the purpose of cumulative voting is to give minority shareholders an opportunity to be represented on the board

b. most corporations elect directors on the basis that each share is entitled to one vote for each director

c. dividing directors into three classes, one class to be elected each year, makes it more difficult for minority shareholders to attain representation on the board

d. most large publicly held corporations are incorporated in states requiring business incorporated in them to permit shareholders to cumulate their votes for directors

d. most large publicly held corporations are incorporated in states requiring business incorporated in them to permit shareholders to cumulate their votes for directors

Which of the following is true regarding a reaffirmation agreement?

a. it must be made before a discharge in bankruptcy is granted

b. it cannot be rescinded prior to discharge or within 60 days after its filing with the court

c. a debtor cannot voluntarily pay any dischargeable obligation without entering into a reaffirmation agreement

d. it is unlawful under the Bankruptcy Code

a. it must be made before a discharge in bankruptcy is granted

A major purpose of the Bankruptcy Code is to __________.

a. protect creditors from debtors who try to extend the given time to pay their debt

b. protect honest debtors against the demands for payment by creditors

c. ensure that a debtor can never be discharged of the debts they owe to creditors

d. ensure that the debtor can pick and choose between creditors

b. protect honest debtors against the demands for payment by creditors

Which of the following is true regarding Chapter 11 of the Bankruptcy Code?

a. unlike chapter 13, in chapter 11 cases, the debt is predominately non-consumer debt

b. petitions for chapter 11 cases cannot be filed voluntarily by the debtor

c. it provides a proceeding whereby the debtor’s financial affairs can be liquidated rather than reorganized

d. the reorganization plan is essentially a contract between a debtor and its trustees

a. unlike chapter 13, in chapter 11 cases, the debt is predominately non-consumer debt

Which of the following debts are dischargeable in bankruptcy?

a. taxes

b. domestic support obligations

c. medical bills

d. student loans

c. medical bills

Six months before filing for bankruptcy, Evita sold her new car to her brother for $100 so that her creditors could not claim it. The market value of the car was $10,000 at the time of the sale. In this case, the transfer is __________.

a. voidable by the creditors because it was done with the intent to defraud creditors

b. voidable by the trustee because Evita did not receive fair consideration for this transfer

c. not voidable by the trustee because the transfer occurred six months before Evita filed her bankruptcy petition

d. not voidable because the transfer occurred between family members

b. voidable by the trustee because Evita did not receive fair consideration for this transfer