Ch28 Government Regulation of the Corporate Entity Exam Prep

Business Law with UCC Applications, 15e (Sukys)

Chapter 28 Government Regulation of the Corporate Entity

1) The Wickard v. Filburn (1824) case held that commercial activity that occurred within a state was subject to federal regulation if that completely in-state activity affected interstate commerce.

Difficulty: 3 Hard

Topic: The Constitution and the Corporate Person

Learning Objective: 28-01 Describe the birth of the strong central government that evolved in American politics.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) In the Opening Case, Asadi v. GE Energy, the Court of Appeals used a purposive approach in its holding and analysis.

Difficulty: 2 Medium

Topic: The Constitution and the Corporate Person

Learning Objective: 28-01 Describe the birth of the strong central government that evolved in American politics.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

3) In the Wickard v. Filburn case (1942), the Supreme Court declared that the private use of wheat on a single-family farm could not be curtailed by the federal government because it did not have a substantial impact on interstate commerce.

Difficulty: 3 Hard

Topic: The Constitution and the Corporate Person

Learning Objective: 28-01 Describe the birth of the strong central government that evolved in American politics.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

4) The power of the states to regulate commerce comes from a state's federal power.

Difficulty: 2 Medium

Topic: The Constitution and the Corporate Person

Learning Objective: 28-02 Explain the nature of state police power to regulate business.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

5) The process of doing business as a corporate person can sometimes be called ultra vires.

Difficulty: 2 Medium

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

6) Under Dodd-Frank, the SEC outlawed swap transactions (swaps) which are derivatives that are made in an over-the-counter market.

Difficulty: 2 Medium

Topic: Securities Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7) Under Dodd-Frank, Title IX, known as the Investor Protection and Securities Reform Act, now allows corporations more freedom to self-regulate under the Sarbanes-Oxley Act.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-05 Explain the rule-of-reason standard in antitrust law.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

8) Under Dodd-Frank, a golden parachute is a compensation package that protects executives who might lose their positions following a merger or consolidation.

Difficulty: 2 Medium

Topic: Securities Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

9) If ABC Co. and XYZ Co. agree to charge consumers a fixed, but fair, price for their products, the courts will judge the legality of the practice based on a per se approach,

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-05 Explain the rule-of-reason standard in antitrust law.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

10) Under the quick-look standard, a court will determine whether an objective observer with elementary financial knowledge see that the arrangement under scrutiny could damage competition.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-05 Explain the rule-of-reason standard in antitrust law.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

11) In the Classic Case, American Needle, Inc. v. The NFL, the court applied the rule-of-reason standard, which asks judges to balance the pro-competitive results of a challenged arrangement with the anti-competitive results.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-05 Explain the rule-of-reason standard in antitrust law.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

12) If Auto Supply refuses to sell hoses to Small Retail Co. unless Small also buys brake shoes from Auto, the action will be classified as an RPM agreement.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

13) Congress passed the Clayton Act to police and prohibit specific business practices such as interlocking directorates.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

14) The Robinson-Patman Act gave the President the power to challenge false advertising of food, drugs, and cosmetics, regardless of the advertiser's knowledge of the advertisement's truth or falsity.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

15) Under the Foreign Trade Antitrust Improvements Act (FTAIA), if an American company is operating totally in a foreign market, that company is not subject to American antitrust law.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

16) ABC Co. makes a tender offer to acquire 3% of the stock of XYZ Co. This is considered a merger, and ABC must file with the SEC.

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

17) If ABC Co. is to merge with XYZ Co., typically a unanimous vote (100%) of the shareholders will be required.

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

18) A golden parachute is an offer by a target corporation to the bidder to acquire a portion of the shares, which are already held by the bidder, at a price greater than when it was originally sold.

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

19) Greenmail requires that a friendly suitor is given an option to buy a valuable piece of property owned by the target corporation should a hostile bidder gain control of the corporation.

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

20) A leveraged buyout (LBO) always includes junk bonds as part of the investment.

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

21) The first major expansion of the Commerce Clause of the U.S. Constitution was done through which of these?

A) The Dodd Frank Act

B) Wickard v. Filburn

C) Gibbons v. Ogden

D) The Securities Exchange Act

Difficulty: 2 Medium

Topic: The Constitution and the Corporate Person

Learning Objective: 28-01 Describe the birth of the strong central government that evolved in American politics.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

22) The ________ case held that a farmer's production of wheat for use only on his own farm was held to impact interstate commerce.

A) Gibbons v. Ogden

B) Wickard v. Filburn

C) Hughes v. Wendel

D) Mangus v. Miller

Difficulty: 2 Medium

Topic: The Constitution and the Corporate Person

Learning Objective: 28-01 Describe the birth of the strong central government that evolved in American politics.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

23) Mill enterprises needs to raise a large amount of money. To raise the money, it sells its fractional interest in orange groves, located in Florida, to Sunshine Co. in New York. Sunshine Co. would be ensured a return in investment from the land purchased. Mill enterprises has sold:

A) real estate.

B) debt instruments.

C) goods.

D) securities.

Difficulty: 3 Hard

Topic: Securities Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

24) If Tom is a potential investor in Delta Co., he should receive a ________ prior to investing.

A) contract summary

B) prospectus

C) closing settlement statement

D) registration statement

Difficulty: 3 Hard

Topic: Securities Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

25) The ________ Act prohibits contracts, combinations, and conspiracies in restraint of trade.

A) Robinson-Patman

B) Federal Trade Commission

C) Sherman Antitrust

D) Clayton

Difficulty: 2 Medium

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-04 Explain per se antitrust violations of antitrust law.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

26) Small State has a limited customer base north and south of the interstate highway. Company A and Company Z agree that A will sell north of the interstate highway and Z will sell south of the interstate. This is a ________ violation of the Sherman Antitrust Act.

A) per se

B) rule-of-reason

C) joint federal and state

D) minor

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-04 Explain per se antitrust violations of antitrust law.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

27) A ________ means the exclusive control of a market by a business enterprise.

A) monopoly

B) common enterprise

C) trust

D) confederation

Difficulty: 1 Easy

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-05 Explain the rule-of-reason standard in antitrust law.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

28) Homeruns Co. manufactures baseball bats. It withdrew deals from a few retailers who refused to put a particular price tag, as decided by Homeruns Co, on the bats. This act of Homeruns Co.:

A) violates the per se rule.

B) is legal under the quasi-RPM arrangement.

C) violates the rule-of-reason standard.

D) is legal under the RPM agreement.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-05 Explain the rule-of-reason standard in antitrust law.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

29) EA Games Industries is a manufacturer of home video game machines and home video games. Johnson Department Store wants to market the home video games, but EA refuses to sell the games unless Johnson also agrees to purchase the home video machines. A court will most likely find such a restriction to be a(n):

A) interlocking directorate.

B) lawful tying agreement.

C) unlawful tying agreement.

D) per se violation.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) The ________ Act specifically addresses promotional allowances.

A) Clayton

B) Robinson-Patman

C) Federal Trade Commission

D) Sherman

Difficulty: 2 Medium

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

31) An attempt at a(n) ________ occurs when one corporation makes a tender offer to the shareholders of another corporation.

A) merger

B) consolidation

C) stock acquisition

D) asset acquisition

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

32) If Titanic Co. makes a tender offer to acquire more than ________ of the shares of a target, Titanic Co. must file a statement with the SEC.

A) 5%

B) 10%

C) 15%

D) 20%

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

33) Some states require that a merger involving an LLC have a ________, rather than the two-thirds majority required of corporations.

A) 51% majority vote

B) one-third majority vote

C) four-fifths majority vote

D) unanimous approval

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

34) In a(n) ________, the buyer purchases enough shares in a corporation to gain voting control of that corporation.

A) asset acquisition

B) stock acquisition

C) consolidation

D) joint venture

Difficulty: 2 Medium

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

35) The Crown Corp. offers to buy the voting stock of the L&N Corp. with the intention of acquiring L&N and changing its management. To avoid being taken over by Crown, L&N asks the Spendle Corp. to outbid Crown. In this situation:

A) L&N is a hostile bidder, Crown is the target, and Spendle is a white knight.

B) L&N is a friendly suitor, Crown is a hostile bidder, and Spendle is the target.

C) L&N is the target, Crown is a hostile bidder, and Spendle is a white knight.

D) L&N is the target, Crown is a friendly suitor, and Spendle is a hostile bidder.

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

36) Generally, a ________ is established as a pre-offer strategy that remains dormant until the right set of circumstances activates its operation.

A) greenmail arrangement

B) poison pill defense

C) public relations campaign

D) targeted shareholder agreement

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

37) ________ occurs when a targeted corporation makes a deal with the suitor to protect management of the target.

A) Greenmail

B) A lockup agreement

C) A public relations campaign

D) A targeted shareholder agreement

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.; 28-08 Contrast the roles of the SEC and the FTC in corporate expansion.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

38) A ________ might be used by target management if the target owns an irreplaceable piece of property, the sale of which would seriously devalue the overall worth of the target.

A) greenmail option

B) lockup agreement

C) public relations campaign

D) targeted shareholder agreement

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

39) In a ________, a target corporation uses news releases, advertisements, and press conferences to convince shareholders to retain present management.

A) greenmail arrangement

B) lockup agreement

C) public relations campaign

D) targeted shareholder agreement

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

40) Ajax Co. has six directors. Three of the directors favor corporate expansion and three directors want to keep Ajax at its current size and distribute the surplus profit. How will a court likely resolve this deadlock?

A) Appoint a seventh director to break the tie.

B) Appoint an arbitrator.

C) Order an involuntary dissolution of Ajax.

D) Order the directors to make an agreement or be in contempt of court.

Difficulty: 3 Hard

Topic: The Government and the End of the Corporate Person

Learning Objective: 28-09 Identify the two ways that a corporation may undergo dissolution.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

41) NewCo. plans to sell stock to investors with a website offer form. Discuss the federal securities regulations, if any, with which NewCo. must comply.

Difficulty: 3 Hard

Topic: Securities Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

42) To support his efforts in the writing of a new novel, Madden sold various patrons an interest in the forthcoming novel. The patrons agreed to supply him with money in exchange for a return on their investments out of any profits Madden made in the sale of the novel. Could this scheme be considered a sale of securities? Why or why not?

Difficulty: 3 Hard

Topic: Securities Regulation of the Corporate Person

Learning Objective: 28-03 Explain how the SEC prevents unfair practices.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

43) John is a director of both Small Co., with an aggregate worth of $75,000, and Medium Co., with an aggregate worth of $7,500,000. Small and Medium are competitors in the auto repair business. Discuss the legal implications of John's service.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

44) Matrix Corp. falsely advertises on national television a device that allows a car engine to run on water. When the FTC attempts to stop this advertising, Matrix asserts that anyone should know that the advertising is false and is intended as a joke, and that it offers all persons who inquire about its advertisement a gasoline treatment supplement which does, in fact, cause engines to run cleaner, improving gasoline mileage. Discuss the likely FTC success in its attempt to stop this advertising.

Difficulty: 3 Hard

Topic: Antitrust Regulation of the Corporate Person

Learning Objective: 28-06 Outline the general provisions of all Post-Sherman antitrust laws.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

45) Tremendous LLC proposes to merge with Small LLC. Janice, a member of Tremendous, is opposed to this merger. The operating agreement allows mergers to be approved by a simple majority vote. Discuss the legal rights Janice may assert in this situation.

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

46) Big Co. would like to purchase a patent owned by Small Co. that Big believes could be used to make a profitable product. Small has other assets and owes a variety of debts. Discuss the advantages to Big if it only purchases the patent, rather than Small Co. in its entirety.

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.; 28-08 Contrast the roles of the SEC and the FTC in corporate expansion.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

47) Yanasko wanted to purchase Raymond-Mason Inc. When he approached the board of directors about the merger, they told him that they were not interested. Yanasko then suggested an asset acquisition. Again, the board refused. What measure could Yanasko take to sidestep the board of directors and obtain control of Raymond-Mason? Explain.

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

48) Small Co. is afraid that it will become the subject of a takeover bid and lose its independent existence. Can Small Co. take the help of a friendly suitor to offset any takeover bid? If so, how?

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

49) Herrera already owns 20% of the stock of the Higgins Corp. and plans to use his own cash to purchase another 30% of Higgins. Herrera's intent is to acquire enough Higgins stock to mount a takeover. According to law, Herrera is required to file a statement with the SEC. What information must Herrera include in the statement?

Difficulty: 3 Hard

Topic: Expanding the Corporate Person

Learning Objective: 28-07 Define the various techniques of corporate expansion.; 28-08 Contrast the roles of the SEC and the FTC in corporate expansion.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

50) The Pillsbo Corporation failed to file annual reports for three years. The Secretary of State in the state where Pillsbo incorporated told Pillsbo's chief executive officer that she was going to ask the state attorney general to bring a quo warranto action against Pillsbo for failing to file the annual reports. Can she legally do so for this reason? Why or why not?

Difficulty: 3 Hard

Topic: The Government and the End of the Corporate Person

Learning Objective: 28-09 Identify the two ways that a corporation may undergo dissolution.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation