Test Bank Shareholders' Rights And Liabilities Ch44

Business Law, 17e (Langvardt)

Chapter 44 Shareholders' Rights and Liabilities

1) Most state statutes and the Model Business Corporation Act (MBCA) provide that a quarterly meeting of shareholders shall be held.

2) Minutes of the meetings are usually kept by the board of directors.

3) Shareholders have a right of full participation in board of directors' meetings.

4) Corporations must give notice of the annual meeting and special meetings to shareholders.

5) Unless established differently in the Articles of Incorporation, a quorum for a shareholders meeting is a simple majority.

6) A corporation may have several classes of common shares with unequal voting rights.

7) Only those shareholders who sign a shareholder voting agreement are bound by it.

8) A corporation's sale of substantially all of the assets of the business must be approved by its shareholders.

9) After a merger, the first corporation remains liable for its debt.

10) Under the Model Business Corporation Act (MBCA), dissenters' rights apply only if the shareholders' shares are not traded on a national securities exchange.

11) A corporation may not declare and distribute dividends unless it has excess solvency.

12) A proxy is appointed by the corporation to discuss corporate matters with the public.

13) Corporation law authorizes a shareholder to bring a class action on behalf of the corporation and for its benefit.

14) Prior to bringing a derivate action, a shareholder must first demand that the board of directors bring the suit and they must decline.

15) Distributions of a corporation's assets received by a shareholder with knowledge of their illegality may be recovered on behalf of the corporation.

16) The per share value of the shares of a minority shareholder of a corporation is greater than the per share value of the shares of a majority shareholder.

17) Under the Model Nonprofit Corporation Act (MNCA), a quorum of 10 percent of the votes entitled to be cast on a matter is required for members to proceed further in a meeting.

18) Under the Model Nonprofit Corporation Act (MNCA), members have an absolute right to inspect and copy a list of the members.

19) A person who purports to act on behalf of a terminated corporation has the liability of a person acting for a corporation prior to its incorporation.

20) If a shareholder receives a dividend with knowledge of it being an illegal distribution, the shareholder is liable to the corporation for the amount of the dividend.

21) Under the Model Business Corporation Act (MBCA), notice of a(n) ________ meeting of shareholders must list the purpose of the meeting.

A) special

B) quarterly

C) general

D) annual

22) Shareholders who hold at least ________ percent of the shares entitled to vote at the meeting may call a special meeting.

A) 10

B) 50

C) 30

D) 25

23) Karen is attending the annual general meeting of shareholders of Express Corporation. Six directors are going to be elected from seventeen nominees during the meeting through straight voting. Karen owns 372 shares of Express. What is the maximum number of nominees Karen can vote for?

A) 1

B) 6

C) 10

D) 17

24) ________ voting allows a majority shareholder to elect the entire board of directors.

A) Preference

B) Cumulative

C) Ranked

D) Straight

25) Which of the following is correct concerning the election of directors?

A) Straight voting is the cleanest way to allocate equity ownership of the corporation among shareholders.

B) In cumulative voting, each share has one vote for each new director to be elected.

C) Cumulative voting can prevent harmful coalitions in close corporations.

D) Under straight voting, the voting power of minority shareholders is increased.

26) What is the term for a shareholders' right to offer resolutions, to speak for and against ideas at a shareholders meeting?

A) The right of full participation

B) The right to proxy

C) The right to profit

D) The right to incorporate

27) The formula for determining the minimum number of shares required to elect a desired number of directors under cumulative voting is ________ where X = number of shares needed to elect the desired number of directors, S = total number of shares voting at the shareholders' meeting, R = number of director representatives desired, and D = total number of directors to be elected at the meeting.

A) X = (S × R)/(D + 1) + 1

B) X = (S × R)/(D - 1)

C) X - 1 = (S × R)/(D - 1)

D) X = (S × R)/(D + 1)

28) The two most common classes of shareholders are:

A) Government and common

B) Common and preferred

C) Preferred and government

D) Watered down and common

29) Tracy is attending the annual general meeting of shareholders of Acor Corporation. Seven directors are going to be elected from twenty nominees during the meeting through cumulative voting. One thousand shares will be voted. What is the minimum number of shares that Tracy needs to have to be able to elect three directors?

A) 374

B) 375

C) 376

D) 377

30) Camm Corp. has 10,000,000 common shares outstanding. Its four directors are elected by cumulative voting. To elect one director, a shareholder must own at least:

A) 5,000,001 shares.

B) 2,000,001 shares.

C) 2,500,001 shares.

D) 5,000,000 shares.

31) A voting trust:

A) must be available for inspection at the corporation's offices.

B) need not be made public and may be kept secret from other shareholders.

C) is limited in duration to 20 years, but may be extended for another 10-year period.

D) will be specifically enforced by the courts if a shareholder refuses to vote as agreed.

32) Catz Corporation has two majority shareholders and five minority shareholders. The five minority shareholders created a voting trust in November 2011 to control Catz through the concentration of shareholder voting power in the voting trustees. Under the Model Business Corporation Act (MBCA), this voting trust will be valid until:

A) September 2014.

B) October 2021.

C) September 2026.

D) October 2016.

33) Under the Model Business Corporation Act (MBCA), how long is the ordinary proxy valid for voting?

A) 9 months

B) 1 year

C) 6 months

D) 11 months

34) Which of the following corporate decisions requires an approval vote of the shareholders?

A) Merger

B) Share trading

C) Purchasing land for office

D) Joint venture

35) The Model Business Corporation Act (MBCA) does not recognize:

A) mergers.

B) acquisitions.

C) consolidations.

D) joint ventures.

36) Under the Model Business Corporation Act (MBCA), a corporation that retains at least ________ percent of its business activity and either its income or revenue has not disposed of substantially all its assets.

A) 10

B) 25

C) 50

D) 45

37) The LexCon Corporation takes over the Zebra Corporation. By applying which principle will LexCon become the owner of all the shares of Zebra Corporation?

A) Merger

B) Acquisition

C) Share trading

D) Share exchange

38) Which of the following is true about mergers?

A) The shareholders of the surviving corporation must approve the merger.

B) The MBCA does not recognize mergers done solely for the profit motive.

C) A merger may be invalidated if it freezes out minority shareholders.

D) Shareholders of the acquired corporation must be paid a premium on their shares.

39) The typical dissolution of a corporation requires approval of the:

A) board of directors.

B) creditors of the company.

C) merger company.

D) shareholders.

40) When the board of directors of a parent corporation approves its merger with its subsidiary and sends a copy of the merger plan to the subsidiary's shareholders, such a merger is called a(n):

A) semi-merger.

B) half-merger.

C) incomplete merger.

D) short-form merger.

41) MacTech Corporation is a subsidiary of Clickon Corporation, which owns 90 percent of MacTech's shares. The management of Clickon is not happy with the way MacTech is being managed. They believe that MacTech is losing out on a huge chunk of potential business to rivals due to mismanagement. As a solution, the board of directors of Clickon approves a merger between Clickon and MacTech and they send a copy of the merger plan to MacTech's shareholders. This form of merger is called a(n):

A) semi-merger.

B) short-form merger.

C) incomplete merger.

D) half-merger.

42) A dissenting shareholder seeking payment of the fair value of his/her shares (dissenters' rights) must have the right to vote on the action to which he/she objects. In which of the following cases does a shareholder have dissenters' rights despite his/her lack of voting power?

A) Short-form mergers

B) Significant amendments of the articles of incorporation

C) Share exchanges

D) Sales of all the assets

43) Under the Model Business Corporation Act (MBCA), shareholders have a qualified but not absolute right to inspect:

A) the articles of incorporation and bylaws.

B) an alphabetical listing of the shareholders entitled to notice of a meeting.

C) the number of shares owned by the shareholders.

D) shareholder minutes more than three years old.

44) The Model Business Corporation Act (MBCA) provides that the ________ right of a shareholder does not exist except to the extent provided by the articles of incorporation.

A) preemptive

B) information

C) dissenters'

D) liquidation

45) A shareholder's preemptive right allows him to:

A) increase his proportionate voting power.

B) maintain his dissenters' right.

C) increase the value of his shares.

D) maintain his proportionate share of dividends.

46) A corporation's decision to issue a dividend, and the size of that dividend, is made by the:

A) shareholders.

B) board of directors.

C) officers of the corporation.

D) creditors of the corporation.

47) Klingon Corporation has only one class of shares, its common shares. Klingon has assets of $200,000 and liabilities of $160,000. It has $40,000 of excess liquidity that it does not need to pay its currently maturing obligations. What is the maximum property dividend that Klingon may pay to its common shareholders?

A) $60,000

B) $10,000

C) $40,000

D) $30,000

48) A ________ dividend may be revoked by the board of directors after it has been declared.

A) share

B) cash

C) property

D) scrip

49) A share split within the same class of shares generally:

A) increases the net value of the shares following the split.

B) decreases the net value of the shares following the split.

C) has no effect on the net value of the shares following the split.

D) reduces the capital surplus and increases the number of shares authorized.

50) Repurchase of ________ shares by a corporation is involuntary on the shareholder's part.

A) split

B) fractional

C) outstanding

D) preferred

51) For which of the following would a shareholder derivative action be appropriate?

A) The shareholder alleges that the CEO wrongfully diverted corporate assets to his personal use.

B) The shareholder has been refused a request that his/her accountant be permitted to look at the corporate accounting records.

C) The shareholder alleges that the corporation has violated the shareholder's preemptive right.

D) The shareholder alleges that the corporation has been paying dividends to a previous shareholder from whom the shareholder purchased his/her shares.

52) Shareholders may bring a suit on behalf of the corporation against the CEO. Such a suit is generally called a(n) ________ suit.

A) class action

B) derivative action

C) shareholder action

D) injunction

53) Henry brought a lawsuit against NewAge Inc., claiming that the CEO of NewAge had misappropriated funds last year, as a result of which NewAge ended the year in the red. However, Henry was not a shareholder of NewAge last year and his only motive for buying NewAge shares was to bring this lawsuit in order to gain out-of-court settlements for himself. This kind of lawsuit is known as a:

A) double derivative suit.

B) derivative action.

C) strike suit.

D) class action.

54) Shareholders of a corporation brought a class action against the president, alleging that they missed out on dividends and an increase in the value of their shares because the president misappropriated the corporation's funds. This suit was successful and the president paid $10 million in damages. This money will go to:

A) the shareholders who brought the class action.

B) the treasury of the corporation.

C) the state, as a fine.

D) the federal government, as a fine.

55) Provided that most of the directors of a corporation are independent, if shareholders bring a derivative action against the directors, the burden of proving that bringing the action is in the best interest of the corporation lies on the:

A) company secretary.

B) secretary of state.

C) board of directors.

D) shareholders.

56) When a majority of the directors of a corporation are not independent and the shareholders bring a derivative action against the directors, the burden of proving that the Zapata test has been met lies on the:

A) company secretary.

B) secretary of state.

C) corporation.

D) shareholders.

57) If a shareholder is successful in a derivative suit, she is entitled to a reimbursement of her reasonable litigation expenses paid by:

A) the corporation.

B) the secretary of state.

C) the incorporator.

D) the arbitrator.

58) AceCom Corporation issues dividends to its 30 shareholders. Each shareholder is well aware that the corporation will be insolvent and unable to pay its creditors following the dividend distribution. Efone is one such creditor. Under the Model Business Corporation Act (MBCA), primary liability to Efone:

A) does not lie with the shareholders because they can never be held liable to creditors of the corporation.

B) lies with the shareholders because they received the distribution from the corporation with knowledge of the impending insolvency.

C) lies with the directors because they authorized the unlawful distribution of dividends.

D) does not lie with the directors because they placed the interests of the shareholders above everything else.

59) Amanda is a shareholder of Abec Corporation. She received an illegal dividend from Abec. Must she return that dividend to Abec?

A) Yes, but only if she was aware that the dividend was illegal.

B) Yes, regardless of whether she was aware that the dividend was illegal.

C) No, once a dividend has been distributed, it may not be recalled.

D) No, a shareholder has no liability regarding distributions from the corporation.

60) Some courts have held that certain shareholders are fiduciaries of each other. These are shareholders of:

A) close corporations.

B) open corporations.

C) publicly traded corporations.

D) nonprofit corporations.

61) What is the term for when controlling shareholders pay themselves high salaries while not employing or not paying out dividends to noncontrolling shareholders?

A) Quid pro quo

B) Squeeze-out

C) Collateral

D) Liquidity

62) Tom, Brady, and Alex are members of a golf country club (a nonprofit corporation). Tom holds 5 percent of voting power, Brady holds 8 percent of voting power, and Alex holds 1 percent of voting power in the club. They would like to call a special meeting of the club to discuss renovation of some of its facilities. Who amongst them can call such a meeting?

A) Brady and Alex

B) Alex and Tom

C) Alex, Tom, and Brady

D) Tom and Brady

63) According to the Model Nonprofit Corporation Act (MNCA), which of the following nonprofit corporations can abolish or limit the right of a member to inspect corporate records?

A) A tennis club

B) A church

C) A golf country club

D) A cooperative grocery store

64) After dissolution of a corporation and liquidation of its assets, proceeds of the sale of assets are distributed in the following order:

A) preferred shareholders, common shareholders, creditors.

B) creditors, preferred shareholders, common shareholders.

C) common shareholders, creditors, preferred shareholders.

D) preferred shareholders, creditors, common shareholders.

65) According to the Statutory Close Corporation Supplement to the MBCA, who does a shareholder have a fiduciary responsibility to?

A) To all the other shareholders of the corporation

B) To the Secretary of State

C) To individual citizens in the state the corporation is incorporated

D) To the CEO of the corporation

66) If several shareholders have been similarly affected by a wrongful act of another, one of these shareholders may bring a ________ on behalf of all the affected shareholders.

A) derivative action

B) double derivative suit

C) class action

D) strike suit

67) If a shareholder class action suit is unsuccessful and has no reasonable foundation, the court may order the suing shareholder to pay:

A) the defendants' punitive damages.

B) the defendants' reasonable litigation expenses, including attorney's fees.

C) the defendants' compensatory damages for any damage to their reputations.

D) the defendants' reasonable litigation expenses, excluding attorney's fees.

68) When a corporation has been harmed by the actions of another person, the right to sue belongs to the ________, and any damages awarded by a court belong to the ________.

A) board of directors; shareholders

B) corporation; corporation

C) shareholders; corporation

D) corporation; shareholders

69) If a shareholder's derivative action succeeds and damages are awarded, the damages ordinarily go to the:

A) suing shareholders.

B) board of directors.

C) shareholders.

D) corporate treasury.

70) If a shareholder's derivative action succeeds the suing shareholder is entitled to:

A) compensation for the time he devoted toward the lawsuit.

B) compensation from the other shareholders.

C) reimbursement of any costs and fees incurred in bringing the action.

D) reimbursement of his reasonable attorney's fees that he incurred in bringing the action.

71) The person bringing a derivative suit does not need to:

A) fairly and adequately represent the interests of similarly situated shareholders.

B) hold a majority of the shares.

C) be a current shareholder.

D) have held shares at the time of the alleged wrongdoing.

72) A ________ is a lawsuit brought to gain out-of-court settlements for the complaining shareholders personally or to earn large attorney's fees, rather than to obtain a recovery for the corporation.

A) derivative action

B) double derivative suit

C) strike suit

D) class action

73) A ________ is a suit brought by a shareholder of a parent corporation on behalf of a subsidiary corporation owned by the parent.

A) strike suit

B) double derivative suit

C) derivative action

D) class action

74) If the board of directors refuses the shareholder's demand because it reasonably believes it would be improper to bring a lawsuit, the board of directors are protected:

A) from joint and several liability.

B) by indemnification.

C) from a court piercing the corporate veil.

D) by the business judgment rule.

75) A special litigation committee whose purpose is to decide whether to sue should consist of:

A) directors who were directors at the time the wrong occurred.

B) directors who are not defendants in the derivative suit.

C) directors who are interested in the challenged action.

D) directors who are not independent of the defendant directors.

76) In the case in the text, Reynolds Health Care Services, Inc. v. HMNH, Inc., the court found that the intended long-term shareholder voting agreement:

A) was valid and enforceable against both parties.

B) was invalid because long-term proxies are only allowed for 11 months.

C) was never created, and instead, the parties created an irrevocable proxy.

D) was never created, and instead, the parties created a revocable proxy.

77) In Montgomery Cellular Holding Co., Inc. v. Dobler, the case in the text, the court applied the ________ test to review competing valuations of minority shares.

A) reasonable corporation

B) International Shoe

C) reasonable person

D) Weinberger

78) In the case in the text, United Techs. Corp. v. Treppel, the court held that:

A) the chancery court erred when it concluded that it lacked statutory authority to impose its preclusive limitation.

B) the right to inspection should not be decided on a case-by-case basis.

C) the shareholder's right to inspection is absolute.

D) where there is other pending litigation against the corporation, discovery is the more appropriate process for obtaining relevant documents.

79) In Dodge v. Ford Motor Co., the case in the text, why did the court order the payment of a dividend to common shareholders?

A) The majority shareholder was found guilty of fraud.

B) The majority shareholder was found guilty of misappropriating corporate funds.

C) The majority shareholder's reasoning for withholding payment was not justifiable.

D) The majority shareholder breached his fiduciary duty.

80) The ________ prevents a corporation from paying to common shareholders a dividend that will impair the liquidation rights of preferred shareholders.

A) solvency test

B) balance sheet test

C) business judgment rule

D) liquidity test

81) A ________ is a decrease in the number of shares of a class such that, for example, two shares become one share.

A) share split

B) reverse share split

C) share dividend

D) redemption

82) In Zapata Corp. v. Maldonado, the case in the text, the court developed a rule that:

A) requires the balancing of many factors, including fiscal, legal, and ethical considerations.

B) courts should always give special consideration to public policy in addition to the corporation's best interests.

C) courts and not litigants should decide the merits of the litigation.

D) determines a party's burden based on whether directors are independent or not.

83) A majority shareholder can sell her shares at a:

A) premium.

B) discount.

C) bonus.

D) markdown.

84) A ________ is a type of oppression by which only minority shareholders are forced the sell their shares.

A) freeze-out

B) share split

C) redemption

D) conversion

85) In Mitchell Partners, L.P. v. Irex Corp., the case in the text, the court ultimately remanded the case to determine:

A) whether there was fraud or fundamental unfairness.

B) whether Pennsylvania's appraisal statute excluded separate postmerger suits.

C) whether the appraisal statute excluded the claim that the Special Committee members aided and abetted the breach.

D) whether the majority shareholders breached their fiduciary duty.

86) Bev Stratton owns 100 shares of Maxom Company, which are traded on the New York Stock Exchange. Maxom's board of directors has approved a merger of Maxom with Vert Company. Bev believes the merger is economically unjustified and intends to seek her dissenters' right. What must Bev do to enforce her dissenters' right?

87) Gnossis Company has 15,000 outstanding common shares and a total equity of $250,000. Gnossis has an additional 30,000 common shares that are authorized, but not issued or outstanding. Gnossis has $225,000 in excess liquidity that it does not need to pay its currently maturing obligations. Gnossis has paid all currently due dividends to preferred shareholders. What is the maximum share dividend that Gnossis may make to its common shareholders?

88) Under what circumstances can a shareholder have liability for corporate debts?

89) Atria Corporation wishes to dissolve. How can it do so?

90) What are the various ways through which a corporation can be dissolved?