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Exam 18: Corporations

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Question 21

True/False

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If a board attempts to manipulate the shareholders' election of a director to reduce the shareholders' influence, the shareholders can challenge the election in court.

A) True
B) False

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Question 22

Multiple Choice

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Roy is a director of Sales Inc. Sales enters into a contract with TeleCenter Corporation in which Roy has a personal interest. Roy must

A) apply the "don't ask, don't tell" rule of personal conduct.
B) use the situation to his personal advantage.
C) make a full disclosure of the conflict of interest.
D) none of the choices.

E) C) and D)
F) A) and D)

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Question 23

Multiple Choice

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Limited liability business forms, such as LLCs, LPs, and LLPs, offer tax advantages that are similar to those offered by

Kathy is a director of Line Production Inc. As a director, with respect to the corporation, Kathy is expected to subordinate

Shareholders' assumption of personal liability, as guarantors, for the obligations of a corporation can enable the firm to obtain credit.

A corporation is not liable for the misconduct of its agents or officers.

To avoid sharing control with someone they do not know or like, it would be most effective for the shareholders of a close corporation to

Masonry Inc.'s stated purpose is to perform the stonework on buildings and other structures. Masonry contracts with New Contracting to pour the pilings for a bridge's foundation despite lacking the skill and license to do the work. This is most likely

Individual state laws should be relied on to determine corporate law because, despite the existence and use of model corporation acts, there is considerable variation among the states.

Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes. He may be protected from liability for these mistakes by

When directors do not act in the best interests of their corporations, the shareholders may sue them on the company's behalf.

Stocks, or equity securities, represent the purchase of ownership in a business corporation.

To make informed decisions and supervise corporate officers and employees, the directors need an unrestricted right to inspect corporate books and records.

Instead of issuing securities, Artificial Intelligence Inc. pursues other sources of funds. To obtain venture capital financing, the firm will most likely

A breach of fiduciary duties by those who own a close corporation normally constitutes oppressive conduct.

A shareholder's right to transfer his or her shares to another party can be subject to restrictions set out in the bylaws or a shareholder agreement.

Bern is Coffee Company's majority shareholder. Bern decides to sell his Coffee stock. The sale will be an effective transfer of the control of the company. Does Bern owe a duty to the firm or its minority shareholders in this situation?

To prevent a majority shareholder from dominating the management and operation of a close corporation, the firm should

With the exception of malpractice, liability for torts committed by others in a firm cannot be imposed on the shareholders of

Shareholders, not directors, make major corporate policy decisions.