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Exam 39: Corporations: Directors, Officers, and Shareholders

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Question 1

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A director uses inside information to trade the corporation's stock for personal profit. Which of the following is true of the director's liability?

A) He cannot be held responsible because the corporation provides immunity.
B) He cannot be held responsible unless his trades hurt the company's value.
C) He cannot be held responsible unless the board of directors prohibited his trades.
D) He can be held responsible for violating the business judgment rule.
E) He can be held responsible for breaching his fiduciary duty to the shareholders from whom the stock was purchased.

F) C) and D)
G) All of the above

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Question 2

Multiple Choice

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[Self-Centered President] Allison is president of "We Manage You," a corporation set up to manage physician practices. Allison has never been very concerned with minority shareholders because she believes that they have little influence over the company since they cannot even elect a director. She is told, however, that her state just instituted the practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares, while majority shareholders own 8,000 shares. Allison tells her vice president, Marco, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells Marco that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders Marco to destroy some documents subpoenaed in a criminal investigation against the company for illegal dumping. When Marco protests, Allison tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the duties of an officer. She explains to him that only the corporation can be charged with liability in such cases. -Is Allison correct that officers cannot be held criminally responsible for actions they take on behalf of a corporation?

A) Yes, she is correct.
B) She is correct only so long as the corporation is solvent.
C) She is correct only if the board of directors has accepted all liability for acts of officers.
D) She is correct only if environmental or employment matters are involved.
E) She is incorrect.

F) C) and D)
G) B) and D)

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Question 3

Multiple Choice

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If stock is issued below its fair market value this is known as ________.

Which of the following is false regarding officers of a corporation?

Which of the following may be redeemed for a certain number of shares at a specified price within a given time period?

The requirement that a minimum number of directors be present at a meeting for decisions made at the meeting to be valid is which of the following?

Who can call a special shareholder meeting?

If the corporate bylaws require a minimum of five directors to be present at each directors meeting, what happens if only two directors attend and they make a decision?

Which of the following are directors who are not officers or employees of the corporation?

A director of a corporation knowingly releases a dangerous drug with the knowledge that 10 percent of those who take the drug will die. He illegally falsifies testing data to get the drug approved. Which of the following is true of his liability?

Pagean is a director that is also an officer of Plenary Enterprise Corporation. Pagean's role can also be considered a(n) ________ director.

While a shareholder is not legally recognized as an owner of corporate property, shareholders have a(n) ________ in the company.

There is no minimum number of directors who must be present at a directors meeting in order for decisions to be valid.

The three main groups of individuals within a corporation are directors, bondholders and customers.

The primary goal of shareholders is to raise the value of the company stock.

The French Penal Code adopts what is called the ________ which requires that corporate criminal liability be applied only in cases that pertain to an "express mention in the law or in a French regulation."

[Self-Centered President] Allison is president of "We Manage You," a corporation set up to manage physician practices. Allison has never been very concerned with minority shareholders because she believes that they have little influence over the company since they cannot even elect a director. She is told, however, that her state just instituted the practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares, while majority shareholders own 8,000 shares. Allison tells her vice president, Marco, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells Marco that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders. She further orders Marco to destroy some documents subpoenaed in a criminal investigation against the company for illegal dumping. When Marco protests, Allison tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the duties of an officer. She explains to him that only the corporation can be charged with liability in such cases. -How many votes will the minority shareholders have in the election?

Though it varies from state to state, how long do most states allow a director to serve?

Penelope is a shareholder in SMPB Corporation and is unable to attend the annual corporate board meeting. She authorizes Johnathan to be her ________ to vote on her behalf.

Typically shareholders use a majority vote to elect directors.