Chapter 38 - Corporation Directors, Officers and Sharholders Quiz Questions

1. Ron and Nancy form Eagle Equipment Corporation. Eagle has a board of directors, a chief executive officer, a chief operating officer, and fifty-two shareholders. Eagle is governed by its

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

ANSWER: A PAGE: 750 TYPE: =

2. Mike and Dorothy incorporate their business as American Products, Inc. The first board of directors may be appointed by American's

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

ANSWER: B PAGE: 750 TYPE: =

3. Bob and Jenny act as the incorporators for National Sales, Ltd. After the first board of directors is chosen, subsequent directors are elected by a majority vote of National's

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

ANSWER: D PAGE: 751 TYPE: =

4. Intech Corporation makes and sells computer chips. In most states, the minimum number of directors that must be present before Intech's board could transact its business is

a. all of the directors authorized in the articles or bylaws.
b. a majority of the number authorized in the articles or bylaws.
c. any odd number (so that tie votes are avoided).
d. none of the above.

ANSWER: B PAGE: 751 TYPE: N


5. Larry is a director of Machine Tools Corporation. Larry's rights, as a director, do not include a right to

a. indemnification.
b. inspection of books.
c. participation.
d. none of the above.

ANSWER: A PAGE: 751 TYPE: N

6. Bart and Cary are directors of Digital Designs, Inc. Voting by Bart and Cary at corporate directors' meetings

a. may be cumulative.
b. may be done by proxy in all states.
c. must be done in person.
d. all of the above.

ANSWER: C PAGE: 751 TYPE: N

7. Rosa and Sam are directors of Technicorp, Inc. The right of Rosa and Sam to be notified of special meetings of the board is the right to

a. compensation.
b. indemnification.
c. participation.
d. preemption.

ANSWER: C PAGE: 751 TYPE: N

8. John and Gail are directors of Adams Corporation. With respect to Adams, the most important right of John and Gail is the right of

a. compensation.
b. indemnification.
c. inspection.
d. participation.

ANSWER: D PAGE: 751 TYPE: =


9. Owen and Paula are two of ten authorized directors of Quality Investments Company. The minimum number of directors that can declare a dividend on Quality stock is

a. two.
b. six.
c. ten.
d. none of the above.

ANSWER: B PAGE: 751 TYPE: N

10. Lee is chairman of the board of MediDrugs, Inc. Nick, a consumer, becomes ill after using a MediDrug product. Nick sues the corporation, and Lee individually. MediDrug may pay Lee's legal fees

a. only if Lee wins the suit.
b. only if MediDrugs wins the suit.
c. regardless of the outcome of the suit.
d. none of the above.

ANSWER: C PAGE: 751 TYPE: N

11. Visual Play Company makes DVD players. Visual Play is like most corporations in that its officers are hired by the firm's

a. board of directors.
b. incorporators.
c. other officers.
d. shareholders.

ANSWER: A PAGE: 752 TYPE: +

12. Joe and Diana form Consumer Goods, Inc. Ultimate responsibility for policymaking decisions necessary to the management of corporate affairs rests with Consumer's

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

ANSWER: A PAGE: 752 TYPE: =


13. Coast-to-Coast Distribution, Inc., is a direct-mail distribution company. Like most corporations, Coast-to-Coast's employees include its

a. board of directors.
b. incorporators.
c. officers.
d. shareholders.

ANSWER: C PAGE: 752 TYPE: =

14. Adam and Beth are officers of Computer Products Corporation. As corporate officers, the rights of Adam and Beth are

a. determined by their employment contracts.
b. specified in state corporation statutes.
c. the same as those of the directors.
d. the same as those of the shareholders.

ANSWER: A PAGE: 752 TYPE: +

15. George is a director of Home Appliances, Inc. As a director, with respect to the corporation, George is

a. a fiduciary.
b. an agent.
c. a principal.
d. a trustee.

ANSWER: A PAGE: 752 TYPE: +

16. Carol is a director of Diners Restaurants, Inc. Carol would breach her duty of loyalty if she

a. becomes a director of Fine Mattresses, Inc., a noncompeting firm.
b. buys stock in Great Foods Corporation, a competing firm.
c. votes for Diners to buy a controlling interest in Eats, Inc., which causes Diners to suffer a loss.
d. votes against Diners' purchase of a controlling interest in Eats, Inc., which causes Diners to suffer a loss.

ANSWER: B PAGE: 753 TYPE: N


17. Frosty Drinks Corporation distributes soft drinks in the Midwest. Frosty's board of directors can delegate some of its functions to the firm's

a. incorporators.
b. officers.
c. shareholders.
d. none of the above.

ANSWER: B PAGE: 753 TYPE: =

18. William is a director of Harrison Lumber, Inc. Under the standard of due care owed by directors of a corporation, William must

a. attend meetings and use perfect judgment.
b. attend meetings and inspect corporate records.
c. carry out his or her responsibilities in an informed, businesslike manner.
d. not mismanage the corporation.

ANSWER: C PAGE: 753 TYPE: =

19. John is a director of Tyler Toys, Inc. Without informing Tyler, John goes into business with Child's Play, Inc., in competition with Tyler. John is liable for

a. breach of the duty of care.
b. breach of the duty of loyalty.
c. violating the business judgment rule.
d. indemnification of the corporation.

ANSWER: B PAGE: 753 TYPE: =

20. Sue is elected a director of Telecorp, Inc. Sue does not attend a board meeting for three years. During that time, Ron, the president of the company, makes some improper loans, costing the company $50,000. Sue

a. is not liable because missing the meetings was an honest mistake.
b. is not liable because missing the meetings was only poor business judgment.
c. may be liable for negligence or mismanagement.
d. may be liable for violation of the business judgment rule.

ANSWER: C PAGE: 753 TYPE: +


21. Fran is a director of Global Enterprises, Inc. To the corporation, Fran owes a duty of

a. care only.
b. loyalty only.
c. care and loyalty.
d. none of the above.

ANSWER: C PAGE: 753 TYPE: N

22. Donna and Ed are shareholders of Friendly Credit, Inc. As shareholders, they must approve

a. amending the articles of incorporation.
b. declaring a corporate dividend.
c. hiring of a chief executive officer.
d. all of the above.

ANSWER: A PAGE: 757 TYPE: +

23. Anderson Family Enterprises is a closely held corporation and thus may limit the sale of its shares to outsiders

a. by reasonable restrictions on transfer.
b. by requiring that shares may be transferred only to certain shareholders.
c. in all cases.
d. in no case.

ANSWER: A PAGE: 762 TYPE: =

24. Great Stores, Inc., must hold a shareholders' meeting

a. once a month.
b. once a year.
c. once every two years.
d. only when it is called by the board of directors.

ANSWER: B PAGE: 759 TYPE: =

25. Zach and Taylor are shareholders of Buena Vista Company. As shareholders, they do not have

a. a right of compensation.
b. dividend rights.
c. preemptive rights.
d. stock warrant rights.

ANSWER: A PAGE: 761 TYPE: =