Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 441:

  Which of the following documents would most likely contain specific rules for the management of a business corporation?

  A. Articles of incorporation.

  B. Bylaws.

  C. Certificate of authority.

  D. Shareholders' agreement.

  Correct Answer: B

  Choice "b" is correct. The bylaws are adopted by the incorporators or directors, are not required to be filed, and generally will contain rules desired regarding the operation of the corporation. Choice "a" is incorrect. Articles of incorporation are filed with the state and contain information regarding the formation of the corporation. Choice "c" is incorrect. A certificate of authority is filed with the foreign state that a business wishes to do business in and with permission from that state. Choice "d" is incorrect. A shareholder agreement is a contract between shareholders for any rights or duties agreed upon between the parties.

• Question 442:

  A stockholder's right to inspect books and records of a corporation will be properly denied if the purpose of the inspection is to:

  A. Commence a stockholder's derivative suit.

  B. Obtain stockholder names for a retail mailing list.

  C. Solicit stockholders to vote for a change in the board of directors.

  D. Investigate possible management misconduct.

  Correct Answer: B

  Choice "b" is correct. In general, a shareholder has a right to inspect the books and records of a corporation for purposes related to the stockholder's interest in the corporation. This right will be denied where the purpose is not reasonably related to their status as a shareholder. Obtaining stockholder names to create a retail mailing list is a personal purpose. Choices "a", "c", and "d" are incorrect. The following reasons for shareholders to inspect the books of the corporation are reasonably related to their status as shareholders:

  A. To commence a stockholder's derivative suit.

  C. To solicit stockholders to vote for a change in the board of directors.

  D. To investigate possible management misconduct.

• Question 443:

  Knox, president of Quick Corp., contracted with Tine Office Supplies, InC. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is:

  A. Void because of Knox's self-dealing.

  B. Void because the disclosure was made after execution of the contract.

  C. Valid because of Knox's full disclosure.

  D. Valid because the contract is fair to Quick.

  Correct Answer: D

  Choice "d" is correct. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. The stationery purchase was fair to Quick, since it was purchased at a below-market price. Thus, the contract is valid. Choice "a" is incorrect. A director's self-dealing does not automatically make a contract voiD. The contract can be upheld if it was fair. Choice "b" is incorrect. A director's self-dealing does not automatically make a contract voiD. The contract can be upheld if it was fair. Choice "c" is incorrect. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or shareholders, who then approve the transaction, or the director can prove that the transaction was fair. Mere disclosure after the contract was adopted does not automatically render the contract valid.

• Question 444:

  Davis, a director of Active Corp., is entitled to:

  A. Serve on the board of a competing business.

  B. Take sole advantage of a business opportunity that would benefit Active.

  C. Rely on information provided by a corporate officer.

  D. Unilaterally grant a corporate loan to one of Active's shareholders.

  Correct Answer: C

  Choice "c" is correct. As a director of the corporation Davis may rely on information provided to him/her by a corporate officer. A corporate director is under no obligation to verify information given to him by management (corporate officers). Choice "a" is incorrect. A director is not entitled to serve on the board of a competing business. Doing so would be a breach of fiduciary duty. Choice "b" is incorrect. A director may not take sole advantage of a business opportunity that would benefit the corporation. Doing so would be a breach of fiduciary duty. Choice "d" is incorrect. A director may not unilaterally grant a corporate loan to one of the corporation's shareholders. Directors generally must act through a majority vote at a directors' meeting.

• Question 445:

  A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary corporation and decided to merge that subsidiary into itself. Under the Revised Model Business Corporation Act, which of the following actions must be taken?

  A. The subsidiary corporation's board of directors must pass a merger resolution.

  B. The subsidiary corporation's dissenting stockholders must be given an appraisal remedy.

  C. The parent corporation's stockholders must approve the merger.

  D. The parent corporation's dissenting stockholders must be given an appraisal remedy.

  Correct Answer: B

  Choice "b" is correct. In a short form merger (one between a parent and a subsidiary 90% of which is

  owned by the parent), the subsidiary's shareholders have a right to dissent and take advantage of the

  appraisal remedy.

  Choice "a" is incorrect. The subsidiary's board is not required to take any action in a short-form merger.

  Choice "c" is incorrect. The parent corporation's shareholders have no right to approve or disapprove a

  short-form merger.

  Choice "d" is incorrect. The parent corporation's shareholders have no right to dissent to a short-form

  merger.

• Question 446:

  To which of the following rights is a stockholder of a public corporation entitled?

  A. The right to have annual dividends declared and paid.

  B. The right to vote for the election of officers.

  C. The right to a reasonable inspection of corporate records.

  D. The right to have the corporation issue a new class of stock.

  Correct Answer: C

  Choice "c" is correct. Stockholders have a right to inspect certain corporate records.

  Choice "a" is incorrect. Declaration of dividends is within the directors' discretion. There is no absolute right

  of shareholders to receive annual dividends.

  Choice "b" is incorrect. Officers are appointed by the directors; they are not elected by the shareholders.

  Choice "d" is incorrect. Shareholders do not have a right to force the corporation to issue a new class of

  stock.

• Question 447:

  Which of the following actions may be taken by a corporation's board of directors without stockholder approval?

  A. Purchasing substantially all of the assets of another corporation.

  B. Selling substantially all of the corporation's assets.

  C. Dissolving the corporation.

  D. Amending the articles of incorporation.

  Correct Answer: A

  Choice "a" is correct. Purchasing substantially all the assets of another corporation does not require approval of the buyer's stockholders. Such a transaction would be relatively insignificant if a large corporation purchased substantially all the assets of a much smaller corporation. Choice "b" is incorrect. Selling substantially all of the corporation's assets is considered to be a fundamental change to the corporation's structure that requires approval by a majority of the shareholders following the board of directors' approval. Choice "c" is incorrect. Dissolving the corporation is considered to be a fundamental change to the corporation's structure that requires approval by a majority of the shareholders following the board of directors' approval. Choice "d" is incorrect. Amending the articles of incorporation is considered to be a fundamental change to the corporation's structure that requires approval by a majority of the shareholders following the board of directors' approval.

• Question 448:

  Under the Revised Model Business Corporation Act, when a corporation's bylaws grant stockholders preemptive rights, which of the following rights is(are) included in that grant?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: C

  Rule: Preemptive rights provide a shareholder with a right of first refusal to buy a share of newly issued

  shares sufficient to maintain the shareholder's proportionate share of rights in any newly issued shares.

  Rule: Preemptive rights do not provide a shareholder with the right to a proportionate share of corporate

  assets on dissolution.

  Choice "c" is correct. "No - Yes."

  Choices "a", "b", and "d" are incorrect, per the above rules.

• Question 449:

  For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholders' derivative suit in the name of the corporation?

  A. To compel payment of a properly declared dividend.

  B. To enforce a right to inspect corporate records.

  C. To compel dissolution of the corporation.

  D. To recover damages from corporate management for an ultra vires management act.

  Correct Answer: D

  Choice "d" is correct. A derivative action is an action by a stockholder in the name of the corporation to recover damages or to seek some other remedy on behalf of the corporation when the corporation does not enforce its own rights. Such actions are often brought when the directors or officers have breached their duty to the corporation and have refused to sue themselves. An ultra vires act is an act outside of a director's or an officer's scope of authority and thus is a breach of duty to the corporation. Choices "a", "b", and "c" are incorrect, because these would all be causes of action against the corporate directors or officers on behalf of the stockholder to recover damages or seek some other remedy against the corporate directors or officers on behalf of the stockholder, not on behalf of the corporation.

• Question 450:

  Under the Revised Model Business Corporation Act, a dissenting stockholder's appraisal right generally applies to which of the following corporate actions?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: A

  Choice "a" is correct. "Yes-Yes." Rule: Shareholders who are dissatisfied with the terms of a merger, consolidation or sale of assets are permitted to compel the corporation to buy their shares at fair market value. This is known as the right of appraisal or the dissenting right. Rule: A short-form merger is when a parent mergers a 90% or more owned subsidiary into the parent. In this case, only the shareholders of the subsidiary have dissenting rights. Choices "b", "c", and "d" are incorrect, per the above rules.