Business Law, 8e (Cheeseman)
Chapter 37 Corporate Governance and the Sarbanes-Oxley Act
1) One of the powers of a shareholder is his or her right to elect the board of directors.
2) Shareholders of a corporation act as agents of the corporation.
3) The annual shareholders meeting is held to elect new shareholders.
4) Shareholders do not have to attend a shareholders’ meeting to vote.
5) The record date, for the declaration of dividends, is set forth in the articles of incorporation.
6) A system in which each shareholder votes the number of shares he or she owns on candidates
for each of the positions open is known as cumulative voting.
7) In a voting trust, the legal titles to the shares given to the trustee are held in the name of the
shareholders.
8) Shareholder voting agreements have to be filed with the corporation.
9) According to the right of first refusal, a selling shareholder must offer to sell his or her shares
to the other parties to the agreement before selling them to anyone else.
10) The buy-and-sell agreement allows shareholders to sell their shares to people other than
fellow shareholders or the corporation.
11) If a shareholder does not exercise his or her preemptive rights within the stated time, shares
can then be sold to anyone.
12) Dividends are distribution of profits of the corporation to shareholders.
13) The shareholders are responsible for determining how much will be paid in dividends.
14) Persons who are shareholders on the record date are entitled to receive the dividend, even if
they sell their shares before the payment date.
15) Once declared, a cash or property dividend cannot be revoked.
16) A derivative lawsuit is brought by the board of directors on behalf of the corporation.
17) If a fraud is committed by a member of the board of directors of a corporation, a written
notice to the corporation from individual shareholders is not required to bring a derivative
lawsuit.
18) Proxy solicitation for shareholder votes cannot be made by electronic transmission.
19) The election of directors of the corporation can be held by electronic transmission.
20) The board of director’s right to inspection can be limited by bylaws.
21) Once the number of board of directors is fixed by the articles of incorporation, the number
cannot be amended.
22) Public companies are exempt from the requirement for corporations to have audit
committees.
23) According to the Sarbanes-Oxley Act, members of the audit committee must be members of
the board of directors.
24) The president of a corporation is an example of a corporate officer.
25) A corporation is bound to an unauthorized act committed by its corporate officer.
26) The business judgment rule protects shareholders for honest mistakes of judgment.
27) The determination of whether a corporate director or officer has met his or her duty of care is
measured in hindsight.
28) A director’s failure to properly supervise a subordinate who causes a loss to the corporation
would be considered a breach of duty of care.
29) The duty of loyalty requires directors and officers to subordinate their personal interests to
those of the corporation and its shareholders.
30) The secret profits obtained by a director or officer cannot be recovered by a corporation.
31) Usurping a corporate opportunity is a breach that can only be committed by a shareholder.
32) To prove usurping by a director or an officer, a corporation must have had the financial
ability to have taken advantage of the usurped opportunity.
33) Self-dealing is when shareholders use their position to deprive the board of directors of
personal monetary gain.
34) The corporation can recover any profits made by nonapproved competition by a director.
35) A director who personally competes with the corporation he is employed in would be in
breach of duty of obedience.
36) The Sarbanes-Oxley Act contains provisions for prosecuting U.S. firms that bribe foreign
officials.
37) The Sarbanes-Oxley Act requires CEO and CFO certification for annual and quarterly
reports.
38) The Sarbanes-Oxley Act applies only to public companies.
39) The ________ Act of 2002 is a federal statute enacted by Congress to improve corporate
governance.
A) Brown-Kaufmann
B) Lanham
C) Glass-Steagall
D) Sarbanes-Oxley
40) Owners of a corporation who elect the board of directors and vote on fundamental changes in
the corporation are known as ________.
A) corporate officers
B) shareholders
C) registered agents
D) managing directors
41) Which of the following is true of shareholders?
A) They cannot enter into contracts that bind the corporation.
B) They cannot vote to elect the board of directors.
C) They cannot take active charge in deciding fundamental changes in the corporation.
D) They are considered as agents of the corporation.
42) When is the annual shareholder’s meeting held?
A) according to the dates fixed in the bylaws
B) at the whim of the board of directors
C) only if and when there is a crisis
D) only at the time of electing a new board of members
43) A shareholder’s authorization of another person to vote the shareholder’s shares at the
shareholders’ meetings in the event of the shareholder’s absence is called a(n) ________.
A) straight voting
B) accommodation
C) proxy
D) insider director
44) The written document submitted by a person who has been authorized by a shareholder to
vote the shareholder’s shares at the shareholders’ meetings in the event of the shareholder’s
absence is known as ________.
A) record date
B) notice of shareholder’s meeting
C) certificate of authority
D) proxy card
45) A ________ is a date specified in corporate bylaws that determines whether a shareholder
may vote at a shareholders’ meeting.
A) ballot date
B) reinvestment date
C) record date
D) dividend date
46) According to the RMBCA, what is the minimum outstanding shares that must be represented
in this case to have a quorum?
A) 12,001
B) 18,501
C) 15,001
D) 17,501
47) If an Inkilwas Corporation amendment for its articles of incorporation is put to vote at this
meeting, which of the following statements would be true with respect to the passing of the
amendment?
A) The amendment would not pass as all 30,000 votes have to be represented.
B) The amendment would only pass if all 17,501 votes approve.
C) The amendment would be passed if 4,376 votes approve.
D) The amendment will pass if 8,751 votes approve.
48) Bilkis Brans has 20,000 outstanding shares with four shareholders. Ester owns 9,000 shares,
Mendez owns 4,000 shares, Judy owns 4,000 shares, and Aaron owns 3000 shares. Suppose that
two directors of the corporation are to be elected from a potential pool of 5 candidates. Ester is in
favor of Candidates 1 and 5; Mendez in favor of Candidates 2 and 4; Judy in favor of Candidates
4 and 3; and Aaron in favor of Candidates 2 and 3. If the voting was done by straight voting,
which of the two candidates are likely to win?
A) Candidate 1 and Candidate 5
B) Candidate 1 and Candidate 4
C) Candidate 2 and Candidate 3
D) Candidate 2 and Candidate 4
49) Derrick has 2,000 shares of the Unistone Corporation which is planning to vote for two new
directors. Through a special voting provision in the corporation’s articles of incorporation,
Derrick was able to vote for both his preferred candidates with 2,000 shares, giving him a virtual
voting count of 4,000 shares. What voting rule in the articles of incorporation allows Derrick to
achieve this?
A) supramajority voting
B) noncumulative voting
C) cumulative voting
D) preemptive voting
50) The Merrick and Stanley Corporation has 28,000 outstanding shares. During a proposal for a
merger, the shareholders decided to increase the quorum of the vote of shareholders to 75
percent, using the supramajority voting rule. How many minimum affirmative votes would be
needed to pass the supramajority voting requirement?
A) 14,001
B) 21,280
C) 21,000
D) 28,000
51) The Kinderfelt Corporation has 15,000 outstanding shares, out of which, Gordon owns
3,000. Kinderfelt Corporation plans to raise more capital by issuing another 10,000 shares of
stock. With preemptive rights, how many of the new shares would Gordon have the right to buy
before they are sold to the public?
A) 10,000
B) 3000
C) 5000
D) 2000
52) According to the RMBCA, what establishes a quorum to hold a meeting of the shareholders?
A) a majority of outstanding shares
B) a majority of unissued shares
C) a majority of treasury shares
D) a majority of liquidated shares
53) ________ is a system in which each shareholder votes the number of shares he or she owns
on candidates for each of the positions open.
A) Cumulative voting
B) Straight voting
C) Supramajority voting
D) Trust vote
54) A system in which a shareholder can accumulate all of his or her votes and vote them all for
one candidate or split them among several candidates is known as ________.
A) trust voting
B) noncumulative voting
C) cumulative voting
D) supramajority voting
55) The ________ is a requirement that a greater than majority of shares constitutes a quorum of
the vote of the shareholders.
A) supramajority voting
B) shareholder majority voting
C) quorum share voting
D) cumulative voting
56) An arrangement in which the shareholders transfer their stock certificates to a trustee who is
empowered to vote the shares is known as ________.
A) supramajority voting
B) voting trust
C) cumulative voting
D) noncumulative voting
57) Which of the following is true of a shareholder voting agreement?
A) It’s an agreement between the board of directors and a shareholder.
B) It has a limited duration of 10 months.
C) It does not have to be filed with the corporation.
D) It is always revocable.
58) A ________ is an agreement that requires a selling shareholder to offer his or her shares for
sale to the other parties to the agreement before selling them to anyone else.
A) shareholder voting agreement
B) preemptive sale
C) buy-and-sell agreement
D) right of first refusal
59) An agreement that requires selling shareholders to sell their shares to the other shareholders
or to the corporation at the price specified in the agreement is referred to as ________.
A) preemptive sale
B) right of first refusal
C) buy-and-sell agreement
D) shareholder voting agreement
60) ________ are rights that give existing shareholders the option of subscribing to new shares
being issued in proportion to their current ownership interests.
A) Rights to first refusal
B) Preemptive rights
C) Rights to share transfer
D) Rights to company ownership
61) Which of the following is true about dividends?
A) Dividends are paid at the discretion of the shareholders.
B) Dividends cannot be used for corporate purposes.
C) Dividends will be paid to shareholders who have sold their shares prior to the record date.
D) Dividends once declared, cannot be revoked.
62) Samson owns 1,500 shares out of the 10,000 outstanding shares of Comakote Corporation. If
Comakote Corporation declares a stock dividend of 30 percent, what will be the total stock
Samson has upon receiving his stock dividend?
A) 2,250
B) 4,500
C) 1,950
D) 5,400
63) Which of the following is true of stock dividends?
A) They are the redistribution of corporate assets as shares.
B) They increase an existing shareholder’s proportionate ownership interest.
C) They are additional stocks distributed as dividends.
D) They are distributed according to existing ownership interest of the board of members.
64) A lawsuit a shareholder brings against an offending party on behalf of a corporation when
the corporation itself fails to bring the lawsuit is known as a ________.
A) notice of the shareholder
B) derivative action
C) class action suit
D) contract action
65) ________ is a doctrine that says if a shareholder dominates a corporation and uses it for
improper purposes, a court of equity can disregard the corporate entity and hold the shareholder
personally liable for the corporation’s debts and obligations.
A) Piercing the corporate veil
B) Fruit of the poisonous tree
C) Right of first refusal
D) Self-dealing
66) In which of the following cases can the alter ego doctrine be invoked in a corporate civil
case?
A) when shareholders bring a lawsuit on behalf of the corporation after the corporation failed to
do it itself
B) when unpaid creditors are trying to collect from shareholders who owe a debt to the
corporation
C) when there is a mismanagement of stocks by the board of directors
D) when shareholders are trying to collect for fraud committed by a third-party
67) Which of the following are considered as owners of a corporation?
A) shareholders
B) board of directors
C) the CEO
D) corporate officers
68) ________ are a panel of decision makers who are elected by the shareholders.
A) Registered agents
B) Corporate officers
C) Stakeholders
D) Board of directors
69) Which of the following is considered an absolute power of corporate directors?
A) the adoption of resolutions
B) the approval of transactions
C) the inspection of the corporation’s books and records
D) the declaration of share stocks
70) A member of the board of directors who is also an officer of the corporation is known as a(n)
________.
A) inside director
B) ombudsman
C) registered agent
D) shareholder
71) A(n) ________ is a member of a board of directors who is not an officer of the corporation.
A) corporate officer
B) CEO
C) ombudsman
D) outside director
72) Which of the following is true for the board of directors of a corporation?
A) The directors of a board can act individually on the corporation’s behalf.
B) Each director has the power of two votes.
C) Directors cannot vote by proxy.
D) Meetings of the board of directors cannot be held without shareholder representation.
73) ________ are employees of a corporation who are appointed by the board of directors to
manage the day-to-day operations of the corporation.
A) Corporate officers
B) Shareholders
C) Registered agents
D) Ombudsmen
74) Which of the following policies helps a corporate officer from being sued for honest
mistakes made on behalf of a corporation?
A) duty of loyalty
B) duty of obedience
C) business judgment rule
D) self-dealing
75) A duty that directors and officers have not to act adversely to the interests of the corporation
and to subordinate their personal interests to those of the corporation and its shareholders is
known as ________.
A) duty of care
B) duty of loyalty
C) duty of obedience
D) self-dealing
76) Which of the following would be seen as a breach of the duty of loyalty by a corporate
officer?
A) straight voting
B) cumulative voting
C) piercing the corporate veil
D) self-dealing
77) Helen works as the vice-president of Gotspeed Corporation, a company that develops and
sells sports shoes. Nestor, a private cobbler, makes a new model of shoes that help a user’s feet
grip the shoe better, and he calls it the Anklator. Nestor’s friend fixes an appointment for him
with Helen to present his shoe model for possible adoption by Gotspeed. Instead of bringing the
opportunity to Gotspeed’s board of directors and the corporation, Helen pays Nestor’s asking
price and purchases the Anklator model for herself. Helen leaves Gotspeed Corporation and
forms her own company that manufactures and markets the Anklator shoe models. What breach
of the duty of loyalty has Helen committed here?
A) self-dealing
B) usurping a corporate opportunity
C) making a secret profit
D) competing with the corporation
78) A director or corporate officer who usurps a corporate opportunity would be in violation of
the director’s fiduciary duty called ________.
A) duty of obedience
B) duty of loyalty
C) duty of care
D) self-dealing
79) A director or corporate officer that does not attend board meetings regularly would be in
violation of ________.
A) self-dealing
B) duty of care
C) duty of loyalty
D) duty of obedience
80) Jameson works for Fishy-Mart Corporation, a chain of superstores that sell large quantities
of seafood. Jameson’s job is to locate future sites for Fishy-Mart stores. Jameson finds a piece of
real estate near a coastline that would make a great site for a Fishy-Mart store. Jameson tells his
friend to purchase the property from its current owner, which he does. Jameson has a secret
agreement with his friend to split the profits when he sells the property to Fishy-Mart. Jameson,
without disclosing his interest in the property, recommends the site to Fishy-Mart, which then
purchases the property from Jameson’s friend. The friend splits the profits with Jameson. What
breach of the duty of loyalty has Jameson committed here?
A) usurping a corporate opportunity
B) self-dealing
C) competing with the corporation
D) proxy
81) Marshall is the purchasing agent for the DigitoolArt Corporation. His duties require him to
negotiate and execute contracts to purchase office supplies and equipment for the corporation.
Assume that Bronson, a computer salesperson, pays Marshall a $20,000 kickback to purchase
from him computers needed by the DigitoolArt Corporation. What breach of the duty of loyalty
has Marshall committed here?
A) competing with the corporation
B) making a secret profit
C) self-dealing
D) usurping a corporate opportunity
82) Which of the following is a federal statute that deals with corporate bribery between U.S.
companies and officials of other countries?
A) Sarbanes-Oxley Act
B) Glass-Steagall Act
C) Deregulation and Monetary Control Act
D) Foreign Corrupt Practices Act
83) The ________ Act prohibits public companies from making personal loans to their directors
or executive officers.
A) Foreign Corrupt Practices
B) Deregulation and Monetary Control
C) Sarbanes-Oxley
D) Commodity Futures Modernization
84) According to the provisions set forth by the Sarbanes-Oxley Act, the ________, a federal
government agency, may issue an order prohibiting any person who has committed securities
fraud from acting as an officer or a director of a public company.
A) United States International Trade Commission
B) Federal Reserve System
C) Federal Communications Commission
D) Securities and Exchange Commission
85) What is the supramajority voting requirement for shareholders?
86) Explain the term of office for board of directors.
87) Give an account of the director’s and corporate officer’s duty of care towards the corporation.
88) What is self-dealing?
89) What is the CEO and CFO provision laid out by the Sarbanes-Oxley Act of 2002?