1. Alfrieda purchased an ownership interest in a corporation. This gives her the right to use the equipment owned by the
corporation, as long as her usage does not interfere with the normal operation of the business.
a.
True
b.
False
2. A proxy is a vote that is mailed in, like an absentee ballot.
a.
True
b.
False
False
Easy
3. Under both state and federal law, a shareholder can generally revoke a proxy at any time.
a.
True
b.
False
True
Moderate
4. A corporation is required to have at least one class of stock with voting rights.
a.
True
b.
False
True
Easy
5. In reality, the officers of the large corporations have a great deal of influence on who will be nominated and elected as
directors.
a.
True
b.
False
True
Moderate
6. The NYSE and NASDAQ both require that the members of the nominating committee be independent directors who
are less likely to simply go along with whatever the CEO wants.
a.
True
b.
False
True
False
Moderate
7. Controlling shareholders have no fiduciary responsibility to minority shareholders.
a.
True
b.
False
False
Moderate
8. Minority shareholders have no right to overturn an ordinary business transaction between the corporation and a
controlling shareholder.
a.
True
b.
False
False
Moderate
9. In a derivative lawsuit, any proceeds awarded by the court must be paid to the corporation, not the shareholders
themselves.
a.
True
b.
False
True
Easy
10. A derivative lawsuit is filed by a shareholder of the corporation if his or her own rights have been harmed.
a.
True
b.
False
False
Easy
11. If a public company decides not to solicit proxies for a shareholder meeting, it need not give shareholders the
information that would have been required in a proxy statement.
a.
True
b.
False
False
Moderate
Moderate
12. Alberta is not employed by E-prise, Inc. but she is a member of E-prise’s board of directors. Alberta is an outside
director.
a.
True
b.
False
13. Matt, a shareholder, can run for director by simply placing his name on the company’s proxy statement.
a.
True
b.
False
False
Moderate
Bloom’s: Comprehension
14. Overall, directors get paid very little for the amount of work they perform.
a.
True
b.
False
False
Moderate
Bloom’s: Comprehension
15. Larry has owned $5,000 of stock in E-prise, Inc. for the past 18 months. Under SEC rules, Larry can require that one
proposal be placed in the company’s proxy statement to be voted on at the shareholder meeting.
a.
True
b.
False
16. A shareholder with a large block of stock whose goal is to influence management decisions and strategic direction is
called
a.
a power broker.
b.
a controlling member.
c.
a lead investor.
d.
an activist investor.
Easy
Bloom’s: Knowledge
17. A corporation’s obligation to voluntarily provide shareholders with financial information
a.
depends on whether the company is publicly or privately held.
True
Moderate
Bloom’s: Comprehension
b.
depends on the requirements of the Model Business Corporation Act.
c.
is extensive and is carefully regulated by the SEC if the company is privately held.
d.
depends on the ruling of the board of directors.
18. Unless the form provides for a longer period, a proxy is valid for how long under the Model Act?
a.
90 days
b.
six months
c.
11 months
d.
one year
Bloom’s: Knowledge
19. Under the Model Act, who has the right to call a special meeting of the shareholders to vote on an emergency issue
that cannot wait until the next annual meeting?
a.
The board of directors and shareholders who own at least 10 percent of a company’s stock
b.
Any group of shareholders that is at least 25 in number and holds 25 percent of a company’s stock
c.
The board of directors and the CEO
d.
Only the board of directors
Bloom’s: Comprehension
20. In a derivative lawsuit, the named plaintiff
a.
is the corporation on whose behalf the lawsuit is filed.
b.
is the particular class of shareholders primarily injured by the wrong.
c.
consists of all the corporation’s shareholders.
d.
is the board of directors for the corporation.
Bloom’s: Comprehension
21. All of the following are shareholder rights EXCEPT
a.
the right to manage the firm.
b.
the right to vote.
c.
the right to information.
d.
the right to dissent.
Bloom’s: Comprehension
22. Under SEC rules, companies
a.
can require electronic delivery of proxy statements to save mailing costs and improve operating efficiency of
the corporation.
b.
are required to post the information in the annual report and the proxy statement on their Web site, file it with
the SEC, and distribute it to shareholders
c.
must solicit proxies because a shareholder meeting is invalid unless a certain percentage of shareholders attend
in person or by proxy.
d.
must give each shareholder a proxy, but not a proxy statement or an annual report, if the company is a public
company.
Moderate
Bloom’s: Comprehension
23. Kian is the chief financial officer of Yonkka, Inc. He is also a member of Yonkka’s board of directors. Kian is
a.
an inside director.
b.
an outside director.
c.
holding an illegal position.
d.
a public director.
24. A corporation must obtain shareholder approval before the company
a.
sells off a major portion of its business to another company.
b.
opens additional offices.
c.
hires or fires a significant number of employees.
d.
expands into foreign markets.
Moderate
Bloom’s: Comprehension
25. Shareholder proposals on the company proxy statement
a.
will automatically become binding if approved.
b.
may only be implemented by the company if they receive support from at least a simple majority of the
shareholders.
c.
historically have been rarely approved.
d.
may only address corporate-governance issues and cannot not address the shareholder’s political agenda, such
as saving the environment.
Moderate
Easy
Bloom’s: Knowledge
26. The proceeds, if any, of a derivative lawsuit go to
a.
the shareholders of the corporation.
b.
the shareholders who actually filed the lawsuit.
c.
the board of directors.
d.
the corporation.
Bloom’s: Knowledge
27. Before filing a derivative lawsuit, shareholders must
a.
notify the board that the corporation has been wronged and ask the board to bring suit in the name of the
corporation directly.
b.
notify the Secretary of State that the corporation has been wronged and ask the Attorney General to file the
lawsuit on behalf of the corporation.
c.
hold a special meeting, and a majority of the shareholders must vote to file the lawsuit.
d.
place the lawsuit on the company’s proxy statement, and the proposal must receive a majority vote.
Bloom’s: Comprehension
28. Meredith, a shareholder in Quarto, Inc., notified Quarto’s board of directors that the corporation had been wronged and
asked the board to bring a lawsuit in the corporation’s name. In response to Meredith’s demand, the board
a.
can file suit on behalf of the corporation.
b.
can reject Meredith’s demand or simply fail to respond.
c.
can appoint a Special Litigation Committee.
d.
can do any of the above.
Bloom’s: Comprehension
29. Ev-R-Green Co., a private corporation, decides to sell substantially all of the company’s assets. Under the Model Act
and many state statutes
a.
the sole remedy for dissenting shareholders is to sell their stock on the stock exchange.
b.
the board must first get unanimous shareholder approval for this fundamental change.
c.
Ev-R-Green must buy back, at fair value, the stock of any shareholders who object to the decision.
d.
the company may buy back, at fair value, the stock of any shareholders who object to the decision or the
shareholders who object may receive the right of first refusal to purchase corporate assets.
Bloom’s: Comprehension
Bloom’s: Comprehension
30. Charles owns 1,000 shares of stock in Temperan, Inc. Charles wants to obtain corporate records including the
corporation’s minute book and accounting records. Under the Model Act, Charles is entitled to this information if he
requests it in good faith and
a.
he has a proper purpose.
b.
he owns at least 1 percent of the company or $2,000 of stock.
c.
he is an employee of Temperan.
d.
he is a controlling shareholder.
31. Lucy owns 10 shares of stock in Quamba, Inc. Lucy wishes to place a proposal in a company’s proxy statement to be
voted on at the shareholders’ meeting. Pursuant to the SEC rules, before Lucy is allowed to place her proposal on the
proxy statement she must
a.
have owned continuously for one year at least one percent of the company and $2,000 or more of the stock.
b.
have owned continuously for one year at least one percent of the company or $2,000 or more of the stock.
c.
have the permission of the board of directors.
d.
have been a stockholder for at least two years.
32. What is an inside director?
a.
A shareholder charged with the illegal act of insider trading
b.
A member of the board of directors who is also a board member of a competing firm
c.
A shareholder who is a board member of a competing firm
d.
A member of the board of directors who is also an employee of the corporation
Bloom’s: Knowledge
33. Luella just purchased 5 shares of common stock in TriColor, Inc. for $250. Luella has the right to
a.
manage the day-to-day business of the corporation.
b.
set executive compensation.
c.
require that a proposal be placed in the company’s proxy statement to be voted on at the shareholder meeting.
d.
vote to elect directors.
Bloom’s: Comprehension
34. A public company instituted a clawback policy. What does this mean?
a.
The company can require the CEO and CFO to reimburse the company for any bonus or profits they recieved
from selling company stock within a year of the release of flawed financials.
Bloom’s: Application
b.
At least once every three years, companies must take a nonbinding shareholder vote on the compensation of
the five highest-paid executives.
c.
The company is prohibited from expelling shareholders unless the firm pays a fair price for the minority stock
and the expulsion has a legitimate business purpose.
d.
The company has decided that the compensation level of its executives is not in the company’s best interests,
so it reduces all executive pay levels by a certain percentage.
35. Veritas, Inc. is planning its annual shareholder meeting on June 15. The company
a.
need not send notices of the meeting to shareholders since it is the regularly scheduled, annual meeting, which
Veritas always holds on the third Thursday of June.
b.
must send notices to everyone who owns stock as of January 1.
c.
must send notices to everyone who owns stock on the “record date,” which can be no more than 70 days
before the meeting.
d.
is not required to have an annual shareholders meeting if the company is listed only on the NYSE.
36. Maureen, a shareholder of Metra, Inc., is unhappy with how the corporation was being managed. Maureen wants the
company to sell off its unproductive divisions. Which statement is correct?
a.
If Maureen owns at least 1 percent or $2,000 of Metra’s stock, she can require the company to include her
proposal in its proxy statement.
b.
If Maureen has a proper purpose, she can require the company to include her proposal in its proxy statement.
c.
If Maureen can show cause, she can require the company to automatically sell off its unproductive divisions.
d.
Maureen cannot require that the company put her proposal to sell off unproductive divisions on its proxy
statement.
37. At least once every three years, companies must take a nonbinding shareholder vote on the compensation of the five
highest-paid executives. This is referred to as
a.
clawback pay action.
b.
voting out the directors.
c.
activist investing.
d.
say–on-pay.
Easy
Bloom’s: Knowledge
38. A “fundamental change” in a corporation would be illustrated by
Moderate
Bloom’s: Comprehension
a.
E-prise, Inc. merging with Vitta Corporation.
b.
E-prise electing new members to the board.
c.
Vitta Corporation adding a new product to its product line.
d.
Vitta Corporation setting the date for its annual meeting.
39. The percentage of voters who must be present for a meeting to count is referred to as
a.
a plurality.
b.
simple majority.
c.
a quorum.
d.
a proxy.
Bloom’s: Knowledge
40. Quick Supply House breached a contract with MegaCorp. The breach resulted in the loss of a great deal of money to
MegaCorp. The board of directors for MegaCorp vote not to sue the supply house since it believes the legal costs would
be more than it would probably recover. If a group of shareholders wish to sue the supply house, this would
a.
be a type of direct lawsuit.
b.
have to be a derivative lawsuit.
c.
be a settlement lawsuit.
d.
be an SEC lawsuit.
41. Explain the ways in which the federal government has tried to change the landscape of corporate governance and
executive compensation.
Bloom’s: Comprehension
42. Loraine is a shareholder of Taley Corp. She would like to inspect and copy the company’s minute book, accounting
records, and shareholder lists. Under what circumstances is Loraine allowed to inspect or copy corporate records?
43. Vernon and David are the controlling shareholders in E-treme, Inc. Discuss the obligations that Vernon and David
owe to the minority shareholders.
44. Kris, a shareholder of E-Max, Inc., claimed that the business was being mismanaged. Kris notified the board of
directors that the corporation has been wronged and asked the board to bring suit in the name of the corporation directly.
In response to Kris’ demand, what actions may the board take? What could Kris’s response be to each alternative?
45. List and describe the various rules that apply to fundamental corporate changes requiring shareholder approval.