LAW 2, BUL4422, EXAM 1 QUESTIONS
AND ANSWERS
Liability of Shareholders - Correct Answers -Liable for the debts of the corp. to the
extent of their investment.
Liable for a breach of contract is a stock subscription agreement was signed and yet no
stock was purchased.
Liable for watered stock.
Can be held personally liable for receiving illegal dividends.
Watered Stock - Correct Answers -when a corporation issues shares for less than their
fair market value
No-Par Shares - Correct Answers -Shareholder must pay the fair market value
Par Value Shares - Correct Answers -Shareholder must pay the corp. at least the par
value of the stock.
Corp Directors Unique Rights - Correct Answers -Right to:
1. Compensation - through management positions in the company or nominal sums as
honorariums.
2. Participation - Involved in and understand every aspect of the business
3. Inspection - notified of all meetings and has access to all books and records.
4. Indemnification - can be reimbursed for any legal fees incurred in lawsuits against
them.
Officer's Rights - Correct Answers -Rights determined in employment contract
Shareholders Rights - Correct Answers -1. to vote
2. to have a stock certificate
3. to dividends, when declared by board
4. to inspect corp records
5. to transfer shares (w/ some exceptions)
6. to an accurate share of corp assets on dissolution
7. to file suit on behalf of corp
Shareholder's Derivative Suit - Correct Answers -A lawsuit filed by a shareholder on
behalf of the corporation. Important way for shareholders to hold directors accountable
for their behavior.
Shareholder's Direct Suit - Correct Answers -a lawsuit filed by a shareholder against the
corporation
, Revised Model Business Corporation Act (RMBCA) - Correct Answers -A 1984 revision
of the MBCA that arranges the provisions of the act more logically, revises the language
to be more consistent, and makes substantial changes in the provisions
Statutory Law - Correct Answers -ensures that the directors, officers, and shareholders
work together to the benefit of all.
Directors - Correct Answers -The people who have overall responsibility for managing
the company's business activities. Decision makers. Ensure the business survives and
that they keep their job.
Directors Roles - Correct Answers -A minimum number must attend board of directors
meetings.
They are legally responsible for day-to-day managerial activities.
Elected by shareholders majority vote.
Officers Roles - Correct Answers -Run the day-to-day business of the organization.
Act as agent of the corporation.
Shareholders Roles - Correct Answers -Owners of the firm by purchase of stocks.
Majority shareholder - more than 50%
Minority shareholder - less than 50%
Equitable interest.
Elect the directors and remove them.
Meet at least once a year.
Proxy can vote for a shareholder.
Duty of Care (Directors & Officers) - Correct Answers -Acts in good faith and in the best
interest of the company.
Duty of Loyalty (Directors & Officers) - Correct Answers -Put the corporations interest
above their own when making business decisions.
Business Self-Dealing - Correct Answers -A director or officer makes decision that
benefit other companies with which she has a relationship.
Personal Self Dealing - Correct Answers -A director or officer makes business decision
that benefit him personally.
Duty to Disclose Conflict of Interest - Correct Answers -Fiduciary duty to fully disclose
conflicts of interest that arise in corporate transactions that can benefit a director or
officer directly.
Duties of Shareholders - Correct Answers -In certain situations, majority shareholders
may be regarded as having a fiduciary duty to minority shareholders and will be liable if
that duty is breached
AND ANSWERS
Liability of Shareholders - Correct Answers -Liable for the debts of the corp. to the
extent of their investment.
Liable for a breach of contract is a stock subscription agreement was signed and yet no
stock was purchased.
Liable for watered stock.
Can be held personally liable for receiving illegal dividends.
Watered Stock - Correct Answers -when a corporation issues shares for less than their
fair market value
No-Par Shares - Correct Answers -Shareholder must pay the fair market value
Par Value Shares - Correct Answers -Shareholder must pay the corp. at least the par
value of the stock.
Corp Directors Unique Rights - Correct Answers -Right to:
1. Compensation - through management positions in the company or nominal sums as
honorariums.
2. Participation - Involved in and understand every aspect of the business
3. Inspection - notified of all meetings and has access to all books and records.
4. Indemnification - can be reimbursed for any legal fees incurred in lawsuits against
them.
Officer's Rights - Correct Answers -Rights determined in employment contract
Shareholders Rights - Correct Answers -1. to vote
2. to have a stock certificate
3. to dividends, when declared by board
4. to inspect corp records
5. to transfer shares (w/ some exceptions)
6. to an accurate share of corp assets on dissolution
7. to file suit on behalf of corp
Shareholder's Derivative Suit - Correct Answers -A lawsuit filed by a shareholder on
behalf of the corporation. Important way for shareholders to hold directors accountable
for their behavior.
Shareholder's Direct Suit - Correct Answers -a lawsuit filed by a shareholder against the
corporation
, Revised Model Business Corporation Act (RMBCA) - Correct Answers -A 1984 revision
of the MBCA that arranges the provisions of the act more logically, revises the language
to be more consistent, and makes substantial changes in the provisions
Statutory Law - Correct Answers -ensures that the directors, officers, and shareholders
work together to the benefit of all.
Directors - Correct Answers -The people who have overall responsibility for managing
the company's business activities. Decision makers. Ensure the business survives and
that they keep their job.
Directors Roles - Correct Answers -A minimum number must attend board of directors
meetings.
They are legally responsible for day-to-day managerial activities.
Elected by shareholders majority vote.
Officers Roles - Correct Answers -Run the day-to-day business of the organization.
Act as agent of the corporation.
Shareholders Roles - Correct Answers -Owners of the firm by purchase of stocks.
Majority shareholder - more than 50%
Minority shareholder - less than 50%
Equitable interest.
Elect the directors and remove them.
Meet at least once a year.
Proxy can vote for a shareholder.
Duty of Care (Directors & Officers) - Correct Answers -Acts in good faith and in the best
interest of the company.
Duty of Loyalty (Directors & Officers) - Correct Answers -Put the corporations interest
above their own when making business decisions.
Business Self-Dealing - Correct Answers -A director or officer makes decision that
benefit other companies with which she has a relationship.
Personal Self Dealing - Correct Answers -A director or officer makes business decision
that benefit him personally.
Duty to Disclose Conflict of Interest - Correct Answers -Fiduciary duty to fully disclose
conflicts of interest that arise in corporate transactions that can benefit a director or
officer directly.
Duties of Shareholders - Correct Answers -In certain situations, majority shareholders
may be regarded as having a fiduciary duty to minority shareholders and will be liable if
that duty is breached
