LOMA 311 MODULE 1 EXAM QUESTIONS WITH ALL CORRECT ANSWERS

LOMA 311 MODULE 1 EXAM QUESTIONS WITH ALL CORRECT ANSWERS multinational corporation - Answer-a corporation that operates in more than one country and makes major decisions within a global context. Multinationals operate across jurisdictions and face unique legal and regulatory issues because they must comply with the laws and regulations of their home country and each country in which they do business. In some cases, multinationals also must comply with international treaties and regulatory agreements. bilateral agreement - Answer-addresses insurance and reinsurance issues international convention for the suppression of the financing on terrorism - Answer-UN convention prohibits any person from providing funds that are intended to be used to carry out acts of terrorism. 132 signing countries. General agreements on trade in services (GATS) - Answer-promotes the international flow of services, including insurance and other financial services. Corporate Governance - Answer-is a framework of rules and processes for directing and controlling a corporation that emphasizes integrity, transparency, and balancing the interests of stakeholders while fulfilling strategic goals. Corporate governance model act - Answer-requires an insurer to provide information regarding corporate governance practices to its state of domicile annually by June 1. The information provided by an insurer is called the corporate governance annual disclosure. three groups are involved in the governance of a corporation. These groups are (1) the board of directors, (2) the officers of the corporation, and (3) the stockholders. Directors - Answer-individuals who are appointed or elected by the stockholders or policyholders to manage and direct the affairs of a corporation. State law may also provide for board seats appointed by members of the executive, legislative, or judicial branch of the state government. Collectively, the directors are known as the corporation's board of directors. Directors who are otherwise employed by the corporation or are major stockholders of the corporation are known as inside directors, and typically are officers of the corporation. Directors who are not otherwise employed by or have no significant direct interest in the corporation are referred to as outside directors Boards of directors typically meet at scheduled times. They must meet at least once a year. A board of directors may act without an in-person meeting if all directors consent to the action in writing. Quorum - Answer-a specified percentage of an entire body, in this case, a board of directors. State laws and corporate articles of incorporation or bylaws may establish the number or percentage of directors who must be present to constitute a quorum. In the absence of such controlling authority, a simple majority of directors constitutes a quorum. Duties of Directors - Answer-A corporation's directors have ultimate responsibility for managing and overseeing the corporation's affairs. The directors exercise this responsibility by delegating their authority. For example, directors are responsible for appointing the corporation's officers. The directors then have a duty to ensure that the officers manage the corporation lawfully and competently. Directors must have at least a basic understanding of the business that the corporation conducts. They also have a duty to keep informed about the corporation's affairs. Fiduciary - Answer-Directors are fiduciaries who are obligated to act in the best interests of the corporation and its stockholders. A fiduciary is an entity or individual who holds a special position of trust or confidence when handling the affairs of another and who must put the other's interests above the fiduciary's own. As fiduciaries, directors have the following duties: -Duty of loyalty and good faith. Good faith is the honest intent to act without taking unfair advantage of another person. A director must act in good faith and in the best interests of the corporation and the stockholders. A director must not misuse corporate assets or take a corporate opportunity for personal benefit. A director must fully disclose any conflicts of interest and should abstain from voting on matters that could involve a conflict of interest. -Duty to exercise due care in carrying out responsibilities. A director must use that degree of care that an ordinarily prudent person would use in carrying out her own affairs. Typically, because insurers occupy a special position of public trust, their directors are held to a higher standard of care than are directors of other types of businesses. Whether a director has exercised due care in a situation is a question of fact. Although directors have a duty to use due care, they also have a right to rely on information they receive from the company's officers and employees whom the directors reasonably believe are reliable and competent to provide the information. If a director's review of the corporation's affairs would raise questions in the mind of a reasonably prudent person, then the director has a duty to inquire further. *******This type of duty is known as the REASONABLE PERSON STANDARD , which is a standard applied in objective tests in which a party's actions or understanding is compared to the Business Judgment Rule (BJR) - Answer-states that directors will not be held personally liable for making business decisions if there is a reasonable basis to believe that the directors acted in good faith and with due care. On the other hand, directors generally will be personally liable if they: -ct in bad faith. Essentially the opposite of good faith, bad faith occurs when a person acts with a dishonest motive by knowingly committing a wrong or failing to fulfill a legal duty. -Abuse their discretion. Directors abuse their discretion when their actions are not reasonably justified or are clearly not reasonable, given the circumstances. -Are guilty of gross negligence. Gross negligence occurs when a person, through action or inaction, consciously and voluntarily fails to perform a legal duty in reckless disregard of the consequences of that failure. -Commit fraud. Fraud is an act by which someone intentionally deceives another party and induces that other party to part with something of value or to give up a legal right. Officers - Answer-of a corporation are the people responsible for carrying out important management functions for the operation of the corporation. Officers may include the CEO, president, and treasurer, to name a few. A corporation's board of directors usually appoints the top-level officers in accordance with applicable state laws and the corporation's articles of incorporation and bylaws. Such appointed officers often are authorized to appoint additional officers. Corporate officers are fiduciaries who are obligated to act in the best interests of the corporation and its stockholders. Officers have a duty of loyalty and a duty to exercise due care in carrying out their responsibilities. Officers are almost always employees of the corporation. Like directors, officers may be personally liable if they breach their duties and obligations to the corporation. Unlike directors, officers generally are not afforded protection under the business judgment rule. Recall that directors may be liable for gross negligence, which involves an element of willful misconduct. By contrast, the legal standard for officers is negligent conduct, which involves only an element of inattention or thoughtlessness in acting or failing to act. Stockholders - Answer-The stockholders exercise ultimate control over a stock corporation's management because they have the right to elect the board of directors. They also have other ownership rights in the corporation, including the right to -Inspect the corporation's financial records, books, and papers. This right is limited to inspections that are carried out in good faith and with a proper and honest purpose. -Attend annual stockholder meetings and vote on certain important corporate matters. Stockholders have the right to vote on matters such as whether the corporation should be dissolved or merged with another corporation. Stockholders also have the right to change the corporation's bylaws, which typically are adopted by the corporation's board of directors and may later be changed by the directors or the stockholders. -Share in the corporation's profits when dividends are declared. A dividend is a payment of a portion of the corporation's profits to the corporation's owners. A corporation's board of directors must authorize the payment of dividends, which are paid from the corporation's surplus. Note that for a mutual company, the policyowners may have all or some of these rights. Demutalization - Answer-a mutual insurer may change to a stock insurer through a process called demutualization Mutualization - Answer-Or a stock insurer may change to a mutual insurer through a process called mutualization Merger and acquisition strategy - Answer-A merger is a transaction in which one corporation is absorbed into another corporation by combining its assets and liabilities with those of the surviving corporation. The merged corporation ceases to exist after it is liquidated. Thus, only one corporation survives the merger transaction. an acquisition is a transaction in which one corporation purchases a controlling interest in another corporation, resulting in a linkage between formerly independent corporations. After the transaction, both corporations survive as separate legal entities. Occasionally, an acquisition can lead to a merger. Constitution - Answer-One of the primary sources of law. The other three are statutes, administrative regulations, and treaties and international agreements. A constitution is a document or group of documents that set out the fundamental principles that determine the powers and duties of the government and the rights of the people. -meant to be relatively permanent and a primary source of law Branches of Government - Answer-Legislative, Executive, Judicial legislative is responsible for an acting laws to govern the applicable jurisdiction executive consists of a system of administrative agencies that are responsible for administering, enforcing or caring out the jurisdictions laws. Judicial consists of a system of courts that are responsible for applying and interpreting the jurisdictions laws in for resolving disputes. Many countries promote alternative dispute resolution methods. ++++ administrative law looks at regulations Parliamentary Democracy - Answer-Other countries use this as the LEGISLATIVE branch of government and has ULTIMATE authority for making all the laws. Countries within the British Commonwealth, most European countries, India and Singapore are examples of this. generally the EXECUTIVE branch of government is led by a Prime Minister who has the political party and holds the majority of elected seats federal system - Answer-A Federal government and a number of lower level governments share governmental powers. For example the USA is a Federation of 50 states, the district of Columbia in several territories. in a federal system, the federal Constitution is the nations supreme law. typically each state also has a state constitution that serves as the states fundamental law. The state laws must be consistent with the federal Constitution