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Exam 22: Corporations: Formation and Organization

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Question 31

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Warren was the president of a corporation whose articles of incorporation specified that the corporation's purpose was to market dairy products. Warren, however, convinced the board of directors to support him in opening a furniture store. Warren proceeded to enter into contracts with furniture suppliers. When some of the shareholders discovered that the corporation was going into the furniture business, they wanted the furniture venture ended. Unfortunately, the corporation had already entered into a contract for upholstery supplies that had been delivered. What is the term for acts of a corporation beyond its express and implied powers, and what remedies does the Revised Model Business Corporation Act provide when a corporation commits such act? What is the most likely result if the supplier of the upholstery supplies sues for payment?

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If a corporation acts beyond its express...

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Question 32

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A board of directors may take no action that benefits a director in his or her personal capacity.

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Question 33

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The Securities and Exchange Commission has established that any shareholder who owns more than _______________ worth of stock in the corporation can submit proposals to be included in proxy materials.

Reference - Machine Malfunction. Bruno, the president of a corporation operating work out facilities, convinced the board of directors to approve a large purchase of a type of fitness machine called "Perfect Body." Bruno had carefully investigated the machine and did a presentation to the board on its purported benefits. Unfortunately, after the purchase, it was announced that "Perfect Body" was actually a very dangerous machine that should not be used. The manufacturer of "Perfect Body" went bankrupt, and the corporation lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Bruno and the directors. The board of directors agrees to allow Frances, the ringleader of the shareholders, to purchase stock of the company at below its fair market value. She purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Bruno and the board members. Under which of the following should Bruno and the board of directors defend themselves in an action brought by shareholders for harming the corporation?

Reference - Shaky Bicycles. Rhonda, an incorporator who filed the articles of incorporation for ABC Corporation, a corporation set up to sell bicycles, listed the correct town and street but incorrectly put the wrong street number in the document. Helen, a manufacturer of bicycle parts, had sold a number of parts to ABC Corporation. Unfortunately, the corporation was not making any profit, and Helen was not paid in a timely manner. Rhonda told her that the corporation was not liable because it was not validly formed due to the address mistake. Bernice, another creditor of ABC Corporation, also claimed that a shareholder of Shaky Bicycles, Slick, was personally liable to her. Bernice alleged that Slick committed fraud against her when he told her that ABC Corporation was making large amounts of money, that if she would only loan $50,000 to the corporation he would marry her, and that the corporation would make so much money that she would be wealthy in six months. She loaned the funds, but the corporation has been unable to repay her. Slick told her that he is sorry, but that her only avenue of recovery is through the corporation. Which of the following would a court likely rule regarding the status of ABC Corporation as a corporation?

The articles of incorporation determine who has the power to amend the corporate bylaws after the first organizational meeting.

Which of the following is a document a corporation files with the state explaining its organization?

Two security services, ABC Security and Knight Security, propose to merge. The proposed merger receives majority shareholder approval. Richard, a minority shareholder who owns 10% of the stock in Knight Security, however, is very much opposed to the merger. He tells the other shareholders in Knight Security that unless they convince him otherwise, he will block the merger. What are Richard's rights as a dissenting shareholder, and does he have the power to block the merger?

Shareholders may not be held personally liable for a defective corporation's actions.

Reference - Machine Malfunction. Bruno, the president of a corporation operating work out facilities, convinced the board of directors to approve a large purchase of a type of fitness machine called "Perfect Body." Bruno had carefully investigated the machine and did a presentation to the board on its purported benefits. Unfortunately, after the purchase, it was announced that "Perfect Body" was actually a very dangerous machine that should not be used. The manufacturer of "Perfect Body" went bankrupt, and the corporation lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Bruno and the directors. The board of directors agrees to allow Frances, the ringleader of the shareholders, to purchase stock of the company at below its fair market value. She purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Bruno and the board members. Which of the following is true regarding liability of Frances, if any, for purchasing the stock at below its fair market value?

A corporation must be incorporated in the state in which it has its principal place of business.

What are the requirements for being a director? Must a director own stock in the corporation?

Which of the following gives preference to shareholders to purchase shares of a new issue of stock?

When directors or officers violate their duty of loyalty, they are self-dealing.

In regard to the board of directors of a corporation, German law is similar to the U.S. in that a one-tier board system is in effect.

Which of the following is generally false when a consolidation occurs?

Which of the following is false regarding officers of a corporation?

Which of the following generally does not offer stock to the public?

Which of the following types of securities represent ownership in a corporation?

Which of the following occurs when a group within a corporation, usually management, buys all outstanding corporate stock held by the public?