Question 1

Directors and officers may be liable to the corporation for failure to act with due care and diligence.

Accepted Answer

A) True 
 B)False  True

Question 2

A director who has acted in bad faith or who is found liable to the corporation:

Accepted Answer

A)  can be indemnified if the losses are lesser than the average annual salary. 
B)  may only be indemnified if some shareholders find the act to be appropriate. 
C)  may only be indemnified upon the approval of an independent legal counsel. 
D)  cannot be indemnified under any circumstances. 
A)  can be indemnified if the losses are lesser than the average annual salary. 
B)  may only be indemnified if some shareholders find the act to be appropriate. 
C)  may only be indemnified upon the approval of an independent legal counsel. 
D)  cannot be indemnified under any circumstances. D

Question 3

With regard to the duty of directors and officers to act with due care and diligence, what is meant by the "prudent person" standard?

Accepted Answer

Directors and officers may be liable to the corporation for failure to act with due care and diligence. The Model Business Corporation Act (MBCA) requires that a director or officer discharge his duties with "such care as an ordinarily prudent person in a like position would use under similar circumstances." Thus, officers and directors are not liable to the corporation if they act with the common sense, practical wisdom, and informed judgment that could be expected of an ordinarily prudent person. Of course, the greater the actual qualifications of the individual, the greater the level of the duty that would be expected.
There are three dimensions to this prudent person standard. An officer or director will be found to have discharged her duty of care if she acts:
1. In good faith.
2. As would an ordinarily prudent person under like circumstances.
3. Under the reasonable belief that she is acting in the best interests of the corporation.
The duty of care requires that directors and officers make a reasonable investigation before making any corporate decisions. These standards, however, take into consideration the complexities of many corporate decisions and understand that it would be impossible for any manager to personally investigate every facet of every business decision. As a result, the MBCA standard permits directors and officers to rely on the opinions, reports, and statements of persons who reasonably appear to be competent and reliable.

Question 4

The duty of care requires directors and officers to make a reasonable investigation before making any corporate decisions.

Accepted Answer

A) True 
 B)False

Question 5

The Model Business Corporation Act (MBCA) standard of care permits directors and officers to rely on the opinions, reports, and statements of persons who reasonably appear to be competent and reliable.

Accepted Answer

A) True 
 B)False

Question 6

When a corporate manager makes an honest error in judgment, the business judgment rule directs that the manager will:

Accepted Answer

A)  be liable for corporate losses. 
B)  not be liable and a court will step in to correct the manager's mistake. 
C)  not be liable if he acted with care and in good faith. 
D)  be liable for all losses resulting from the error. 
A)  be liable for corporate losses. 
B)  not be liable and a court will step in to correct the manager's mistake. 
C)  not be liable if he acted with care and in good faith. 
D)  be liable for all losses resulting from the error.

Question 7

A director or officer will be held to have failed to act with due care and diligence if he or she:

Accepted Answer

A)  does not personally investigate every facet of every business decision. 
B)  makes an error acting in the best interest of the corporation. 
C)  fails to make a reasonable investigation before making any corporate decisions. 
D)  does not personally attend all board meetings, even if insufficient notice is given. 
A)  does not personally investigate every facet of every business decision. 
B)  makes an error acting in the best interest of the corporation. 
C)  fails to make a reasonable investigation before making any corporate decisions. 
D)  does not personally attend all board meetings, even if insufficient notice is given.

Question 8

The vice president of a corporation:

Accepted Answer

A)  cannot be leading any specific department of the company. 
B)  has charge of the funds of the corporation. 
C)  cannot have implied authority. 
D)  has no authority by virtue of that office. 
A)  cannot be leading any specific department of the company. 
B)  has charge of the funds of the corporation. 
C)  cannot have implied authority. 
D)  has no authority by virtue of that office.

Question 9

A director:

Accepted Answer

A)  can be removed from office if he or she voluntarily failed to attend directors' meetings. 
B)  cannot be removed from office because he or she has acted contrary to the interests of the corporation. 
C)  cannot be removed from office by shareholders without any cause. 
D)  can be removed from office without being given notice or a hearing. 
A)  can be removed from office if he or she voluntarily failed to attend directors' meetings. 
B)  cannot be removed from office because he or she has acted contrary to the interests of the corporation. 
C)  cannot be removed from office by shareholders without any cause. 
D)  can be removed from office without being given notice or a hearing.

Question 10

Under the MBCA, a director:

Accepted Answer

A)  will not have dissented if he or she refuses to vote for the proposed course of action. 
B)  will not have dissented even if he or she makes his or her dissent clear to the other board members by having it appear in the minutes. 
C)  will have dissented if he or she gives a written notice of dissent immediately following the meeting. 
D)  will have dissented if he or she waits for three months after the meeting to bring up dissent. 
A)  will not have dissented if he or she refuses to vote for the proposed course of action. 
B)  will not have dissented even if he or she makes his or her dissent clear to the other board members by having it appear in the minutes. 
C)  will have dissented if he or she gives a written notice of dissent immediately following the meeting. 
D)  will have dissented if he or she waits for three months after the meeting to bring up dissent.

Question 11

When notice of a special meeting is defective, the defect may be cured if:

Accepted Answer

A)  one non-attending director nominates another person to vote on matters in his or her place. 
B)  all of the directors attend the meeting. 
C)  the attending directors make the decisions for the rest of the board. 
D)  some of the directors attend the meeting. 
A)  one non-attending director nominates another person to vote on matters in his or her place. 
B)  all of the directors attend the meeting. 
C)  the attending directors make the decisions for the rest of the board. 
D)  some of the directors attend the meeting.

Question 12

Which of the following is true of liability for torts and crimes in corporations?

Accepted Answer

A)  If the employee commits a crime or tort while acting outside the scope of employment, the corporation is liable. 
B)  If an employee commits a tort within the scope of employment but outside the office space, the corporation is not liable. 
C)  When a corporate officer did not know of the employee's crime or tort, the officer is still liable. 
D)  When a corporate officer could have prevented an employee's tort but did not, the officer may be liable. 
A)  If the employee commits a crime or tort while acting outside the scope of employment, the corporation is liable. 
B)  If an employee commits a tort within the scope of employment but outside the office space, the corporation is not liable. 
C)  When a corporate officer did not know of the employee's crime or tort, the officer is still liable. 
D)  When a corporate officer could have prevented an employee's tort but did not, the officer may be liable.

Question 13

A corporation is:

Accepted Answer

A)  liable for all torts committed by its retired and ex-employees. 
B)  liable for all torts committed by its employees while acting within the scope of their employment. 
C)  liable for all torts committed by its employees under the doctrine of ultra vires. 
D)  not liable for the torts committed by its employees while acting on the instructions of a high-level manager. 
A)  liable for all torts committed by its retired and ex-employees. 
B)  liable for all torts committed by its employees while acting within the scope of their employment. 
C)  liable for all torts committed by its employees under the doctrine of ultra vires. 
D)  not liable for the torts committed by its employees while acting on the instructions of a high-level manager.

Question 14

Modern courts are less willing to find negligence on the part of corporate directors and officers.

Accepted Answer

A) True 
 B)False

Question 15

With regard to the duty of directors and officers to exercise loyalty and good faith, explain the limitations on self-dealing.

Accepted Answer

Directors and officers are not prohibite

Question 16

A _____ authorizes any corporation to adopt a specific amendment to its articles of incorporation that removes breach of duty as a cause of action for monetary damages against directors.

Accepted Answer

A)  charter option statute 
B)  self-executing statute 
C)  cap on monetary damages statute 
D)  SEC oversight statute 
A)  charter option statute 
B)  self-executing statute 
C)  cap on monetary damages statute 
D)  SEC oversight statute

Question 17

Who are the owners of the corporation?

Accepted Answer

A)  The directors of the board 
B)  The shareholders 
C)  The employees 
D)  The executive officers 
A)  The directors of the board 
B)  The shareholders 
C)  The employees 
D)  The executive officers

Question 18

An officer or director will be found to have discharged her duty of care if she acts in good faith, as would an ordinarily prudent person under like circumstances, and under the reasonable belief that she is acting in the best interests of the corporation.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true of the lawsuits in which minority shareholders complain that they have been unfairly treated by the directors?

Accepted Answer

A)  These suits always involve open corporations. 
B)  Minority shareholders will always win such suits. 
C)  These suits can claim a freeze-out. 
D)  The business judgment rule cannot be applied to such lawsuits. 
A)  These suits always involve open corporations. 
B)  Minority shareholders will always win such suits. 
C)  These suits can claim a freeze-out. 
D)  The business judgment rule cannot be applied to such lawsuits.

Question 20

A _____ is a majority of the number of directors fixed by the articles or bylaws.

Accepted Answer

A)  qualification 
B)  quorum 
C)  referendum 
D)  novation 
A)  qualification 
B)  quorum 
C)  referendum 
D)  novation

Exam 29: Management of the Corporate Business

Directors and officers may be liable to the corporation for failure to act with due care and diligence.

A director who has acted in bad faith or who is found liable to the corporation:

With regard to the duty of directors and officers to act with due care and diligence, what is meant by the "prudent person" standard?

The duty of care requires directors and officers to make a reasonable investigation before making any corporate decisions.

The Model Business Corporation Act (MBCA) standard of care permits directors and officers to rely on the opinions, reports, and statements of persons who reasonably appear to be competent and reliable.

When a corporate manager makes an honest error in judgment, the business judgment rule directs that the manager will:

A director or officer will be held to have failed to act with due care and diligence if he or she:

The vice president of a corporation:

A director:

Under the MBCA, a director:

When notice of a special meeting is defective, the defect may be cured if:

Which of the following is true of liability for torts and crimes in corporations?

A corporation is:

Modern courts are less willing to find negligence on the part of corporate directors and officers.

With regard to the duty of directors and officers to exercise loyalty and good faith, explain the limitations on self-dealing.

A _____ authorizes any corporation to adopt a specific amendment to its articles of incorporation that removes breach of duty as a cause of action for monetary damages against directors.

Who are the owners of the corporation?

An officer or director will be found to have discharged her duty of care if she acts in good faith, as would an ordinarily prudent person under like circumstances, and under the reasonable belief that she is acting in the best interests of the corporation.

Which of the following statements is true of the lawsuits in which minority shareholders complain that they have been unfairly treated by the directors?

A _____ is a majority of the number of directors fixed by the articles or bylaws.

Law, Legal Reasoning, and the Legal Profession

Dispute Settlement

Business Ethics and Corporate Social Responsibility

Business and the Constitution

Crimes

Intentional Torts

Negligence and Strict Liability

Licensing and Intellectual Property

The Nature and Origins of Contracts

Creating a Contract: Offers

Creating a Contract: Acceptances

Consideration

Capacity to Contract

Voluntary Consent

Illegality

The Form and Meaning of Contracts

Third Parties Contract Rights

Performance and Remedies

Formation and Terms of Sales Contracts

Warranties and Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contracts

The Agency Relationship-Creation, Duties, and Termination

Liability of Principals and Agents to Third Parties

Employment Laws

Which Form of Business Organization

Partnerships

Formation and Termination of Corporations

Financing the Corporation and the Role of the Shareholders

Securities Regulation

Legal Liability of Accountants

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Insurance

Negotiable Instruments

Negotiation and Holder in Due Course

Liability of Parties

Checks and Electronic Fund Transfers

Introduction to Security

Security Interests in Personal Property

Bankruptcy

The Antitrust Laws

Consumer Protection Laws

Environmental Regulation

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