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Business Law Chapter 17 Study Guide
True/False
Indicate whether the statement is true or false.
1. A corporation's directors meet and vote to set broad polices.
2. A person who owns stock in a corporation has the right to receive a stock
certificate.
3. Under the fairness rule, directors and corporate officers may not exploit
their positions for personal gain at the expense of the corporation.
4. A derivative suit is based on an injury to a shareholder.
5. Unlike partners in a partnerships, directors of a corporation are not subject
to the duty of care or the duty of loyalty.
6. The government can terminate a corporation for failure to pay taxes or file
annual reports.
7. A corporation may not finance its business activities through bonds.
8. People who own preferred stock having voting rights in the corporation.
9. One difference between common and preferred stock is that holders of
common stock are the last to be paid if dividends are declared.
10. A corporation that grants a franchise benefits by expanding its business
without building new stores.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
11. A corporation's financial inability to take advantage of a business
opportunity provides an exception to the
a. business judgment rule.
c. insider trading rule.
b. fairness rule.
d. corporate opportunity doctrine.
12. Unlike corporate stock, corporate bonds earn
a. interest.
c. bonuses.
b. dividends.
d. assets.
13. Which of the following is NOT a right of a shareholder?
a. to receive a stock certificate
b. to receive dividends
c. to exercise a vote for each share owned
d. to run for one of the corporate officer positions
14. The right to vote on behalf of other shareholders is called a
a. permission vote.
c. parliamentary vote.
b. proxy vote.
d. preliminary vote.
15. The rule that presumes the decisions of corporate directors and officers
are legal, made in good faith, and in the best interests of the corporation is
called the
a. business opportunity rule.
c. business judgment rule.
b. non-exploit rule.
d. fairness rule.
16. The dissolution of a corporation can come about
a. by a unanimous vote of the shareholders.
b. by stock acquisition.
c. when a corporate officer dies.
d. when the profits exceed a certain threshold.
17. Profits distributed to the shareholders are called
a. interest.
c. proxies.
b. benefits.
d. dividends.
18. Insider trading is legally considered a(n)
a. felony crime.
c. misdemeanor.
b. tort.
d. intentional tort.
19. Corporations raise money
a. by selling stock.
b. by buying bonds.
c. through asset acquisition.
d. through stock acquisition.
20. Tender offers, or takeover bids, are offers to
a. buy a specific number of bonds at a specific price.
b. buy a specific number of shares at a specific price.
c. sell a specific number of shares at a specific price.
d. sell a specific number of bonds at a specific price.
Completion
Complete each statement.
21. When a corporation makes a profit, they may decide to declare a(n)
____________________ to be distributed to the shareholders.
22. A shareholder's right to purchase stock before it is offered to the public is
known as his or her ____________________.
23. A(n) ____________________ is when a corporation buys the property
and equipment of another corporation.
24. Shareholders may bring a(n) ____________________ against a
corporation if they believe they have been denied their rights as
shareholders.
25. Shareholders may bring a(n) ____________________ on behalf of the
corporation to correct an injury to the corporation.
26. Directors must be reelected by the ____________________.
27. Corporate officers are chosen by the ____________________ of the
corporation.
28. The ____________________ has developed rules regarding insider
trading.
29. When a corporation is first getting started, promoters seek
____________________ from investors.
Matching
Match each term with its definition.
a. insider trading
f.
b. corporate directors
g.
c. corporate officers
h.
d. merger
i.
e. franchise
j.
asset acquisition
direct suit
derivative suit
stock acquisition
consolidation
30. A license that a company grants to a business for the right to use its name
and sell its products or services
31. When one corporation agrees to purchase the property, buildings, and
equipment of another corporation
32. Group of people who implement the policies of the directors by carrying
out the day-to-day operations of the corporation
33. When two or more companies join together and form a new company
34. When an individual or corporation buys enough stock in another
corporation to take over control of it
35. When a corporate officer or director buys or sells shares in a corporation
based on firsthand knowledge about the corporation that the general
public does not know
36. Suit brought against a corporation's management by the shareholders on
behalf of the corporation
37. Suit brought against a corporation by the shareholders if they believe that
they have been deprived of their rights as shareholders
38. Group of people that set the broad policies for the corporation and are
responsible for seeing that the corporation acts within its power
39. When two companies join together and one keeps its identity while the
other loses it
Short Answer
40. Name four shareholder rights.