Business Law, 8e: Chapter 33

Chapter 33
Operation of Business Organization:

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1. Shareholders have indirect control of a corporation by exercising their voting right to elect the board of directors.: a. True
b. False

2. If the individual creditors of a partner cannot collect their debts from the partner, they are allowed to proceed against partnership assets.: a. True
b. False

3. A contract entered into by a partner is not binding on the partnership unless the partner entering the contract had express authority to do so.: a. True
b. False

4. A corporate director may always avoid personal liability by invoking the business judgment rule.: a. True
b. False

5. Mikko is a partner in a partnership. The partnership is involved in computer software development. Because of Mikko's duty of loyalty to the partnership, Mikko cannot open a fast-food restaurant.: a. True
b. False

6. A partner who believes they have been mistreated by a partnership is entitled to a formal accounting.: a. True
b. False

7. Outsiders are directors who are not shareholders or officers of the corporation.: a. True
b. False

8. EXtreme, Inc. solicited proxies from its shareholders. A proxy authorizes someone else to vote in the place of the shareholder.: a. True
b. False

9. Stock whose par value has not been fully paid is referred to as "preemptive" stock.: a. True
b. False

11. A court order that requires a partnership to pay a partner's share of profits to a creditor is called:: a. a garnishment order.
b. a charging order.
c. an allocation order.
d. an accounting.

12. Luke entered into a contract with Dewers and Duke, a CPA firm, to audit ABC, Inc. Luke represented that he was acting on behalf of ABC, Inc. In which of the following instances would ABC most likely be liable on the contract?: a. Luke is the majority shareholder.
b. Luke is an officer of ABC.
c. Luke is an inside director of ABC.
d. Luke is an outside director of ABC.

13. The Business Judgment Rule:: a. absolutely insulates corporate directors from personal liability.
b. applies in tender offer situations only.
c. protects directors from personal liability if they acted in good faith.
d. applies only in states that have passed the Model Act.

14. The concept that existing shareholders have a right to purchase new stock in proportion to their current holdings is called:: a. redemption rights.
b. appropriation rights.
c. preemptive rights.
d. approval rights.

15. Zack, a corporate manager for Exclon, took advantage of a "sweet deal" on an office building for his own personal use. The deal came to Zack's attention because of his position with Exclon. Indeed Exclon was looking for such an office building. After purchasing the building, Zack left the corporation and started his own business. What sort of remedy is a court likely to impose on Zack?: a. Zack may go to prison for his breach of the duty of loyalty.
b. Zack will keep the office building but must find a comparable one for the corporation.
c. Zack may be forced to pay back to the corporation any profits he made from this "sweet deal."
d. None of the above.