Terms Corp. D, O, and S
A distribution of corporate profits to the corporation’s shareholders in proportion to the number of shares held.
dividend
Genevieve is a member of the board of directors and the chief financial officer of The Shoe Fits, Inc. Under the duty of care that she owes the corporation, Genevieve does not need to:
a. attend board meetings and oversee the corporation's employees and other officers.
b. oversee every aspect of the business, including such things as ordering merchandise and arranging for janitorial services.
c. read reports and other materials to be reasonably informed.
d. attend presentations and make a careful study of business choices before making decisions.
b. oversee every aspect of the business, including such things as ordering merchandise and arranging for janitorial services.
The duty of care requires the officers and directors to act in the best interests of the corporation, to make informed and reasonable decisions, and to exercise reasonable supervision over employees. The duty does not, however, require Genevieve to oversee all aspects of the business, such as ordering merchandise or arranging for janitorial services.
A contractual and statutory process in which two or more corporations join to become a completely new corporation.
consolidation
Muthos Corp. agreed to acquire Arthos, Inc., for $40 per share, and the board of directors of both corporations approved the deal. This transaction is known as:
a. a consolidation.
b. a sole proprietorship.
c. a merger.
d. a purchase of assets.
c. a merger.
A merger is the legal combination of two or more corporations. After a merger, only one of the corporations continues to exist. In this case, Muthos Corp. acquired Arthos, Inc., so that only Muthos Corp. is the surviving legal company.
The number of members of a decision-making body that must be present before business may be transacted.
quorum
Carmen is the vice president for marketing for Nita's Web Design. She also sits on the board of directors. Carmen would be considered:
a. an inside director.
b. an illegal director.
c. an outside director.
d. ineligible to serve on the executive committee.
a. an inside director.
When a corporate officer also serves as a director, that person is an inside director.
A contractual and statutory process in which one corporation (the surviving corporation) acquires all of the assets and liabilities of another corporation.
merger
Clyde & Co. agrees to combine its business assets with Barlow Lyde & Gilbert to form a brand new company known as Barlow, Clyde & Co. This type of transaction is known as:
a. a merger.
b. a share exchange.
c. a purchase of funds.
d. a consolidation.
d. a consolidation.
In a consolidation, two or more corporations combine in such a way that each corporation ceases to exist and a new one emerges. In this case, the two corporations combined to create an entirely new corporation.
The right of a shareholder in a corporation to have the first opportunity to purchase a new issue of that corporation’s stock in proportion to the amount of stock already owned by the shareholder.
preemptive rights
Galen and Leslie are directors, but not officers, of Tropical Travels, Inc. Tropical Travels, Inc., becomes embroiled in a controversy over airline kickbacks. As directors, Galen and Leslie can be named in any lawsuit that may result from the company's actions. If they have any expenses related to the lawsuit, they may be compensated for those under their right of:
a. compensation.
b. inspection.
c. indemnification.
d. participation.
c. indemnification.
Directors have the rights of indemnification, participation, and inspection. Galen and Leslie will take advantage of their right to indemnification in seeking reimbursement for legal costs, fees, and damages incurred.
The formal disbanding of a partnership, corporation, or other business entity.
Dissolution
Mediafax, Inc., and Plexware, Inc., are merging into a single company, Mediafax, Inc., which will continue to exist after the merger is complete. A creditor, Megatron, contacts Mediafax, Inc., regarding payment of a debt that Plexware, Inc., incurred before the merger. In this case, the post-merger Mediafax, Inc., will be:
a. liable for all of Plexware's debts and obligations.
b. not liable for Plexware's debts, unless Plexware had expressly agreed with Megatron beforehand that debts will survive a future merger.
c. liable for Plexware's debts and obligations that have been filed with the secretary of state.
d. not liable for Plexware's debts.
a. liable for all of Plexware's debts and obligations.
After a merger, only one of the corporations continues to exist. The surviving corporation becomes liable for all of the debts and obligations of the acquired corporation, and inherits its preexisting legal rights.
A person on a corporation’s board of directors who is also an officer of the corporation.
inside director
Doug is the vice president of product development for a corporation that makes flavored honey. Doug proposes to the board that they approve three new products: chili-flavored honey, seaweed-flavored honey, and black-licorice honey. Doug and his team have market tested the flavors and they received positive reviews from focus groups. The board approves the flavors, which then fail miserably and cost the company thousands of dollars. If some shareholders sue the board for its decision to market the flavors, the board most likely will:
a. be held responsible because of the business judgment exception.
b. be held responsible for letting such horrible flavors go to market.
c. not be held responsible because of the duty of loyalty.
d. not be held responsible because of the business judgment rule.
d. not be held responsible because of the business judgment rule.
Under the business judgment rule, a corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgment and bad business decisions. The business judgment rule will apply as long as the director or officer took reasonable steps to be informed, had a rational basis for its decision, and was not influenced by any conflict of interest. Because the board relied on the market research, the business judgment rule will apply.
The right of a dissenting shareholder, if he or she objects to an extraordinary transaction of the corporation (such as a merger or consolidation), to have his or her shares appraised and to be paid the fair value of the shares by the corporation.
appraisal right
Solocan, Inc., and Icein, Inc., are planning to merge into a single company, which will be Solocan, Inc. Under the Revised Model Business Corporation Act (RMBCA), the plan must specify any terms of conditions of the merger, as well as receive approval from:
a. the majority of the shareholders of Solocan, Inc.
b. the majority of the shareholders of each corporation at a shareholders' meeting.
c. a plurality of shareholders of each corporation at a shareholders' meeting.
d. the majority of the shareholders of Icein, Inc.
b. the majority of the shareholders of each corporation at a shareholders' meeting.
The majority of the shareholders of each corporation must vote to approve the plan at a shareholders' meeting. Although the RMBCA requires the approval of only a simple majority of shareholders, a corporation's articles of incorporation, bylaws, or state statutes may require more than a simple majority.
A rule under which courts will not hold corporate officers and directors liable for honest mistakes of judgment and bad business decisions that were made in good faith.
business judgment rule
Ruis Corporation, a publicly held corporation, has thirty-five members on its board of directors. In order to conduct business efficiently, the chairman of the board is proposing that five committees be created: the executive committee, the human resources committee, the marketing committee, the research and development committee, and the sales committee. Seven members of the board would serve on each committee and each board member would serve on only one committee. This is:
a. legal, because the board may function as it sees fit within the boundaries of the bylaws.
b. illegal, because the Sarbanes-Oxley Act requires all publicly held corporations to have an audit committee.
c. illegal, because the Sarbanes-Oxley Act requires an international compliance committee.
d. illegal, because the federal law sets a maximum of four board committees per corporation.
b. illegal, because the Sarbanes-Oxley Act requires all publicly held corporations to have an audit committee.
Sarbanes-Oxley requires the board to have an audit committee.
An offer to purchase made by one company directly to the shareholders of another (target) company; often referred to as a “takeover bid.”
tender offer
American Industries, Inc., a manufacturer, agrees to merge with Steel Industries, Inc., one of its major suppliers. The board of directors and shareholders of both companies have agreed to the merger. Sarah, who owns stock in American Industries, does not agree with the merger. She believes the value of her stock will diminish after the merger and she wants out. She is entitled to which of the following?
a. Shareholder rights.
b. Litigation.
c. A re-vote by the shareholders.
d. Appraisal rights.
d. Appraisal rights.
Sarah is entitled to appraisal rights, which gives her a statutory right to be paid the fair value of her shares held on the date of the merger or consolidation.