The Law of Corporations and Other Business Organizations

Chapter Review Questions

1. Where does a committee get its
authority?

Who is ultimately responsible for the acts
of the committee?

2. What are the three types of duties a
director owes to the corporation?

3. If a board of directors, exercising due
care, makes a poor business decision that
results in a substantial financial loss to
the corporation, can the shareholders of
the corporation look to the directors’
personal assets to recover their damages?

What if one director withheld
information from the other directors and
personally benefited from the decision?

4. Suppose that Albert is on the board of
directors of Acme Sailboard Company,
Inc. As the result of a contract dispute,
Acme Sailboard Company, Inc. and
Albert are both named in a lawsuit
brought by one of the company’s
suppliers. If Albert is found at the trial to
be innocent of any wrongdoing, who is
responsible for paying his attorney’s fees
and legal expenses?

What if it is determined at trial that there
has been an illegal conversion of funds
by Albert that resulted in the lawsuit?

5. Can a corporation incorporated under a
state following the MBCA consist of one
individual who is an officer, director, and
shareholder?

6. Must all corporations have a board of
directors?

7. Who typically elects the officers of the
corporation?

8. Under the MBCA, what is the minimum
number of votes required to pass a
resolution of the shareholders if 1,000
shares of the corporation’s stock have
been issued?

9. If the shareholders of a corporation feel
that their stock has lost its value due to the
mismanagement and/or misconduct of the
corporation’s officers and directors, what,
if any, recourse do they have?

10. Who typically benefits when cumulative
voting for the directors of a corporation is
allowed?