TBCh21F - CHAPTER 21 Directors, Officers, and Controlling...

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C H A P T E R 2 1 Directors, Officers, and Controlling Shareholders T RUE -F ALSE Q UESTIONS 1. The Securities and Exchange Commission recognizes the affirmative responsibility of officers and directors under federal securities laws to ensure the accuracy and completeness of public company filings with the SEC. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 2. To comply with their duty of loyalty, directors and managers must subordinate their own interests to those of the corporation. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 3. In evaluating a buyout proposal, the directors should consider material nonprice provisions of the proposed agreement. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 4. Officers owe a duty of care to the directors but not to the corporation and its shareholders. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 5. The duty of care includes the duty to make informed decisions. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 6. The business judgment rule protects all decisions made by the board of directors. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 7. Passive reliance on the outside reports of experts in making decisions will usually be protected by the business judgment rule. ANSWER: False SKILL LEVEL: AACSB Analytic 44
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45 MANAGERS AND THE LEGAL ENVIRONMENT OBJECTIVE: AICPA Legal 8. Once a sale or breakup of the corporation is inevitable, directors have a fiduciary duty to obtain the best available price for the shareholders. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 9. Controlling shareholders do not owe any fiduciary duties to other shareholders. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 10. A poison pill is a defensive measure that would make any takeover not approved by the directors prohibitively expensive. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 11. In order to take advantage of the business judgment rule, directors must have made an informed decision and have no conflict of the interest with the corporation. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 12. The line of business test is the most widely used test to determine whether or not an officer or director has taken advantage of a corporate opportunity. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 13. A controlling shareholder has a duty not to transfer the power of management to a purchaser that he knows or has reason to believe will use that power to the detriment of the corporation. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 14. As fiduciaries, directors have a responsibility to exercise reasonable supervision over corporate operations. ANSWER:
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This note was uploaded on 10/18/2011 for the course BUSS 240 taught by Professor Na during the Fall '10 term at Strayer.

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TBCh21F - CHAPTER 21 Directors, Officers, and Controlling...

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