b. Web only.
c. Trent only.
d. Mill and Web only.
e. Mill and Trent only.
f. Web and Trent only.
g. Mill, Web, and Trent.
h. Neither Mill, Web, nor Trent.
i. All directors.
j. Sack Corp.
NUMBER 2
Drain Corp. has two classes of stock: 100,000 shares of authorized, issued, and outstanding voting common stock;
and 10,000 shares of authorized, issued and outstanding nonvoting 5% cumulative, nonparticipating preferred stock with a face value of $100 per share. In 1994, Drain’s officers and directors intentionally allowed pollutants to be discharged by Drain’s processing plant. These actions resulted in Drain having to pay penalties. Solely as a result of these penalties, no dividends were declared for the years ended December 31, 1994 and December 31, 1995. The total amount Drain paid in penalties was $1,000,000. In 1995, Drain was able to recover the full amount of the penalties from an insurance company that had issued Drain a business liability policy. Drain’s directors refused to use this money to declare a dividend and decided to hold the $1,000,000 in a special fund to pay future bonuses to officers and directors.
Required:
Items 1 through 6 refer to the above fact pattern. For each item, select the correct answer that completes the statement.
1. The actions by Drain’s officers and directors in allowing pollutants to be discharged generally would be considered a violation of the
2. A stockholder’s derivative suit, if successful, probably would result in the officers and directors being 3. A stockholder’s derivative suit, if successful, probably would result in the $1,000,000 being considered 4. If the $1,000,000 was distributed to the stockholders in 1995, the distribution would be characterized as a 5. If the $1,000,000 was distributed in 1995, each share of the 5% cumulative preferred stock would receive 6. If the $1,000,000 was distributed in 1995, each share of voting common stock would receive
A. Available for distribution as a dividend I. Liable to the corporation for $1,000,000 B. Fiduciary duty to prevent losses J. Property dividend
C. Cash dividend K. Stock dividend
D. Fiduciary duty of care L. Surplus or earnings held for expansion
E. Fiduciary duty of loyalty M. $ 5.00
F. Illegal dividend N. $ 9.00
G. Immune from liability O. $10.00
H. Liable for abuse of discretion P. $18.00
2Q-10
NUMBER 3
In 1990, Amber Corp., a closely-held corporation, was formed by Adams, Frank, and Berg as incorporators and stockholders. Adams, Frank, and Berg executed a written voting agreement which provided that they would vote for each other as directors and officers. In 1994, stock in the corporation was offered to the public. This resulted in an additional 300 stockholders. After the offering, Adams holds 25%, Frank holds 15%, and Berg holds 15% of all issued and outstanding stock. Adams, Frank, and Berg have been directors and officers of the corporation since the corporation was formed. Regular meetings of the board of directors and annual stockholders meetings have been held.
Required:
Items 1 through 6 refer to the formation of Amber corp. and the rights and duties of its stockholders, directors, and officers. For each item, determine whether (a), (b), or (c) is correct.
1.
a. Amber Corp. must be formed under a state’s general corporation statute.
b. Amber Corp.'s Articles of Incorporation must include the names of all stockholders.
c. Amber Corp. must include its corporate bylaws in the incorporation documents filed with the state.
2. Amber Corp.'s initial bylaws ordinarily would be adopted by its a. Stockholders.
b. Officers.
c. Directors.
3. Amber Corp.'s directors are elected by its a. Officers.
b. Outgoing directors.
c. Stockholders.
4. Amber Corp.'s officers ordinarily would be elected by its a. Stockholders.
b. Directors.
c. Outgoing officers.
5. Amber Corp.'s day-to-day business ordinarily would be operated by its a. Directors.
b. Stockholders.
c. Officers.
6.
a. Adams, Frank, and Berg must be elected as directors because they own 55% of the issued and outstanding stock.
b. Adams, Frank, and Berg must always be elected as officers because they own 55% of the issued and outstanding stock.
c. Adams, Frank, and Berg must always vote for each other as directors because they have a voting agreement.
NUMBER 4
Edwards, a director and a 10% stockholder in National Corp., is dissatisfied with the way National’s officers, particularly Olsen, the president, have been operating the corporation. Edwards has made many suggestions that have been rejected by the board of directors, and has made several unsuccessful attempts to have Olsen removed as president.
National and Grand Corp. had been negotiating a merger that Edwards has adamantly opposed. Edwards has blamed Olsen for initiating the negotiation and has urged the board to fire Olsen. National’s board refused to fire Olsen. In an attempt to defeat the merger, Edwards approached Jenkins, the president of Queen Corp., and contracted for Queen to purchase several of National’s assets. Jenkins knew Edwards was a National director, but had never done business with National. When National learned of the contract, it notified Queen that the contract was invalid.
Edwards filed an objection to the merger before the stockholders’ meeting called to consider the merger proposal was held. At the meeting, Edwards voted against the merger proposal.
Despite Edwards’ efforts, the merger was approved by both corporations. Edwards then orally demanded that National purchase Edwards’ stock, citing the dissenters rights provision of the corporation’s by-laws, which reflects the Model Business Corporation Act.
National’s board has claimed National does not have to purchase Edwards’ stock.
As a result of the above:
Edwards initiated a minority stockholder’s action to have Olsen removed as president and to force National to purchase Edwards’ stock.
Queen sued National to enforce the contract and/or collect damages.
Queen sued Edwards to collect damages.
Required:
Answer the following questions and give the reasons for your answers.
a. Will Edwards be successful in a lawsuit to have Olsen removed as president?
b. Will Edwards be successful in a lawsuit to have National purchase the stock?
c. 1. Will Queen be successful in a lawsuit against National?
2. Will Queen be successful in a lawsuit against Edwards?
NUMBER 5
On May 12, 1987, West purchased 6% of Ace Corp.’s outstanding $3 cumulative preferred stock and 7% of Ace’s outstanding common stock. These are the only two classes of stock authorized by Ace’s charter. Both classes of stock are traded on a national stock exchange. Ace uses the calendar year for financial reporting purposes.
During 1987 and 1988, Ace neither declared dividends nor recorded dividends in arrears as a liability on its books.
West was disturbed about this and, on February 8, 1989, sent a written demand to examine Ace’s books and records to determine Ace’s financial condition. Ace has refused to permit West to examine its books and records.
As a result of the foregoing, West has made the following assertions:
Ace should have recorded the dividends in arrears for 1987 and 1988 as a liability that, in effect, would treat West as a general creditor to the extent of the dividends in arrears.
West is entitled to examine Ace’s books and records.
Required: In separate paragraphs, discuss West’s assertions. Indicate whether such assertions are correct and the reasons therefor. Do not consider securities laws.
2Q-12
NUMBER 6
Walsh is evaluating two different investment opportunities. One requires an investment of $100,000 to become a limited partner in a limited partnership that owns a shopping center. The other requires an investment of $100,000 to purchase 3% of the voting common stock of a corporation engaged in manufacturing. Walsh is uncertain about the advantages and disadvantages of being a limited partner versus being a shareholder. The issues of most concern to Walsh are:
The right to transfer a limited partnership interest versus shares of stock.
The liability as a limited partner versus that of a shareholder for debts incurred by a limited partnership or a corporation.
The right of a limited partner versus that of a shareholder to participate in daily management.
The right of a limited partner to receive partnership profits versus the right of a shareholder to receive dividends from a corporation.
Required:
Briefly identify and discuss the basic differences and similarities in the formation of a limited partnership and a corporation. Discuss in separate paragraphs the issues raised by Walsh. (Ignore tax and securities laws.)
NUMBER 7
Cox is a disgruntled shareholder of Hall, Inc. She has owned 6% of the voting stock for several years. Hall is a corporation with 425 shareholders. However, the members of the Hall family own 65% of the corporate stock, dominate the board, and are the principal officers of the corporation. There is one minority board member. Recently, there have been major changes in Hall’s board and its officers as the older generation of the family has relinquished the management in favor of the next generation of Halls. It is the action of this new board and management that has caused Cox to contemplate taking drastic action against the current board and officers.
Specifically, she objects to the following:
The board has drastically cut the dividend payments on the common stock. The board’s explanation is that additional funds for expansion or acquisitions are critical for the growth of the corporation. The earnings have been increasing at a rate of 10% per year during this period. Cox claims that the real reason for the dividend cut is to force minority shareholders such as herself to sell. This claim is based on conjecture on her part. Cox is considering an action against the board to compel reinstatement of the prior dividend payout.
The board also decided to sell 5,000 shares of treasury stock at $10 a share to raise additional capital. The stock in question had originally been sold at $16 a share and had a $12 par value. It was reacquired at $13 per share.
Cox first alleges that the corporation is prohibited from acquiring its own shares without specific authorization in the articles of incorporation. The articles of incorporation are silent on this matter. Cox also asserts that the corporation is prohibited from selling the shares at a price less than par.
Substantial salaries are paid to the officers of the corporation. Salaries of the newcomers have been increased at an annual rate of 10%, which is far in excess of raises voted by the old board. Cox has evidence to show that the corporation’s salary scale has risen from the top 50% to the top 33-1/3% of salaries paid by similar corporations in the industry. Cox asserts that based upon the recipients’ ages, experience and contribution to the corporation, they are so grossly overpaid that the payments constitute a waste of corporate assets. Cox demands that the salary increases be repaid.
The board has become factionalized because of hostility within the Hall family. Cox claims that this acrimony has generated useless debate and bickering and is counterproductive to the continued success of Hall, Inc. The majority has threatened to oust the opposition at the next election of the board. Cox claims that all of these actions are seriously impairing the effective management of the corporation and she is contemplating seeking a court-ordered dissolution of Hall.
Required: Answer the following, setting forth reasons for any conclusions stated.
Discuss the merits of each of the above claims and indicate the probable outcome of any court action taken by Cox personally or taken by her for and on behalf of the corporation.