Chapter 31-Work Set TRUE-FALSE QUESTIONS 1. Both directors and officers may be i

Question

Chapter 31-Work Set TRUE-FALSE QUESTIONS 1. Both directors and officers may be immunized from liability for poor business decisions under the business judgment rule. 2. Officers have the same fiduciary duties as directors 3. The rights of shareholders are established only in the articles of incorporation. 4. Dividends can be paid in cash or property. s. Damages recovered in a shareholder's derivative suit are normally paid to the shareholder wheo suit. 6. As a general rule, shareholders are not personally responsible for the debts of the corporation. 7. Officers, but not directors, owe a duty of loyalty to the corporation. 8. The business judgment rule makes a director liable for losses to the firm that result from the director's authorized, good faith business decisions. 9. Cumulative voting allows minority shareholders to obtain representation on the board of directors.

Explanation / Answer

1. Both directors and officers may be immunized from liability for poor business decisions under the business judgment rule.

Correct. The business judgment rule states that directors and officers are immune from liability for exercising poor business judgment in certain circumstances (if they acted in good faith).

2. Officers have the same fiduciary duties as directors.

Correct. Officers and directors owe the same fiduciary duties to the corporations for which they work. They both owe a duty of loyalty. This duty requires them to subordinate their personal interests to the welfare of the corporation.

3. The rights of shareholders are established only in the articles of incorporation.

Incorrect

4. Dividends can be paid in cash or property.

Correct

A company may issue a non-monetary dividend to investors, rather than making a cash or stock payment.

5. Damages recovered in a shareholder’s derivative suit are normally paid to the shareholder who brought the suit.

Incorrect

Any damages recovered in a shareholder's derivative suit are normally paid to the corporation on whose behalf the shareholder or shareholders exercised the derivative right.

6. As a general rule, shareholders are not personally responsible for the debts of the corporation. Correct

7. Officers, but not directors, owe a duty of loyalty to the corporation.

Incorrect

Officers and directors owe the same fiduciary duties to the corporations for which they work.

8. The business judgment rule makes a director liable for losses to the firm that result from the director’s authorized good faith business decisions.

Incorrect

9. Cumulative voting allows minority shareholders to obtain representation on the board of directors. Correct

Designed to allow minority shareholders to be represented on the board of directors.

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