Formation of Corporation, Shareholder Bylaws, Public Markets, Corporate Purposes Flashcards
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Innovation, Inc. is a public company traded on the New York Stock Exchange. Brains, the head scientist for Innovation, Inc., had a tremendous breakthrough in the laboratory yesterday that will likely mean a doubling of the company’s profits in the next twelve months. At this moment, only Brains and Innovation’s CEO, Chief, know about this breakthrough. If nothing else has changed, the stock price of Innovation, Inc. should:
A. Rise if the strong version of the efficient capital market theory is correct, but remain flat if only the semi-strong and/or the weak versions are correct.
B. Rise if the semi-strong version of the efficient capital market theory is correct, but remain flat if only the weak version is correct.
C. Rise under every version of the efficient capital market theory.
D. Remain flat under any version of the efficient capital market theory.
A. Rise if the strong version of the efficient capital market theory is correct, but remain flat if only the semi-strong and/or the weak versions are correct.
Institutional Shareholder submitted a shareholder proposal to amend the bylaws to adopt a majority voting requirement for the election of the board of directors that did not permit the board to retain a director who failed to receive an absolute majority of the outstanding votes. On the advice of its general counsel, Corporation’s board properly included the proposal on the company’s proxy form under SEC Rule 14a-8. The proposal received the approval of the majority of Corporation’s outstanding shares. The board took no further action in regard to the proposal. In the next board election, Director did not receive the approval of a majority of Corporation’s outstanding shares. There was no competing slate of directors. Has Director been elected to the board?
A. Yes, because the election of directors is a matter of state law, not federal law.
B. Yes, because the shareholder resolution was not binding on Corporation, since the board makes all corporate decisions.
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C. No, because the shareholders adopted a majority voting requirement.
D. No, because Delaware law requires the approval of a majority of the outstanding shares to elect a director.
C. No, because the shareholders adopted a majority voting requirement.
Shareholder owned 30 shares of Oil, Inc., a Delaware corporation that was publicly traded on the New York Stock Exchange. Oil, Inc. had 10 billion shares outstanding and was then trading for $50/share. A substantial portion of Oil, Inc.’s oil reserves were in the country of Chaotic, a dictatorship that had been experiencing substantial unrest. The dictator of Chaotic oppressed his people terribly. Shareholder was the president of Human Rights, Inc., a nonprofit organization devoted to improving human rights around the world. Shareholder made a formal, written request to Oil, Inc. for access to the company’s list of its shareholders, along with the shareholders’ contact information, in accordance with 8 Del. §220(b). The board of Oil, Inc. refused, stating that Shareholder was requesting the list for the improper purpose of promoting human rights. Shareholder replied that although that was part of his motivation, he also requested the list so that he could warn his fellow shareholders of the business risks of having a high percentage of the company’s oil reserves in a country with an unstable government. Has the board met its burden of proving an improper purpose?
A. No, because promoting human rights is a proper purpose.
B. No, because warning shareholders of a business risk is a proper purpose.
C. Yes, because promoting human rights is not a proper purpose.
D. Yes, because the burden of proof actually falls on Shareholder to prove a proper purpose and Shareholder has not met that burden.
B. No, because warning shareholders of a business risk is a proper purpose.
Rugged, Inc. (“Rugged”) was a closely-held Delaware corporation that sells clothing made for rugged, outdoor use such as hiking. Majority owned 60% of Rugged’s outstanding shares, while Minority owned the remaining 40%. Majority selected all five of Rugged’s board members. Rugged manufactured all its clothing in the United States. A manufacturing company in Nepal approached Rugged’s board and offered to manufacture its clothing for half of Rugged’s current costs. Rugged’s board considered the issue for several days, consulting outside experts in marketing and manufacturing. The board ultimately concluded that it would keep the manufacturing in the United States for two reasons: (1) the board felt it owed a duty to the company’s workers to preserve their jobs, and (2) the board was concerned that the company’s customers would stop buying Rugged’s products if they were made outside the U.S. Minority sued the board in a derivative suit for breach of the directors’ duty of care. Minority’s case is likely to:
A. Succeed, because the purpose of the corporation is to maximize profits for shareholders.
B. Succeed, because the board clearly made the wrong decision for the business.
C. Fail, because Rugged owes a duty to its employees to preserve their jobs.
D. Fail, because the board’s concern about the company’s customers is a valid reason to reject the offer.
D. Fail, because the board’s concern about the company’s customers is a valid reason to reject the offer.
Before hiring Salesman, an experienced car salesman, Car Dealer insisted that Salesman sign a non-compete agreement. The agreement barred Salesman from working for a competing car dealership within five miles of Car Dealer’s car dealership for two years after leaving Car Dealer’s employment. Salesman turned out to be an outstanding car salesman, much better than the average. After working for Car Dealer for ten years, Salesman left to work for a competitor directly across the street. Car Dealer sued under the non-compete agreement. What result is most likely?
A. Salesman will be liable because the non-compete agreement is reasonable in duration and geographic scope.
B. Salesman will be liable because his outstanding skill as a salesman gives Car Dealer a reasonable interest in preventing Salesman from competing.
C. Salesman will not be liable because the non-compete agreement is for an excessively long period of time.
D. Salesman will not be liable because his services were not unique, and Car Dealer invested little in training him.
D. Salesman will not be liable because his services were not unique, and Car Dealer invested little in training him.
