You Have Been Asked by Two Fellow Graduates to Join

question 108

Multiple Choice

You have been asked by two fellow graduates to join them in incorporating a closely held corporation that would commence a consulting business. One was in your class, so you know him quite well, but the other is graduating from a different school. You have been discussing the law to review the protection it gives you. Read each of the following statements separately and indicate which is False.

• A) As a shareholder, you will have the right to vote for the directors, who in turn will choose the officers.
• B) A shareholder's agreement would lessen any misunderstandings about rights and obligations.
• C) If you each take one-third of the first allotment of the shares, you will necessarily be a minority shareholder.
• D) If you have pre-emptive rights and the directors decide to issue a new allotment of shares, the corporation must offer you a portion of the new issue to allow you to keep your proportional share of the corporation.
• E) If you were voted out as a director by the others, who could show that it was in the best interests of the corporation, you could always sell your shares to any interested buyer without interference from the other directors.

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Definitions:

Fixed Costs

Business expenses that are not affected by changes in the level of production or sales, such as rent and salaries.

Total Variable Costs

The sum of expenses that change directly with the level of output or production volume.

Average Fixed Cost

The total fixed costs of production divided by the number of units produced, indicating cost per unit.

Average Total Costs (ATC)

The total cost of production (fixed plus variable costs) divided by the total quantity of output produced.