You Have Been Asked by Two Fellow Graduates to Join

question 74

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 true.

• A) As a shareholder, you will have the right to vote for the officers of the corporation.
• B) A shareholder's agreement allows shareholders and not officers to manage the corporation.
• C) If you each take one-third of the first allotment of the shares, you will necessarily be a minority shareholder, and have no voting rights in electing the directors of the corporation.
• 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.

Understand the relationship between profit margin, asset turnover, dividend payout, and growth rate.

Calculate the needed fixed assets for projected sales growth.

Understand the concept of external financing needed for growth and how to calculate it.

Learn the impact of maintaining constant ratios (debt-equity ratio, dividend payout ratio) on firm growth.

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Definitions:

Parol Evidence

A rule that prohibits the admission of oral or extrinsic evidence to contradict, vary, or add to the terms of a written contract.

Assignor

The party in a contract who transfers rights or interests to another, known as the assignee.

Obligee

A contractual party who agreed to receive something from the other party.

Parol Evidence Rule

A legal principle that prevents parties to a written contract from presenting extrinsic evidence of terms that would contradict, modify, or add to the written agreement.