Boards of Directors May Be Legally Restricted in Their Declaration

question 26

Multiple Choice

Boards of directors may be legally restricted in their declaration of dividends if:

• A) cash must be borrowed for the dividend payment.
• B) dividends have increased substantially over a short period of time.
• C) the dividend would create a situation of insolvency.
• D) the stock is selling at a low relative price.

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Definitions:

Implied Warranty

A legal assurance that goods or services meet a minimum level of quality, irrespective of whether it has been explicitly stated.

Merchantability

A warranty implied by law that goods sold by a merchant are fit for the general purpose for which they are sold.

Remedy Limitation

Restrictions or caps placed on the type or amount of compensation that can be received in a legal claim or lawsuit.

Unconscionable

A term describing actions or terms that are so unjust or overwhelmingly one-sided in favor of the party who has the superior bargaining power.