You Have Been Asked by Two Fellow Graduates to Join

question 111

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) If you have preemptive 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.
• B) As a shareholder, you will have the right to vote for the officers of 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) A shareholder's agreement allows shareholders and not officers to manage 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:

Investment

The allocation of resources (such as capital) to assets with the expectation of generating future profit or income.

Intrinsic Value

The actual value of a company or an asset based on underlying perceptions of its true value including aspects of both tangible and intangible factors.

Present

The current moment in time, often used as a reference point in discussions about time value of money.

Compounding

The process by which an investment generates earnings from previous earnings, leading to the exponential growth of the investment value over time.