Corporate Governance Fiduciary Duties & Legal Liability 3

Question 1

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 primarily impose liability on directors and officers for:

Accepted Answer

Fraudulent or misleading statements in connection with the purchase or sale of securities

Answer

Rule 10b-5 is the SEC's primary antifraud rule, prohibiting material misstatements and omissions made in connection with securities transactions.

Question 2

Under Section 16(b) of the Securities Exchange Act, a corporate insider must return to the company any profit made from matching purchases and sales of company stock within:

Accepted Answer

6 months

Answer

Section 16(b) requires disgorgement of 'short-swing profits' from any matched purchase and sale (or sale and purchase) within a six-month period by insiders.

Question 3

Which of the following best describes the concept of 'piercing the corporate veil'?

Accepted Answer

Holding shareholders or parent entities personally liable for corporate obligations by disregarding the corporate form

Answer

Piercing the corporate veil disregards the limited liability protection when the corporate form is abused or used as an alter ego for personal affairs.

Question 4

When a board forms a Special Litigation Committee (SLC) to evaluate a derivative lawsuit, the SLC's primary purpose is to:

Accepted Answer

Independently assess whether pursuing the litigation serves the corporation's best interest

Answer

An SLC of independent directors evaluates whether continuing the derivative suit is in the corporation's best interest, and courts may defer to its reasoned conclusions.

Question 5

A director's fiduciary duties run primarily to:

Accepted Answer

The corporation and its shareholders as a whole

Answer

Directors owe fiduciary duties to the corporation and its shareholders collectively, not to any single constituency that appointed them.

Corporate Governance Practice Test

Corporate Governance Practice Test

Corporate Governance Fiduciary Duties & Legal Liability 3