New York Law (NYLE) Practice Exam

Which of the following statements about business corporations is false?

1. Shareholders appoint managers for daily operations

2. Board of directors manages the corporation

3. Officers are not necessarily shareholders

4. Shareholders have limited liability

The correct answer is: Shareholders appoint managers for daily operations

In the context of business corporations, the structure of governance is crucial to understand. The statement that shareholders appoint managers for daily operations is misleading. In traditional corporate governance, shareholders elect the board of directors, which is responsible for overseeing the corporation's overall management and making significant decisions. The board, in turn, appoints officers (managers) who handle the daily operations of the corporation. The board of directors is fundamentally tasked with managing the corporation's affairs and making strategic decisions on behalf of the shareholders. They represent the interests of the shareholders but do not directly manage daily operations themselves. This differentiation is key: while shareholders have the power to influence company direction through their voting rights, they do not directly appoint managers; it is the board that navigates this role. The other statements hold true within the framework of corporate law: the board of directors indeed manages the corporation, officers do not need to be shareholders, and shareholders enjoy limited liability as a fundamental principle of corporate law, meaning they are not personally responsible for the corporation’s debts or liabilities beyond their investment in shares. Understanding this structure helps clarify the distribution of power and responsibility within a corporation and highlights the importance of governance mechanisms for effective management.