ACCA Business and Corporate Law 2 — Questions and Answers
Question 1: Under US corporate law, which doctrine holds that courts will not substitute their judgment for that of directors who made informed, good-faith business decisions?
- Piercing the corporate veil
- Business judgment rule (Correct answer)
- Ultra vires doctrine
- Respondeat superior
Correct answer: Business judgment rule
The business judgment rule protects directors from liability for decisions made in good faith, on an informed basis, and in the honest belief they are in the company's best interest.
Question 2: In contract law, which remedy requires the breaching party to perform their contractual obligations rather than pay damages?
- Rescission
- Restitution
- Specific performance (Correct answer)
- Liquidated damages
Correct answer: Specific performance
Specific performance is an equitable remedy that compels the breaching party to fulfill contractual duties, typically granted when monetary damages are inadequate.
Question 3: A corporation's articles of incorporation serve what primary legal function?
- Govern internal relationships between shareholders
- Establish the corporation's existence with the state (Correct answer)
- Set compensation for executive officers
- Define voting procedures for board meetings
Correct answer: Establish the corporation's existence with the state
Articles of incorporation are filed with the state to legally create the corporation and contain basic information such as name, purpose, and share structure.
Question 4: Which type of business organization provides limited liability to all owners while allowing pass-through taxation?
- General partnership
- C-corporation
- Limited liability company (LLC) (Correct answer)
- Sole proprietorship
Correct answer: Limited liability company (LLC)
An LLC combines limited liability protection for all members with pass-through taxation, avoiding the double taxation associated with C-corporations.
Question 5: Under agency law, when does an agent have 'apparent authority' to bind a principal?
- When the agent acts within the express terms of the agency agreement
- When the principal's conduct leads a third party to reasonably believe the agent has authority (Correct answer)
- When the principal later ratifies the agent's unauthorized act
- When the agent acts in an emergency to protect the principal's property
Correct answer: When the principal's conduct leads a third party to reasonably believe the agent has authority
Apparent authority arises when the principal's representations or conduct cause a third party to reasonably believe the agent has authority to act.
Question 6: What legal term describes a contract that appears valid on its face but may be voided by one party due to a defect such as fraud or misrepresentation?
- Void contract
- Voidable contract (Correct answer)
- Unenforceable contract
- Executory contract
Correct answer: Voidable contract
A voidable contract is valid and binding unless the injured party elects to void it due to grounds such as fraud, duress, or misrepresentation.
Question 7: Which shareholder right allows minority shareholders to prevent oppressive majority actions by seeking court-ordered remedies?
- Preemptive right
- Derivative suit (Correct answer)
- Appraisal right
- Right to inspect books
Correct answer: Derivative suit
A derivative suit allows shareholders to sue on behalf of the corporation when directors fail to act, and can also address oppressive majority conduct harming the corporation.
ACCA Business and Corporate Law 2
Under US corporate law, which doctrine holds that courts will not substitute their judgment for that of directors who made informed, good-faith business decisions?