ACCA Business and Corporate Law 3 — Questions and Answers
Question 1: Which element distinguishes a public corporation from a close (closely held) corporation?
- A public corporation must be incorporated in Delaware
- A public corporation has shares traded on a public securities exchange (Correct answer)
- A public corporation must have more than 500 shareholders
- A public corporation is owned by a government entity
Correct answer: A public corporation has shares traded on a public securities exchange
A public corporation has shares available for trading on a public stock exchange, while a close corporation's shares are held by a small group and not publicly traded.
Question 2: Under the Uniform Commercial Code (UCC), which article governs the sale of goods in the United States?
- Article 2 (Correct answer)
- Article 3
- Article 7
- Article 9
Correct answer: Article 2
UCC Article 2 governs contracts for the sale of goods, establishing rules for formation, performance, breach, and remedies.
Question 3: What is the primary duty of a corporate director under the duty of loyalty?
- To maximize short-term shareholder profits
- To avoid placing personal interests above the corporation's interests (Correct answer)
- To attend all board meetings without exception
- To prevent the corporation from taking on excessive debt
Correct answer: To avoid placing personal interests above the corporation's interests
The duty of loyalty requires directors to prioritize the corporation's interests over their own and to disclose and abstain from conflicts of interest.
Question 4: In US bankruptcy law, what is the key difference between Chapter 7 and Chapter 11 proceedings?
- Chapter 7 is for individuals only; Chapter 11 is for businesses only
- Chapter 7 involves liquidation; Chapter 11 allows reorganization while continuing operations (Correct answer)
- Chapter 7 requires court approval; Chapter 11 is voluntary only
- Chapter 7 eliminates all debts; Chapter 11 eliminates only secured debts
Correct answer: Chapter 7 involves liquidation; Chapter 11 allows reorganization while continuing operations
Chapter 7 involves liquidating assets to pay creditors, while Chapter 11 allows the debtor to reorganize and continue operating under a court-approved plan.
Question 5: Which legal theory allows plaintiffs to hold a parent corporation liable for the debts of its subsidiary?
- Respondeat superior
- Piercing the corporate veil (Correct answer)
- Successor liability
- Fraudulent conveyance
Correct answer: Piercing the corporate veil
Courts may pierce the corporate veil and impose liability on a parent or shareholders when the subsidiary is used as a mere alter ego or to perpetrate fraud.
Question 6: Under the Securities Act of 1933, what is the primary purpose of the registration requirement for public securities offerings?
- To guarantee investors a minimum rate of return
- To ensure investors receive adequate disclosure of material information (Correct answer)
- To restrict foreign investors from buying US securities
- To set a maximum price for newly issued shares
Correct answer: To ensure investors receive adequate disclosure of material information
The Securities Act of 1933 requires issuers to register securities and provide full disclosure so investors can make informed decisions.
Question 7: What is the legal effect of a corporation's ratification of an agent's previously unauthorized act?
- The act remains void but the agent bears liability
- The corporation becomes bound as if it had authorized the act from the beginning (Correct answer)
- The act is enforceable only against the agent
- The third party may void the contract at their option
Correct answer: The corporation becomes bound as if it had authorized the act from the beginning
Ratification retroactively validates the unauthorized act, binding the principal as if original authority had been granted.
ACCA Business and Corporate Law 3
Which element distinguishes a public corporation from a close (closely held) corporation?