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Entity Formation & Corporate Governance Flashcards

7 cards from real ACP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Entity Formation & Corporate Governance flashcards as text

  1. Which document governs the internal operations of a limited liability company in most U.S. states?

    Answer: Operating Agreement

    The Operating Agreement governs the internal management, member rights, and operational rules of an LLC.

  2. A corporation's board of directors owes which primary fiduciary duties to the corporation?

    Answer: Duty of care and duty of loyalty

    Directors owe the duty of care (acting as a reasonably prudent person) and duty of loyalty (putting the corporation's interests first).

  3. What is a 'registered agent' in the context of corporate formation?

    Answer: A person or entity designated to receive official legal and government correspondence on behalf of the entity

    A registered agent has a physical address in the state of formation and accepts service of process and official notices on behalf of the entity.

  4. Under the business judgment rule, courts will generally defer to a board decision if the directors acted with all of the following EXCEPT:

    Answer: In their own personal financial interest

    The business judgment rule protects disinterested directors; a director acting in their own personal financial interest is conflicted and loses the rule's protection.

  5. Which type of corporate merger results in both original entities dissolving and forming a completely new entity?

    Answer: Consolidation

    In a consolidation, two or more corporations combine to form an entirely new entity, and all predecessor corporations cease to exist.

  6. A shareholder derivative suit is brought by a shareholder:

    Answer: On behalf of the corporation to remedy a wrong done to the corporation

    In a derivative suit, a shareholder sues on behalf of the corporation when the board fails to pursue a valid corporate claim.

  7. What is the primary purpose of a stockholders' buy-sell agreement?

    Answer: To control the transfer of ownership interests and provide liquidity mechanisms among owners

    A buy-sell agreement restricts share transfers and establishes how ownership interests are bought and sold when triggering events occur (death, disability, departure).