CAS Bar Business Associations 2

Question 1

Under the California Corporations Code, a corporation legally comes into existence upon:

Accepted Answer

Filing of the articles of incorporation with the California Secretary of State

Answer

Execution of the articles of incorporation by the incorporators

Answer

Adoption of bylaws by the initial board of directors

Answer

Issuance of shares to the first shareholders

Question 2

The business judgment rule in California corporate law protects directors from liability when they:

Accepted Answer

Make informed, good faith business decisions in the best interest of the corporation

Answer

Have a personal financial interest in the transaction being approved

Answer

Rely solely on management recommendations without independent investigation

Answer

Approve transactions that later result in significant financial loss to the corporation

Question 3

In California, the 'piercing the corporate veil' doctrine permits courts to hold shareholders personally liable when:

Accepted Answer

The corporate form is used to perpetrate fraud or there is such unity of interest that separateness would sanction injustice

Answer

The corporation fails to generate sufficient profits for two consecutive years

Answer

The corporation fails to pay state franchise taxes on time

Answer

Shareholders vote against a proposed merger

Question 4

A director's duty of loyalty under California corporate law primarily requires the director to:

Accepted Answer

Disclose conflicts of interest and obtain approval for self-interested transactions

Answer

Maximize shareholder value in every decision regardless of other considerations

Answer

Attend all board meetings and vote on every matter presented

Answer

Invest personal funds in the corporation to align interests with shareholders

Question 5

Which procedural requirement must generally be satisfied before a shareholder can file a derivative suit in California?

Accepted Answer

The plaintiff must make a demand on the board or demonstrate that demand would be futile

Answer

The plaintiff must own at least 10% of the corporation's outstanding shares

Answer

The lawsuit must be approved by a majority vote of all shareholders at a meeting

Answer

The plaintiff must also hold a position as a director of the corporation

Question 6

Under California cumulative voting rules for director elections, a shareholder with 100 shares voting to fill 3 director seats may:

Accepted Answer

Cast 300 votes allocated in any combination among the candidates

Answer

Cast 100 votes per director seat for a maximum of 300 total votes

Answer

Cast only 1 vote per director seat for a total of 3 votes

Answer

Cast votes only equal to the percentage of shares owned

Question 7

When a California corporation pays an unlawful dividend that exceeds retained earnings, who may be held liable?

Accepted Answer

Directors who approved the dividend and shareholders who received it with knowledge of its unlawfulness

Answer

Only the CEO who authorized the payment to shareholders

Answer

Only the CFO who signed the distribution checks

Answer

The corporation's outside auditors who failed to detect the improper accounting