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

A California corporation is legally formed upon the Secretary of State's filing of the articles of incorporation, not upon execution or later corporate actions.

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

The business judgment rule shields directors who act in good faith, on an informed basis, and in the honest belief that the action is in the corporation's best interest.

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

California courts pierce the corporate veil when the corporation is used to perpetrate fraud or when such unity of interest exists that enforcing separateness would sanction injustice.

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

The duty of loyalty requires directors to disclose any personal conflicts and obtain approval from disinterested directors or shareholders for self-interested transactions.

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

California requires a shareholder to make a written demand on the board to take corrective action, or to plead with particularity why such demand would be futile, before filing a derivative suit.

(CAS Bar) California State Bar Exam Practice Test

(CAS Bar) California State Bar Exam Practice Test

CAS Bar Business Associations 2