CAS Bar Business Associations 3

Question 1

Under the California Revised Uniform Limited Liability Company Act (RULLCA), a member of an LLC is generally:

Accepted Answer

Shielded from personal liability for the LLC's debts and obligations

Answer

A core benefit of the LLC form is that members are generally shielded from personal liability for the LLC's debts and obligations, similar to corporate shareholders.

Question 2

In a member-managed California LLC, which members have the authority to bind the LLC to a contract in the ordinary course of business?

Accepted Answer

Any member acting in the ordinary course of the LLC's business

Answer

In a member-managed LLC, each member is an agent of the LLC and may bind it to contracts entered into in the ordinary course of the LLC's business.

Question 3

Under California law, a 'close corporation' election allows qualifying corporations to:

Accepted Answer

Manage the business directly through shareholder agreements without a formal board of directors

Answer

California's close corporation provisions permit qualifying corporations to operate under a shareholders' agreement that manages the business directly, eliminating the requirement for a board of directors.

Question 4

A promoter who enters into a contract on behalf of a corporation not yet formed is:

Accepted Answer

Personally liable on the contract unless the third party agrees to look solely to the corporation

Answer

A promoter is personally liable on pre-incorporation contracts because the corporation does not yet exist as a party; liability continues until a novation substitutes the corporation as the contracting party.

Question 5

Under California corporate law, a board of directors may adopt a 'poison pill' shareholder rights plan as a takeover defense if:

Accepted Answer

The board acts in good faith on an informed basis in the best interest of the corporation and its shareholders

Answer

California courts permit poison pills when the board adopts them in good faith, with adequate information, and in the honest belief that the plan serves the corporation's and shareholders' best interests.

(CAS Bar) California State Bar Exam Practice Test

(CAS Bar) California State Bar Exam Practice Test

CAS Bar Business Associations 3