CAS Bar Business Associations 5

Question 1

A corporation's board approves a transaction in which the CEO, who is also a director, has a material financial interest. Under California law, this transaction is voidable UNLESS:

Accepted Answer

The CEO disclosed the interest and disinterested directors approved it after full disclosure

Answer

Under California Corporations Code § 310, an interested director transaction is not voidable if the material facts were disclosed and disinterested directors approved it in good faith.

Question 2

In a California general partnership, a partner's transferable interest includes:

Accepted Answer

Only the right to receive distributions of profits and surplus upon dissolution

Answer

Under the California Revised Uniform Partnership Act, a partner's transferable interest is limited to the right to receive distributions; governance rights cannot be transferred to a non-partner.

Question 3

What is the primary legal effect of a corporation's S-election under federal tax law, relevant to the California Bar?

Accepted Answer

Corporate income and losses pass through directly to shareholders, avoiding double taxation

Answer

An S-corporation election causes corporate income, losses, deductions, and credits to pass through to shareholders' personal tax returns, avoiding entity-level federal income tax.

Question 4

Under agency law, a principal is vicariously liable for the torts of an independent contractor when:

Accepted Answer

The work involves inherently dangerous activities or non-delegable duties

Answer

Principals are generally not liable for independent contractors' torts, but exceptions apply for inherently dangerous activities and non-delegable duties imposed by law.

Question 5

ABC Corp. enters into a contract before its incorporation is complete. After incorporation, the board ratifies the contract. The legal effect of ratification is:

Accepted Answer

The corporation becomes bound, but the promoter remains liable unless there is a novation

Answer

Corporate ratification of a pre-incorporation contract binds the corporation, but the promoter remains personally liable until the parties enter a novation substituting the corporation for the promoter.

(CAS Bar) California State Bar Exam Practice Test

(CAS Bar) California State Bar Exam Practice Test

CAS Bar Business Associations 5