CBB Legal & Regulatory Compliance 2 — Questions and Answers
Question 1: Under the Uniform Commercial Code (UCC), which article primarily governs the sale of business assets such as inventory and equipment?
- Article 2 – Sales (Correct answer)
- Article 4 – Bank Deposits
- Article 7 – Documents of Title
- Article 9 – Secured Transactions
Correct answer: Article 2 – Sales
UCC Article 2 governs the sale of goods, which includes business inventory and equipment transfers.
Question 2: A bulk sale occurs when a business sells a major portion of its inventory outside the ordinary course of business. Which law historically required notice to creditors in such transactions?
- The Sherman Antitrust Act
- The Bulk Sales Act (UCC Article 6) (Correct answer)
- The Securities Exchange Act
- The Fair Debt Collection Practices Act
Correct answer: The Bulk Sales Act (UCC Article 6)
UCC Article 6 (Bulk Sales) historically required buyer notification to seller's creditors to prevent fraudulent asset transfers.
Question 3: When a business broker represents both the buyer and seller in the same transaction, this is known as:
- Subagency
- Dual agency (Correct answer)
- Designated agency
- Transactional brokerage
Correct answer: Dual agency
Dual agency occurs when one broker (or brokerage) represents both parties simultaneously, creating potential conflicts of interest.
Question 4: Which federal agency enforces the Hart-Scott-Rodino (HSR) Act, which requires pre-merger notification for certain large business acquisitions?
- SEC and FINRA jointly
- FTC and DOJ jointly (Correct answer)
- SBA alone
- CFPB alone
Correct answer: FTC and DOJ jointly
The FTC and DOJ Antitrust Division jointly administer HSR pre-merger notification requirements.
Question 5: A seller's promissory note taken back as part of the purchase price is called:
- A subordinated debenture
- Seller financing or seller carryback (Correct answer)
- A balloon mortgage
- An earnest money deposit
Correct answer: Seller financing or seller carryback
Seller financing (carryback) means the seller accepts a promissory note from the buyer rather than all cash at closing.
Question 6: Which document typically outlines the responsibilities of both parties during the due diligence period and is legally binding on confidentiality?
- Letter of Intent (LOI)
- Non-Disclosure Agreement (NDA) (Correct answer)
- Asset Purchase Agreement
- Escrow Agreement
Correct answer: Non-Disclosure Agreement (NDA)
An NDA is a legally binding agreement requiring parties to keep disclosed information confidential during negotiations.
Question 7: A covenant not to compete included in a business sale agreement is enforceable only if it is:
- Unlimited in geographic scope
- Reasonable in scope, duration, and geography (Correct answer)
- Filed with the state attorney general
- Approved by the IRS
Correct answer: Reasonable in scope, duration, and geography
Courts enforce non-compete covenants only when they are reasonable in duration, geographic area, and scope of restricted activity.
CBB Legal & Regulatory Compliance 2
Under the Uniform Commercial Code (UCC), which article primarily governs the sale of business assets such as inventory and equipment?