CBB Legal & Regulatory Compliance 5

Question 1

Under the Securities Exchange Act, which type of business sale transaction may require the broker to be a registered securities dealer?

Accepted Answer

The sale of corporate stock where the broker receives transaction-based compensation

Answer

When a broker receives transaction-based compensation for facilitating stock sales, they may be required to register as a broker-dealer with FINRA/SEC.

Question 2

A 'holdback' or 'earnout' provision in a purchase agreement is designed to:

Accepted Answer

Link a portion of the purchase price to the business's future performance

Answer

An earnout ties deferred purchase price payments to whether the business achieves agreed-upon revenue or profit targets after closing.

Question 3

Which federal law governs the transfer of benefit plans such as 401(k) plans when a business is acquired, requiring specific notifications to plan participants?

Accepted Answer

ERISA (Employee Retirement Income Security Act)

Answer

ERISA governs employee benefit plan requirements and mandates specific participant notifications and plan treatment decisions in mergers and acquisitions.

Question 4

A business broker who fails to disclose a known material defect of the business to a buyer could face liability for:

Accepted Answer

Breach of fiduciary duty to the buyer and fraudulent misrepresentation

Answer

Knowingly concealing material defects exposes a broker to fraud claims and breach of the duty of honest dealing owed to all parties.

Question 5

When a franchise business is sold, the franchisor typically has the right to:

Accepted Answer

Approve or reject the proposed new franchisee buyer

Answer

Most franchise agreements grant the franchisor the right of approval over any new franchisee, including requiring the buyer to meet training and financial standards.

(CBB) Certified Business Brokers Practice Test

(CBB) Certified Business Brokers Practice Test

CBB Legal & Regulatory Compliance 5