CGA CGA Business Law & Governance 2 — Questions and Answers
Question 1: What is the legal concept of 'piercing the corporate veil'?
- Disclosing confidential corporate information to regulators
- Holding shareholders personally liable for corporate obligations in cases of abuse (Correct answer)
- Dissolving a corporation through bankruptcy
- Merging two corporations into one entity
Correct answer: Holding shareholders personally liable for corporate obligations in cases of abuse
Piercing the corporate veil occurs when courts hold shareholders personally liable for corporate debts because the corporate form was used improperly or fraudulently.
Question 2: Under corporate governance best practices, what is the recommended composition of an audit committee?
- Composed entirely of executive officers
- Comprised of independent, financially literate outside directors (Correct answer)
- Led by the CFO to ensure financial expertise
- At least half must be company employees
Correct answer: Comprised of independent, financially literate outside directors
Best practices and SOX require audit committees to consist of independent directors who are not company employees, with at least one financial expert.
Question 3: Which of the following is a characteristic of a general partnership under US law?
- Partners have limited liability for partnership debts
- Partners are only liable up to their capital contributions
- Each partner has unlimited personal liability for all partnership obligations (Correct answer)
- The partnership must register with the SEC
Correct answer: Each partner has unlimited personal liability for all partnership obligations
In a general partnership, all partners have unlimited personal liability for the partnership's debts and obligations, unlike limited partners or LLC members.
Question 4: The business judgment rule protects corporate directors from liability when they:
- Act in self-interest when making decisions
- Make informed business decisions in good faith without personal conflict (Correct answer)
- Delegate all decisions to officers without oversight
- Fail to attend board meetings regularly
Correct answer: Make informed business decisions in good faith without personal conflict
The business judgment rule presumes directors acted appropriately if they made decisions in good faith, with adequate information, and without personal interest in the outcome.
Question 5: Which federal law primarily governs employee retirement benefit plans and imposes fiduciary duties on plan administrators?
- FLSA (Fair Labor Standards Act)
- ERISA (Employee Retirement Income Security Act) (Correct answer)
- COBRA (Consolidated Omnibus Budget Reconciliation Act)
- HIPAA (Health Insurance Portability and Accountability Act)
Correct answer: ERISA (Employee Retirement Income Security Act)
ERISA sets minimum standards for pension and benefit plans, requiring plan fiduciaries to act in the best interests of plan participants and beneficiaries.
Question 6: Under contract law, what is 'promissory estoppel'?
- A clause preventing parties from making future promises
- A doctrine enforcing a promise when a party reasonably relied on it to their detriment (Correct answer)
- A requirement to put all promises in writing
- A defense allowing parties to escape unfair contracts
Correct answer: A doctrine enforcing a promise when a party reasonably relied on it to their detriment
Promissory estoppel enforces a promise that lacks formal consideration when the promisee reasonably and detrimentally relied on it.
CGA CGA Business Law & Governance 2
What is the legal concept of 'piercing the corporate veil'?