CLA/CP Exam CLA/CP Business and Corporate Law 1

Question 1

Under the doctrine of piercing the corporate veil, a court is most likely to hold shareholders personally liable when:

Accepted Answer

Shareholders comingle personal and corporate assets and the corporation is used to perpetrate a fraud

Answer

The corporation fails to pay its federal income taxes on time

Answer

The corporation operates with fewer employees than its competitors

Answer

A shareholder personally guarantees a corporate debt

Question 2

A corporate director who approves a transaction in which she has a personal financial interest will be protected from liability if:

Accepted Answer

The director's interest is fully disclosed and the transaction is approved by disinterested directors or shareholders, or the transaction is fair to the corporation

Answer

The transaction is approved by a majority vote of all shareholders regardless of disclosure

Answer

The director recuses herself from the board meeting but takes no other action

Answer

The articles of incorporation contain a general exculpation clause covering all director decisions

Question 3

Which of the following best describes an 'ultra vires' act by a corporation?

Accepted Answer

An act that falls outside the purposes or powers set forth in the corporation's articles of incorporation

Answer

An act that exceeds the authority granted to the board of directors by the shareholders

Answer

An act performed by an officer without board approval that later harms a third party

Answer

An act that violates a state environmental regulation

Question 4

In a member-managed limited liability company (LLC), which of the following statements is generally correct regarding management authority?

Accepted Answer

Each member has apparent authority to bind the LLC in the ordinary course of business

Answer

Only the member with the largest ownership interest may bind the LLC in ordinary business transactions

Answer

A unanimous vote of all members is required before any member may act on behalf of the LLC

Answer

Members may not act as agents of the LLC; only appointed managers may do so

Question 5

When a corporation is voluntarily dissolved, which of the following correctly states the proper priority order for distributing corporate assets?

Accepted Answer

Creditors (secured then unsecured) are paid in full before any distribution is made to shareholders, with preferred shareholders having priority over common shareholders

Answer

Shareholders receive distributions first, then secured creditors, then unsecured creditors

Answer

Secured creditors are paid first, followed by unsecured creditors and preferred shareholders equally, then common shareholders

Answer

All creditors and shareholders share pro rata in the remaining assets regardless of their class

Question 6

Under the Revised Uniform Partnership Act (RUPA), which of the following events will NOT automatically cause the dissociation of a partner from a general partnership?

Accepted Answer

The partnership's primary business asset is sold to a third party

Answer

The partner gives express notice of withdrawal

Answer

The partner is adjudicated incompetent by a court

Answer

The partner dies