CLA/CP Exam CLA/CP Business and Corporate Law Questions and Answers 3

Question 1

Under the doctrine of ultra vires, what happens when a corporation acts beyond the scope of its stated corporate purposes?

Accepted Answer

Modern statutes generally allow shareholders, the corporation, or the state to challenge the act

Answer

The action is automatically void and unenforceable

Answer

Only creditors may challenge the action

Answer

The board of directors is personally liable for all damages

Question 2

Which type of business entity provides pass-through taxation while also offering limited liability to all of its owners?

Accepted Answer

Limited liability company (LLC)

Answer

C corporation

Answer

General partnership

Answer

Sole proprietorship

Question 3

What is the primary purpose of a corporate resolution?

Accepted Answer

To formally document decisions made by the board of directors or shareholders

Answer

To terminate the corporation's existence

Answer

To file the corporation's annual tax return

Answer

To register the corporation in a new state

Question 4

In a merger, what generally happens to the liabilities of the absorbed corporation?

Accepted Answer

The surviving corporation assumes the liabilities of the absorbed corporation

Answer

All liabilities are automatically discharged

Answer

Liabilities transfer to the shareholders of the absorbed corporation

Answer

Liabilities are split equally between both corporations

Question 5

Which remedy allows a minority shareholder to bring a lawsuit on behalf of the corporation when the board of directors refuses to act?

Accepted Answer

Derivative action

Answer

Class action lawsuit

Answer

Direct action

Answer

Interpleader

Question 6

What is the legal significance of piercing the corporate veil?

Accepted Answer

It permits courts to hold shareholders personally liable for corporate obligations

Answer

It allows a corporation to issue additional shares of stock

Answer

It enables a corporation to merge with another entity

Answer

It protects directors from personal liability in all circumstances