CLA/CP Exam Business and Corporate Law 3 — Questions and Answers
Question 1: Under federal securities law, which of the following transactions is EXEMPT from registration under Regulation D, Rule 506(b)?
- A public offering to unlimited accredited investors with general solicitation
- A private placement to up to 35 non-accredited sophisticated investors without general solicitation (Correct answer)
- An IPO on the New York Stock Exchange
- A secondary market trade between two retail investors
Correct answer: A private placement to up to 35 non-accredited sophisticated investors without general solicitation
Rule 506(b) exempts offerings to up to 35 non-accredited but sophisticated investors with no general solicitation.
Question 2: Which element is NOT required for a legally binding contract?
- Offer
- Acceptance
- Consideration
- Written form (Correct answer)
Correct answer: Written form
Most contracts are valid without being in writing; the written form is required only for certain contracts under the Statute of Frauds.
Question 3: An LLC member's ownership interest is typically represented by:
- Stock certificates
- Debentures
- Membership units or interests (Correct answer)
- Bonds
Correct answer: Membership units or interests
LLCs issue membership interests or units, not stock certificates, which are specific to corporations.
Question 4: Which doctrine holds that a corporation cannot enter contracts that exceed the powers granted in its articles of incorporation?
- Business judgment rule
- Ultra vires doctrine (Correct answer)
- Respondeat superior
- Promissory estoppel
Correct answer: Ultra vires doctrine
The ultra vires doctrine historically voided contracts beyond a corporation's chartered purposes, though its application has been limited by modern statutes.
Question 5: A covenant not to compete in an employment contract is generally enforceable if it is:
- Of unlimited duration to fully protect the employer
- Reasonable in scope, geography, and time (Correct answer)
- Applied retroactively to past employees
- Drafted solely by the employer without negotiation
Correct answer: Reasonable in scope, geography, and time
Courts enforce non-compete covenants only when they are reasonable in duration, geographic area, and the activity restricted.
Question 6: In a limited partnership, which class of partner has management authority but also faces unlimited personal liability?
- Limited partners
- Silent partners
- General partners (Correct answer)
- Preferred partners
Correct answer: General partners
General partners manage the limited partnership and bear unlimited personal liability for partnership obligations.
Question 7: Which of the following describes a 'proxy' in corporate law?
- A written authorization allowing another person to vote a shareholder's shares (Correct answer)
- A court order forcing a board to hold a meeting
- A corporate officer appointed by the SEC
- A type of preferred stock with no voting rights
Correct answer: A written authorization allowing another person to vote a shareholder's shares
A proxy is a written document by which a shareholder delegates voting authority to another person for a shareholders' meeting.
CLA/CP Exam Business and Corporate Law 3
Under federal securities law, which of the following transactions is EXEMPT from registration under Regulation D, Rule 506(b)?