CO Bar CO Bar Business Organizations 2 — Questions and Answers
Question 1: Under Colorado agency law, an agent acting with apparent authority binds the principal when:
- The agent subjectively believes they have authority
- The principal's conduct causes a third party to reasonably believe the agent has authority (Correct answer)
- The agent has a written contract with the third party
- The principal later ratifies the agent's act
Correct answer: The principal's conduct causes a third party to reasonably believe the agent has authority
Apparent authority arises when the principal's conduct or representations cause a third party to reasonably and justifiably believe that the agent has authority to act.
Question 2: In Colorado, a general partner in a limited partnership is personally liable for partnership debts, while limited partners:
- Are always personally liable for all debts
- Are personally liable only for debts they personally guarantee
- Have liability limited to their capital contribution so long as they do not participate in management beyond safe harbors (Correct answer)
- Have no liability whatsoever under any circumstances
Correct answer: Have liability limited to their capital contribution so long as they do not participate in management beyond safe harbors
Limited partners' personal liability is capped at their investment contribution, provided they do not participate in management control beyond the safe harbors defined by the Colorado Uniform Limited Partnership Act.
Question 3: Under the Colorado Business Corporation Act, cumulative voting for directors, if permitted, allows minority shareholders to:
- Vote their shares multiple times per election
- Multiply their shares by the number of directors being elected and concentrate all votes on one candidate (Correct answer)
- Require a supermajority to elect any director
- Elect directors only from a pre-approved slate
Correct answer: Multiply their shares by the number of directors being elected and concentrate all votes on one candidate
Cumulative voting allows shareholders to multiply their shares by the number of director seats up for election and cast all resulting votes for a single candidate, giving minority shareholders a better chance of electing a director.
Question 4: A shareholder derivative suit in Colorado is brought by a shareholder:
- To enforce the shareholder's personal claims against the corporation
- On behalf of the corporation to enforce corporate rights when the board wrongfully refuses to act (Correct answer)
- To dissolve the corporation involuntarily
- To obtain a dividend the board refused to declare
Correct answer: On behalf of the corporation to enforce corporate rights when the board wrongfully refuses to act
In a derivative suit, a shareholder sues on behalf of the corporation to enforce the corporation's legal rights when those controlling the corporation have wrongfully refused to do so.
Question 5: Under Colorado law, a statutory merger requires approval by:
- Only the board of directors of each merging entity
- A majority of the board and a majority of outstanding shares of each merging entity, absent a higher threshold in articles (Correct answer)
- A supermajority of creditors
- The Colorado Secretary of State prior to board vote
Correct answer: A majority of the board and a majority of outstanding shares of each merging entity, absent a higher threshold in articles
A statutory merger in Colorado generally requires approval by the board of directors and a majority of the outstanding shares of each merging corporation, unless a higher approval threshold is specified in the articles.
Question 6: In Colorado, a director's duty of loyalty prohibits the director from:
- Making business decisions that turn out to be unprofitable
- Usurping a business opportunity that belongs to the corporation without disclosure and approval (Correct answer)
- Taking a salary from the corporation
- Hiring a relative as an employee at fair market wages
Correct answer: Usurping a business opportunity that belongs to the corporation without disclosure and approval
The duty of loyalty requires directors to act in the corporation's best interest; usurping a corporate opportunity for personal benefit without disclosure and disinterested approval is a classic breach.
CO Bar CO Bar Business Organizations 2
Under Colorado agency law, an agent acting with apparent authority binds the principal when: