CT Bar Business Associations: Formation/Liability 3 — Questions and Answers
Question 1: A limited partnership files its certificate but lists one limited partner as a general partner by mistake. That limited partner unknowingly took part in management. What is her liability exposure?
- None, because she is actually a limited partner
- Unlimited, because she participated in management
- Limited to her capital contribution only
- Unlimited only to creditors who relied on the erroneous certificate (Correct answer)
Correct answer: Unlimited only to creditors who relied on the erroneous certificate
Under the ULPA, a limited partner who participates in management is liable only to creditors who reasonably believed she was a general partner and relied on that belief.
Question 2: Corp A agrees to merge with Corp B. After merger, Corp B is the surviving entity. Which statement is correct?
- Corp A's liabilities are extinguished by the merger
- Corp B assumes only the liabilities Corp A disclosed before closing
- Corp B automatically assumes all of Corp A's liabilities by operation of law (Correct answer)
- Corp A's shareholders are personally liable for undisclosed liabilities
Correct answer: Corp B automatically assumes all of Corp A's liabilities by operation of law
In a statutory merger, the surviving corporation automatically succeeds to all assets and liabilities of the absorbed corporation by operation of law.
Question 3: A Connecticut general partnership dissolves. After paying all partnership debts, a surplus remains. How is the surplus distributed?
- Equally among all partners regardless of capital contributions
- Pro rata based on each partner's percentage of profits
- First to return each partner's capital contribution, then equally unless agreed otherwise (Correct answer)
- To the managing partner first, then equally
Correct answer: First to return each partner's capital contribution, then equally unless agreed otherwise
On dissolution, surplus is distributed first to return capital contributions, then profits are shared according to the partnership agreement or equally by default.
Question 4: An officer of a corporation executes a lease on behalf of the corporation without board authorization, but within the scope of prior similar transactions. The landlord had no knowledge of any limitations. What doctrine protects the landlord?
- Business judgment rule
- Apparent authority / inherent authority (Correct answer)
- Doctrine of ratification
- Ultra vires doctrine
Correct answer: Apparent authority / inherent authority
Apparent or inherent authority protects a third party who reasonably relies on an agent's apparent scope of authority based on the principal's past conduct.
Question 5: A de jure corporation cannot be formed because the incorporators made a good-faith error in the filings. Which doctrine may protect shareholders from personal liability?
- De facto corporation (Correct answer)
- Promoter liability shield
- Respondeat superior
- Ultra vires defense
Correct answer: De facto corporation
The de facto corporation doctrine shields shareholders from liability when they made a good-faith attempt to incorporate under a valid statute and exercised corporate powers.
Question 6: A corporation's sole shareholder guarantees a corporate debt personally. The business then fails. Which statement is TRUE?
- The personal guarantee is void because corporate liability is limited
- The shareholder's personal guarantee is enforceable against him (Correct answer)
- The corporate veil must be pierced before the guarantee is enforceable
- A shareholder guarantee is only valid if approved by the board
Correct answer: The shareholder's personal guarantee is enforceable against him
A personal guarantee is a separate contractual undertaking; it is enforceable against the guarantor independently of the corporate shield.
Question 7: Under Connecticut law, which of the following is required to maintain corporate status in good standing annually?
- Filing an annual report and paying the required fee to the Secretary of the State (Correct answer)
- Holding a board meeting each quarter
- Conducting a shareholder vote on all major contracts
- Publishing the corporation's financials in a local newspaper
Correct answer: Filing an annual report and paying the required fee to the Secretary of the State
Connecticut corporations must file an annual report and pay the associated fee to the Secretary of the State to remain in good standing.
CT Bar Business Associations: Formation/Liability 3
A limited partnership files its certificate but lists one limited partner as a general partner by mistake.
That limited partner unknowingly took part in management.
What is her liability exposure?