Business Organizations Flashcards
7 cards from real KY BAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Business Organizations flashcards as text
Under the Model Business Corporation Act (MBCA), which of the following best describes the business judgment rule?
Answer: Directors are protected from liability for business decisions made in good faith, on an informed basis, and in the honest belief the action is in the corporation's best interest
The business judgment rule shields directors from liability when they act in good faith, on an informed basis, and in the honest belief that the action serves the corporation's best interest.
A corporation's articles of incorporation must include which of the following under the MBCA?
Answer: The corporation's name, number of authorized shares, and registered agent information
The MBCA requires articles of incorporation to include the corporate name, number of authorized shares, and the name and address of the registered agent.
Which of the following correctly describes 'piercing the corporate veil'?
Answer: Shareholders may be held personally liable when the corporate form is used as an alter ego to perpetuate fraud or injustice
Courts pierce the corporate veil to impose personal liability on shareholders when they use the corporation as an alter ego to perpetuate fraud or injustice, disregarding corporate formalities.
Under the MBCA, a shareholder derivative suit may be brought when:
Answer: The corporation has a valid claim but the board wrongfully refuses or fails to sue on the corporation's behalf
A derivative suit is brought by a shareholder on behalf of the corporation to enforce a corporate right when the board has wrongfully refused to pursue the claim.
Which of the following is NOT a recognized fiduciary duty owed by corporate directors under the MBCA?
Answer: Duty to maximize shareholder profit in every fiscal quarter
Directors owe duties of care, loyalty, and good faith, but there is no legal duty to maximize quarterly profits; directors retain broad discretion in business decisions under the business judgment rule.
After a corporation is formed, it wishes to adopt a contract made by its promoter before incorporation. Which doctrine makes this possible?
Answer: Ratification, whereby the corporation expressly or impliedly adopts the pre-incorporation contract
A corporation may ratify a promoter's pre-incorporation contract after formation, thereby becoming bound by it as if it had been a party from the start.
Which of the following best describes a close corporation?
Answer: A corporation with a small number of shareholders, shares not publicly traded, and often restrictions on share transfers
A close corporation has a small number of shareholders, its shares are not publicly traded, and share transfer restrictions are commonly imposed by the articles or a shareholders' agreement.
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