KY Bar Business Organizations

Question 1

Under the Model Business Corporation Act (MBCA), which of the following best describes the business judgment rule?

Accepted 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

Answer

Directors are personally liable for any business decision that results in a loss to the corporation

Answer

Directors must obtain shareholder approval for all major business decisions

Answer

Directors are immune from any liability regardless of how decisions are made

Question 2

A corporation's articles of incorporation must include which of the following under the MBCA?

Accepted Answer

The corporation's name, number of authorized shares, and registered agent information

Answer

The names and addresses of all shareholders

Answer

The corporation's annual financial projections

Answer

The salary structure for all corporate officers

Question 3

Which of the following correctly describes 'piercing the corporate veil'?

Accepted Answer

Shareholders may be held personally liable when the corporate form is used as an alter ego to perpetuate fraud or injustice

Answer

A creditor can always hold shareholders personally liable for corporate debts

Answer

Officers are personally liable for all torts committed during the scope of their employment

Answer

Directors are liable for corporate debts whenever the corporation becomes insolvent

Question 4

Under the MBCA, a shareholder derivative suit may be brought when:

Accepted Answer

The corporation has a valid claim but the board wrongfully refuses or fails to sue on the corporation's behalf

Answer

A shareholder directly suffers personal harm from a corporate officer's actions

Answer

A shareholder simply disagrees with a business decision made by the board

Answer

A majority shareholder wishes to force a minority shareholder to sell their shares

Question 5

Which of the following is NOT a recognized fiduciary duty owed by corporate directors under the MBCA?

Accepted Answer

Duty to maximize shareholder profit in every fiscal quarter

Answer

Duty of care

Answer

Duty of loyalty

Answer

Duty to act in good faith

Question 6

After a corporation is formed, it wishes to adopt a contract made by its promoter before incorporation. Which doctrine makes this possible?

Accepted Answer

Ratification, whereby the corporation expressly or impliedly adopts the pre-incorporation contract

Answer

Promissory estoppel, preventing the promoter from denying the corporation's rights

Answer

Ultra vires, expanding the corporation's authority beyond its articles

Answer

Respondeat superior, making the corporation liable for its agent's prior acts

Question 7

Which of the following best describes a close corporation?

Accepted Answer

A corporation with a small number of shareholders, shares not publicly traded, and often restrictions on share transfers

Answer

A corporation with shares publicly traded on a national stock exchange

Answer

A nonprofit corporation subject to close regulatory oversight by the state

Answer

A foreign corporation granted authority to do business in Kentucky