KY Bar Business Organizations 3

Question 1

Under Kentucky law, which document primarily governs the internal affairs of an LLC when the members have not agreed otherwise?

Accepted Answer

The operating agreement, or the Kentucky LLC Act's default rules if no operating agreement addresses the issue

Answer

The articles of organization filed with the Secretary of State

Answer

The corporate bylaws adopted at the first organizational meeting

Answer

The certificate of good standing issued by the state

Question 2

Which of the following is TRUE about corporate bylaws?

Accepted Answer

Bylaws are internal governance documents that regulate the corporation's day-to-day affairs and are subordinate to the articles of incorporation

Answer

Bylaws must be filed with the Secretary of State to become legally effective

Answer

Bylaws supersede the articles of incorporation whenever there is a conflict between the two

Answer

Bylaws require a supermajority shareholder vote to be validly adopted under the MBCA

Question 3

Under the MBCA, which of the following transactions generally requires shareholder approval?

Accepted Answer

A merger in which the surviving corporation must issue shares exceeding 20% of its pre-merger outstanding shares

Answer

Declaration of a routine quarterly dividend by the board of directors

Answer

Appointment of corporate officers by the board of directors

Answer

Hiring of key executive employees at above-market compensation

Question 4

In which of the following situations would a court most likely apply the 'alter ego' doctrine to pierce the corporate veil?

Accepted Answer

A sole shareholder regularly commingles personal and corporate funds, uses corporate assets for personal purposes, and ignores all corporate formalities

Answer

A corporation with many shareholders and regular board meetings fails to declare dividends for two years

Answer

A corporation incurs significant debt while continuing its normal business operations

Answer

A wholly owned subsidiary enters into a contract without explicit board authorization

Question 5

Which of the following best describes the concept of 'ultra vires' in corporate law?

Accepted Answer

An act that exceeds the scope of authority granted to the corporation by its articles of incorporation or applicable statute

Answer

A shareholder's direct lawsuit against the corporation for breach of fiduciary duty

Answer

A director's breach of the duty of care in approving a negligent business decision

Answer

A corporation's failure to pay dividends when earnings are sufficient

Question 6

A partnership agreement is silent on how profits are to be divided among three partners, two of whom contributed 40% and 35% of the capital respectively. Under the UPA default rule, how are profits shared?

Accepted Answer

Equally among all partners, with each receiving one-third regardless of capital contribution

Answer

Proportionally to each partner's capital contribution (40%, 35%, 25%)

Answer

Based on the number of hours each partner works in the business

Answer

At the sole discretion of the partner who contributed the most capital

Question 7

Which of the following is a distinguishing characteristic of a professional corporation (PC) under Kentucky law?

Accepted Answer

Shareholders of a PC may retain limited liability for general corporate obligations but remain personally liable for their own professional malpractice

Answer

Shareholders of a PC have unlimited personal liability for all of the corporation's debts and obligations

Answer

A professional corporation may be formed by any type of business, including retail and manufacturing

Answer

A professional corporation does not need to register with the state or obtain a certificate of authority