NYLE Business Relationships 5

Question 1

A New York LLC member transferred her membership interest to a third party without obtaining the consent required by the operating agreement. What rights does the transferee obtain?

Accepted Answer

Only the economic rights (distributions and allocation of profits/losses) but not membership rights.

Answer

Under NY LLC Law § 603, an unauthorized transfer conveys only the transferor's economic interest; the transferee does not become a member and has no voting or management rights.

Question 2

Under the New York Business Corporation Law, which statement correctly describes the appraisal right (right of dissent) available to shareholders?

Accepted Answer

It allows dissenting shareholders to compel the corporation to buy their shares at fair value in specified transactions such as mergers.

Answer

BCL §§ 623–624 grant shareholders who dissent from certain extraordinary transactions (e.g., mergers) the right to have their shares appraised and purchased at fair value.

Question 3

Two members of a New York two-member LLC have a complete deadlock on every management decision. Which remedy is most likely available under New York law?

Accepted Answer

Judicial dissolution under NY LLC Law § 702 because it is not reasonably practicable to carry on business.

Answer

A complete and irresolvable deadlock between equal members renders it not reasonably practicable to carry on the LLC's business, satisfying the standard for judicial dissolution under NY LLC Law § 702.

Question 4

A New York limited liability company's articles of organization state that the LLC's purpose is 'to operate retail clothing stores.' The LLC's manager instead invests all funds in real estate. Under the ultra vires doctrine as applied to LLCs in New York, the investment is:

Accepted Answer

Voidable by members in equity, and the manager may face personal liability for breach of fiduciary duty.

Answer

While NY has greatly limited the ultra vires doctrine, members may seek equitable relief against acts outside the LLC's stated purpose, and the manager may be liable for breach of the duty of loyalty.

Question 5

A New York corporation's board adopts a poison pill (shareholder rights plan) without shareholder approval to defend against a hostile takeover. Under New York law, the pill is:

Accepted Answer

Presumptively valid as a board-authorized measure reviewed under the business judgment rule.

Answer

New York courts apply the business judgment rule to board-adopted rights plans, presuming validity when directors acted in good faith to protect the corporation from a perceived threat.

NYLE - New York Law Exam Practice Test

NYLE - New York Law Exam Practice Test

NYLE Business Relationships 5