CGA CGA Business Law & Governance 1 — Questions and Answers
Question 1: Which element is NOT required for a valid contract under US contract law?
- Offer
- Acceptance
- Consideration
- Written documentation (Correct answer)
Correct answer: Written documentation
Most contracts do not need to be in writing to be valid; the required elements are offer, acceptance, consideration, capacity, and legality.
Question 2: Under the Uniform Commercial Code (UCC), which type of contract primarily governs the sale of goods?
- Service contracts
- Real estate contracts
- Article 2 of the UCC (Correct answer)
- Employment agreements
Correct answer: Article 2 of the UCC
UCC Article 2 governs contracts for the sale of goods (tangible, movable personal property) and provides standardized rules for commercial transactions.
Question 3: What is the primary liability characteristic of a limited liability company (LLC)?
- Members have unlimited personal liability for company debts
- Members' personal assets are generally protected from business liabilities (Correct answer)
- Only the managing member has limited liability
- LLCs have the same liability structure as general partnerships
Correct answer: Members' personal assets are generally protected from business liabilities
LLC members enjoy limited liability, meaning their personal assets are generally shielded from the company's debts and legal obligations.
Question 4: A corporation's board of directors owes shareholders which primary fiduciary duty?
- Duty of confidentiality
- Duty of loyalty and duty of care (Correct answer)
- Duty of disclosure only
- Duty to maximize short-term profits
Correct answer: Duty of loyalty and duty of care
Directors owe shareholders the duty of care (acting with reasonable diligence) and the duty of loyalty (putting shareholders' interests above personal interests).
Question 5: Which of the following transactions would require SEC registration under the Securities Act of 1933?
- A company selling shares only to employees under a Regulation D exemption
- A private company's initial public offering of securities to the public (Correct answer)
- A company repurchasing its own shares on the open market
- A merger between two privately held companies
Correct answer: A private company's initial public offering of securities to the public
The Securities Act of 1933 requires companies to register securities offered to the general public in an IPO, ensuring investors receive material disclosures.
Question 6: Under the Sarbanes-Oxley Act (SOX), which section requires management to assess and report on internal controls over financial reporting?
- Section 201
- Section 302
- Section 404 (Correct answer)
- Section 409
Correct answer: Section 404
SOX Section 404 requires management to include an internal control report in annual filings, and the external auditor must attest to management's assessment.
CGA CGA Business Law & Governance 1
Which element is NOT required for a valid contract under US contract law?