CLA/CP Exam Business and Corporate Law 2 — Questions and Answers
Question 1: A shareholder who believes corporate directors have acted fraudulently may bring a lawsuit on behalf of the corporation under which type of action?
- Class action
- Derivative action (Correct answer)
- Direct action
- Declaratory action
Correct answer: Derivative action
A derivative action allows a shareholder to sue on behalf of the corporation when the board fails to act against wrongdoers.
Question 2: Which of the following best describes 'piercing the corporate veil'?
- Dissolving a corporation by court order
- Holding shareholders personally liable for corporate debts (Correct answer)
- Merging two corporations under one charter
- Issuing stock beyond the authorized limit
Correct answer: Holding shareholders personally liable for corporate debts
Courts pierce the corporate veil to hold shareholders liable when the corporate form is used fraudulently or to evade obligations.
Question 3: Under the Uniform Commercial Code, a 'firm offer' made by a merchant to buy or sell goods is irrevocable for up to how long without consideration?
- 30 days
- 3 months (Correct answer)
- 6 months
- 1 year
Correct answer: 3 months
UCC § 2-205 provides that a merchant's signed written firm offer is irrevocable for the stated period, not to exceed three months.
Question 4: Which type of agency relationship is created when a principal leads a third party to believe an agent has authority, even though none was actually granted?
- Expressed authority
- Implied authority
- Apparent authority (Correct answer)
- Ratified authority
Correct answer: Apparent authority
Apparent authority arises from the principal's conduct that causes a third party to reasonably believe the agent is authorized.
Question 5: A corporation's articles of incorporation are filed with which entity?
- The federal Securities and Exchange Commission
- The state where the corporation is incorporated (Correct answer)
- The county clerk in the principal place of business
- The Internal Revenue Service
Correct answer: The state where the corporation is incorporated
Articles of incorporation are a state filing, typically with the Secretary of State of the incorporating state.
Question 6: In partnership law, what is the default rule regarding a partner's liability for partnership debts?
- Limited to the partner's capital contribution
- Joint and several liability for all partnership obligations (Correct answer)
- Liability only for debts incurred after joining
- No personal liability unless personally guaranteed
Correct answer: Joint and several liability for all partnership obligations
General partners face joint and several liability, meaning creditors can pursue any one partner for the full debt.
Question 7: A contract clause that predetermines the amount of damages payable upon breach is called a:
- Penalty clause
- Liquidated damages clause (Correct answer)
- Indemnification clause
- Exculpatory clause
Correct answer: Liquidated damages clause
A liquidated damages clause is enforceable when actual damages are difficult to estimate and the amount is a reasonable forecast of harm.
CLA/CP Exam Business and Corporate Law 2
A shareholder who believes corporate directors have acted fraudulently may bring a lawsuit on behalf of the corporation under which type of action?