CT Bar Business Associations: Formation/Liability 2 — Questions and Answers
Question 1: A promoter enters a contract on behalf of a corporation not yet formed. After incorporation, the board expressly adopts the contract. Who remains liable?
- The promoter only
- The corporation only
- Both the promoter and the corporation (Correct answer)
- Neither, because adoption releases all parties
Correct answer: Both the promoter and the corporation
Unless the contract expressly releases the promoter, both the promoter and the corporation are liable after adoption; novation requires agreement of all three parties.
Question 2: Under the Connecticut LLC Act, which of the following statements about member liability is correct?
- Members are always personally liable for LLC debts
- Members are personally liable only if they actively manage the LLC
- Members are generally not personally liable for LLC obligations (Correct answer)
- Members are liable up to the amount of their capital contribution
Correct answer: Members are generally not personally liable for LLC obligations
Connecticut LLC members enjoy limited liability and are generally not personally liable for LLC debts simply by virtue of membership.
Question 3: A corporation's articles of incorporation contain an ultra vires provision. A third party seeks to enforce a contract the corporation lacked authority to make. What is the modern majority rule?
- The contract is void and unenforceable
- The state may sue to enjoin the act, but third parties may generally enforce the contract (Correct answer)
- Only shareholders can raise ultra vires as a defense
- Ultra vires is a complete defense available to the corporation
Correct answer: The state may sue to enjoin the act, but third parties may generally enforce the contract
Modern statutes, including Connecticut's, largely abolish ultra vires as a defense against third parties; the state may challenge the act but third parties may enforce it.
Question 4: Two partners operate a general partnership without a written agreement. One partner makes an unauthorized contract binding the partnership for $50,000. Which rule applies?
- The unauthorized partner bears sole liability
- Partners must vote before any contract binds the partnership
- Each partner has apparent authority to bind the partnership in the ordinary course of business (Correct answer)
- A partner's authority requires express written authorization from all other partners
Correct answer: Each partner has apparent authority to bind the partnership in the ordinary course of business
Under the Uniform Partnership Act, each partner is an agent of the partnership and has apparent authority to act in the ordinary course of business.
Question 5: A sole proprietor converts her business to a corporation but continues to operate without observing corporate formalities. A creditor seeks to pierce the corporate veil. Which factor is LEAST relevant?
- Commingling of personal and corporate funds
- Failure to hold annual shareholder meetings
- The corporation's profitability (Correct answer)
- Use of the corporation as an alter ego
Correct answer: The corporation's profitability
Profitability is generally not a veil-piercing factor; courts focus on lack of formalities, commingling, and alter ego use.
Question 6: Under Connecticut law, which document formally creates a corporation upon filing?
- Bylaws
- Shareholders' agreement
- Certificate of incorporation filed with the Secretary of the State (Correct answer)
- Minutes of the organizational meeting
Correct answer: Certificate of incorporation filed with the Secretary of the State
A Connecticut corporation is formed when the Secretary of the State files the certificate of incorporation (articles of incorporation).
Question 7: An LLC operating agreement is silent on a matter. Under the Connecticut Uniform Limited Liability Company Act, what governs?
- The majority vote of members decides
- The default rules of the Connecticut Uniform LLC Act apply (Correct answer)
- The articles of organization control
- Federal law fills the gap
Correct answer: The default rules of the Connecticut Uniform LLC Act apply
When an LLC operating agreement is silent, the default statutory provisions of the Connecticut Uniform LLC Act fill the gap.
CT Bar Business Associations: Formation/Liability 2
A promoter enters a contract on behalf of a corporation not yet formed.
After incorporation, the board expressly adopts the contract.
Who remains liable?