MD Bar MD Bar Business Organizations 1 — Questions and Answers
Question 1: Under Maryland law, when does a corporation legally come into existence?
- When the articles of incorporation are accepted for filing by the State Department of Assessments and Taxation (Correct answer)
- When the first shareholder meeting is held
- When the corporate bylaws are adopted
- When the registered agent accepts the appointment
Correct answer: When the articles of incorporation are accepted for filing by the State Department of Assessments and Taxation
A Maryland corporation comes into existence when its articles of incorporation are accepted for filing by the State Department of Assessments and Taxation.
Question 2: Under Maryland corporate law, which statement best describes the 'business judgment rule'?
- Directors are personally liable for any business loss
- Courts will not second-guess directors' business decisions made in good faith on an informed basis (Correct answer)
- Directors must maximize short-term shareholder profits
- A director can ratify any action taken without prior board approval
Correct answer: Courts will not second-guess directors' business decisions made in good faith on an informed basis
The business judgment rule protects directors from liability for good-faith, informed business decisions that prove unfavorable.
Question 3: In Maryland, a limited liability company (LLC) is primarily governed by:
- The Maryland General Corporation Law
- The Maryland Limited Liability Company Act (Correct answer)
- Common law partnership principles
- Federal securities regulations
Correct answer: The Maryland Limited Liability Company Act
Maryland LLCs are governed by the Maryland Limited Liability Company Act, which provides flexible management and liability rules.
Question 4: Under Maryland law, what are the primary fiduciary duties owed by a corporation's directors to shareholders?
- To maximize quarterly earnings at all costs
- Duties of care and loyalty (Correct answer)
- To personally guarantee all corporate debts
- To distribute dividends at least annually
Correct answer: Duties of care and loyalty
Corporate directors owe fiduciary duties of care and loyalty to the corporation and its shareholders.
Question 5: In a Maryland general partnership, which statement is TRUE regarding partner liability?
- Partners have limited liability up to their capital contribution
- Partners are jointly and severally liable for all partnership debts and obligations (Correct answer)
- Only the managing partner bears personal liability
- Partners are not personally liable for torts committed by co-partners
Correct answer: Partners are jointly and severally liable for all partnership debts and obligations
In a general partnership, all partners are jointly and severally liable for all debts and obligations of the partnership.
Question 6: Under Maryland law, which is a distinguishing feature of a limited partnership?
- All partners share equally in management and profits
- General partners enjoy limited personal liability
- Limited partners who actively participate in management may lose their liability protection (Correct answer)
- There must be at least three partners
Correct answer: Limited partners who actively participate in management may lose their liability protection
A limited partner who participates substantially in the control of the partnership's business risks losing liability protection and being treated as a general partner.
MD Bar MD Bar Business Organizations 1
Under Maryland law, when does a corporation legally come into existence?