NYLE Business Relationships 2 ā Questions and Answers
Question 1: Under New York law, a general partner who withdraws from a partnership before its term expires is liable for damages caused by the wrongful withdrawal. Which statement best describes the withdrawing partner's continued liability to third parties?
- The partner is immediately released from all liability upon filing a notice of withdrawal with the county clerk.
- The partner remains liable for partnership obligations incurred before withdrawal and those incurred within 90 days after creditors receive notice. (Correct answer)
- The partner's liability ends automatically on the date withdrawal is communicated to the other partners.
- The partner remains personally liable for all future partnership debts for two years after withdrawal.
Correct answer: The partner remains liable for partnership obligations incurred before withdrawal and those incurred within 90 days after creditors receive notice.
Under NY partnership law, a withdrawing partner remains liable for pre-withdrawal obligations and obligations incurred within 90 days after creditors receive actual notice of the withdrawal.
Question 2: Alice and Bob form an LLC in New York. The operating agreement is silent on management. Under the New York LLC Law, which default rule applies?
- The LLC is automatically manager-managed with a board elected by members.
- The LLC is member-managed, with each member having equal rights in management. (Correct answer)
- The member with the largest percentage interest controls all management decisions.
- A court-appointed manager controls the LLC until the members adopt an operating agreement.
Correct answer: The LLC is member-managed, with each member having equal rights in management.
NY LLC Law Ā§ 401 defaults to member-managed operation where each member has equal management rights when the operating agreement does not specify otherwise.
Question 3: Under New York's Business Corporation Law, what is the minimum number of directors required to form a quorum for a board meeting in the absence of a contrary bylaw provision?
- A simple majority of the entire authorized board. (Correct answer)
- One-third of the entire authorized board.
- Two-thirds of the entire authorized board.
- All directors then in office.
Correct answer: A simple majority of the entire authorized board.
BCL Ā§ 707 provides that a majority of the entire board constitutes a quorum unless the certificate of incorporation or bylaws fix a different proportion, but not less than one-third.
Question 4: A New York limited partnership fails to file a certificate of limited partnership. What is the status of a person who invested capital believing they were a limited partner?
- They are treated as a general partner with unlimited personal liability. (Correct answer)
- They have no legal status and their investment is void.
- They retain limited liability as long as they exercise no management control.
- They are automatically converted to a silent partner under equitable principles.
Correct answer: They are treated as a general partner with unlimited personal liability.
Under NY Partnership Law, without a properly filed certificate, the limited partnership does not exist and all partnersāincluding intended limited partnersābear general partnership liability.
Question 5: A New York corporation's shareholder agreement restricts stock transfer without board approval. A shareholder transfers shares in violation of this restriction to a buyer who had actual notice of it. What is the legal effect of the transfer?
- The transfer is void because the buyer had actual notice of the restriction. (Correct answer)
- The transfer is valid because restrictions on alienation are disfavored under NY law.
- The buyer holds the shares subject to the restriction but the transfer is not void.
- The restriction is enforceable only if conspicuously noted on the stock certificate.
Correct answer: The transfer is void because the buyer had actual notice of the restriction.
Under BCL Ā§ 627, a transfer made in violation of a lawful restriction is ineffective against a transferee who has actual knowledge of the restriction.
Question 6: Under the New York LLC Law, when may a member bring a derivative action on behalf of the LLC?
- Any time the member disagrees with a management decision.
- Only after the member holds at least a 25% membership interest.
- After making a demand on the managers or members that was refused or after demonstrating demand futility. (Correct answer)
- Only with court permission obtained before any demand is made on management.
Correct answer: After making a demand on the managers or members that was refused or after demonstrating demand futility.
NY LLC Law Ā§ 1002 requires a member to make a demand on managers or members prior to filing a derivative suit, or to plead with particularity why demand would be futile.
Question 7: Two attorneys form a New York LLP. One partner commits malpractice. Under New York's LLP statutes, what is the other, non-negligent partner's personal liability?
- Jointly and severally liable for all partnership debts including the malpractice claim.
- Not personally liable for the malpractice claim but remains liable for ordinary contract debts of the partnership. (Correct answer)
- Not personally liable for any debts of the partnership whatsoever.
- Liable only up to the amount of that partner's capital contribution.
Correct answer: Not personally liable for the malpractice claim but remains liable for ordinary contract debts of the partnership.
Under NY Partnership Law Ā§ 26, an LLP partner is shielded from personal liability for malpractice of co-partners but retains liability for the partnership's own contractual obligations.
NYLE Business Relationships 2
Under New York law, a general partner who withdraws from a partnership before its term expires is liable for damages caused by the wrongful withdrawal.
Which statement best describes the withdrawing partner's continued liability to third parties?