NYLE NY Business Relationships 2 — Questions and Answers
Question 1: Under New York's Business Corporation Law (BCL), what is the minimum number of directors required for a corporation?
- One (Correct answer)
- Three
- Two
- Five
Correct answer: One
BCL § 702 allows a New York corporation to have as few as one director.
Under BCL § 702(a), a corporation's board of directors must consist of one or more members. The number is fixed by the certificate of incorporation or bylaws. Prior law required at least three directors, but amendments to the BCL eliminated this minimum. A single-shareholder corporation may have a single director. The board manages the business and affairs of the corporation, with authority to delegate to officers and committees.
Question 2: In New York, a limited liability company (LLC) is formed by filing what document with the Department of State?
- Articles of Organization (Correct answer)
- Certificate of Incorporation
- Partnership Agreement
- Operating Agreement
Correct answer: Articles of Organization
Under NY LLC Law § 203, an LLC is formed by filing Articles of Organization with the Secretary of State.
Under NY Limited Liability Company Law § 203, an LLC is formed by filing Articles of Organization with the NY Department of State. The Articles must include the LLC's name, county of office, designation of the Secretary of State as agent for service of process, and an address for forwarding process. The Operating Agreement is the internal governance document agreed upon by members but is not filed with the state. New York also requires publication of formation in two newspapers within 120 days (LLC Law § 206).
Question 3: Under New York's Partnership Law, which type of partner in a limited partnership has personal liability for partnership debts?
- General partners (Correct answer)
- Limited partners
- Both general and limited partners equally
- Neither; the partnership entity alone is liable
Correct answer: General partners
In a limited partnership, general partners have unlimited personal liability for partnership debts, while limited partners' liability is limited to their investment.
Under New York's Revised Limited Partnership Act (Partnership Law Article 8-A), general partners manage the partnership and have joint and several personal liability for all partnership obligations. Limited partners contribute capital and share in profits but do not participate in management. Their liability is limited to their capital contribution, provided they do not take part in the control of the business. If a limited partner participates in management, they may lose their liability protection.
Question 4: Under the BCL, a shareholder's derivative action requires the plaintiff to first do what?
- Make a demand on the board of directors to take action, or show that demand would be futile (Correct answer)
- Obtain approval from a majority of shareholders
- Post a bond equal to the potential judgment
- File a complaint with the NY Attorney General
Correct answer: Make a demand on the board of directors to take action, or show that demand would be futile
BCL § 626(c) requires a derivative plaintiff to make a demand on the board or demonstrate that demand would be futile before filing suit.
Under BCL § 626(c), before bringing a derivative action, a shareholder must make a demand on the board of directors requesting that they take the action sought, unless such demand would be futile. Demand futility exists when a majority of the board is interested in the transaction or the challenged conduct is not protected by the business judgment rule. The plaintiff must also be a shareholder at the time of the complained-of transaction and continuously through the litigation (the contemporaneous ownership requirement under BCL § 626(b)).
Question 5: Under New York law, what is the fiduciary duty owed by an agent to a principal?
- A duty of loyalty, obedience, and reasonable care (Correct answer)
- Only a duty to complete assigned tasks
- A duty limited to avoiding criminal conduct
- No fiduciary duty unless expressly stated in the contract
Correct answer: A duty of loyalty, obedience, and reasonable care
Under New York agency law, an agent owes the principal fiduciary duties of loyalty, obedience, and reasonable care in performing agency duties.
Under New York common law, the principal-agent relationship is fiduciary in nature. The agent owes duties of (1) loyalty — acting in the principal's interest, avoiding conflicts, not self-dealing; (2) obedience — following the principal's lawful instructions; and (3) reasonable care — performing duties with the skill and diligence expected. The agent must also account for all property and money received on the principal's behalf. Breach of fiduciary duty may result in disgorgement of profits, damages, or rescission of transactions.
Question 6: New York's publication requirement for LLCs under LLC Law § 206 requires publication in how many newspapers?
- Two newspapers (one daily, one weekly) in the county of formation (Correct answer)
- One newspaper of general circulation
- Three newspapers designated by the Secretary of State
- No publication is required
Correct answer: Two newspapers (one daily, one weekly) in the county of formation
LLC Law § 206 requires publication of a copy or substance of the Articles of Organization in two newspapers in the county where the LLC is located for six consecutive weeks.
Under NY LLC Law § 206, within 120 days of formation, an LLC must publish a copy or substance of its Articles of Organization once each week for six successive weeks in two newspapers designated by the county clerk — one daily and one weekly. After publication, the LLC files a Certificate of Publication with the Department of State. Failure to comply does not dissolve the LLC but suspends its authority to carry on business in New York until the requirement is met.
NYLE NY Business Relationships 2
Under New York's Business Corporation Law (BCL), what is the minimum number of directors required for a corporation?