Bar Exam Business Associations 2

Question 1

Under the business judgment rule, which standard applies when a court reviews a corporate director's business decision?

Accepted Answer

Courts will not second-guess a director's business decision if the director acted on an informed basis, in good faith, and in the honest belief that the action was in the corporation's best interests

Answer

Directors are strictly liable for any business decision that results in a loss to the corporation

Answer

The director must prove the decision was made in good faith and in the best interests of the corporation to avoid liability

Answer

Directors are subject to a negligence standard — they must exercise the care of a reasonable businessperson in all decisions

Question 2

Under partnership law, when does a general partner have apparent authority to bind the partnership?

Accepted Answer

When carrying on business of the kind usually carried on by the partnership in the ordinary course, unless the third party knows the partner lacked authority

Answer

Only when acting under the explicit written authorization of all other partners

Answer

Only for transactions not exceeding a dollar threshold set in the partnership agreement

Answer

General partners never have apparent authority — only express authority from the partnership agreement

Question 3

Under Delaware corporate law and the MBCA, what is the standard of review for a controlling shareholder's transaction with the corporation?

Accepted Answer

Entire fairness review — the controlling shareholder must show the transaction was entirely fair in terms of both process (fair dealing) and price (fair price)

Answer

Business judgment rule, because shareholders have the right to vote in their own interests

Answer

Reasonable person standard — courts ask whether the transaction was what a reasonable investor would approve

Answer

There is no special review — controlling shareholders have absolute discretion over transactions with their corporation

Question 4

Under RUPA, which of the following events causes a dissolution of a partnership?

Accepted Answer

A partner's wrongful dissociation or dissociation by a partner who causes winding up of the partnership under the partnership agreement or by judicial decree

Answer

A partner's temporary incapacity lasting more than 30 days

Answer

Any change in the partners' profit-sharing arrangement

Answer

The admission of a new partner to the partnership

Question 5

Under LLC law, which of the following best describes the 'charging order' remedy available to a creditor of an LLC member?

Accepted Answer

The creditor receives the right to receive distributions that would otherwise be paid to the debtor-member, but cannot become a member or exercise membership rights

Answer

The creditor may force a sale of the member's interest to satisfy the debt

Answer

The creditor steps into the shoes of the member with all voting rights and management rights

Answer

The creditor may attach and seize any assets of the LLC to satisfy the personal debt of a member

Question 6

Under corporate law, the duty of loyalty requires a director to avoid self-dealing. Under the MBCA § 8.61, an interested director transaction is NOT voidable if:

Accepted Answer

The material facts of the transaction were disclosed to the board and it was approved by a majority of disinterested directors, OR approved by a majority of shares held by disinterested shareholders, OR the transaction was fair to the corporation at the time authorized

Answer

The transaction benefits the corporation and the interested director recuses from the vote

Answer

The director owned less than a majority of the outstanding shares of the corporation

Answer

The interested director can demonstrate that the transaction was commercially reasonable based on market conditions