HLS-LAW-202 BUSINESS ASSOCIATIONS COMPREHENSIVE
EXAM GUIDE 2026 EDITION Q&A
1. Which of the following best describes the primary fiduciary duty owed
by an agent to a principal under agency law?
A. Duty of care
B. Duty of loyalty
C. Duty to notify
D. Duty to account
Correct Answer: B
Explanation: The duty of loyalty is the core fiduciary duty requiring
an agent to act solely for the benefit of the principal in all matters
connected with the agency, avoiding conflicts of interest. While duty
of care is also important, loyalty is the defining fiduciary obligation.
2. Under the doctrine of respondeat superior, when is an employer
vicariously liable for an employee's torts?
A. Only when the employer authorized the specific tortious act
B. When the employee acts within the scope of employment
C. Only for intentional torts committed during work hours
D. When the employee is an independent contractor
Correct Answer: B
Explanation: Respondeat superior imposes vicarious liability on
employers when employees commit torts within the scope of
employment, regardless of employer authorization. Independent
contractors generally do not trigger this doctrine.
3. What document is required to form a general partnership under the
Revised Uniform Partnership Act (RUPA)?
A. Articles of incorporation
B. Certificate of organization
, C. No formal filing is required
D. Operating agreement
Correct Answer: C
Explanation: Under RUPA, a general partnership is formed by
default when two or more persons associate to carry on a business
for profit; no formal filing is required. Articles of incorporation are
for corporations, certificate of organization for LLCs.
4. Which of the following best distinguishes a corporation from a
general partnership regarding liability?
A. Partners have limited liability; shareholders have unlimited
liability
B. Both shareholders and partners have limited liability
C. Shareholders have limited liability; general partners have
unlimited personal liability
D. Shareholders are personally liable only for their investment
Correct Answer: C
Explanation: Corporate shareholders enjoy limited liability (losing
only their investment), while general partners in a partnership have
unlimited personal liability for partnership debts.
5. What is the primary effect of "piercing the corporate veil"?
A. It grants shareholders priority in bankruptcy
B. It makes shareholders personally liable for corporate debts
C. It converts a corporation into a partnership
D. It voids the corporate charter automatically
Correct Answer: B
Explanation: Veil piercing is an equitable remedy that disregards
the corporate entity to hold shareholders personally liable for
corporate obligations, typically when the corporation is used to
perpetrate fraud or is inadequately capitalized.
,6. Under corporate law, who has the authority to declare dividends?
A. Shareholders
B. Officers
C. Board of directors
D. Corporate secretary
Correct Answer: C
Explanation: The board of directors has the exclusive authority to
declare dividends based on available corporate assets and financial
condition. Shareholders elect directors but do not directly declare
dividends.
7. Which fiduciary duty is breached when a corporate director engages
in self-dealing without proper disclosure?
A. Duty of care
B. Duty of loyalty
C. Duty of good faith
D. Duty to inform
Correct Answer: B
Explanation: Self-dealing without disclosure violates the duty of
loyalty, which requires directors to put the corporation's interests
above their own. Duty of care relates to decision-making process,
not conflicts.
8. What is the quorum requirement for a shareholder meeting under
typical corporate bylaws?
A. Majority of outstanding shares
B. One-third of outstanding shares
C. All outstanding shares
D. Minority of outstanding shares (e.g., 10%)
Correct Answer: A
Explanation: Most corporate statutes and bylaws require a majority
of outstanding shares to constitute a quorum for shareholder
meetings, though articles may specify otherwise.
, 9. In a member-managed LLC, who has the authority to bind the LLC in
contracts with third parties?
A. Only the managing member
B. All members
C. Only managers appointed by members
D. External attorneys only
Correct Answer: B
Explanation: In a member-managed LLC, each member is an agent
of the LLC and has authority to bind it in the ordinary course of
business, similar to partners in a partnership.
10. Which of the following is NOT a requirement for express actual
authority?
A. Manifestation by the principal to the agent
B. Agent's reasonable belief of authority
C. Written documentation signed by both parties
D. Principal's consent
Correct Answer: C
Explanation: Express actual authority requires manifestation by
principal to agent and agent's consent, but does not require written
documentation—it can be oral. Written form is only required for
contracts under the statute of frauds.
11. What is the primary distinction between a direct shareholder suit and
a derivative shareholder suit?
A. Direct suits are for shareholder harm; derivative suits are for
corporate harm
B. Direct suits require board approval; derivative suits do not
C. Derivative suits are filed by the corporation; direct suits by
shareholders
D. Direct suits recover for the corporation; derivative suits recover for
EXAM GUIDE 2026 EDITION Q&A
1. Which of the following best describes the primary fiduciary duty owed
by an agent to a principal under agency law?
A. Duty of care
B. Duty of loyalty
C. Duty to notify
D. Duty to account
Correct Answer: B
Explanation: The duty of loyalty is the core fiduciary duty requiring
an agent to act solely for the benefit of the principal in all matters
connected with the agency, avoiding conflicts of interest. While duty
of care is also important, loyalty is the defining fiduciary obligation.
2. Under the doctrine of respondeat superior, when is an employer
vicariously liable for an employee's torts?
A. Only when the employer authorized the specific tortious act
B. When the employee acts within the scope of employment
C. Only for intentional torts committed during work hours
D. When the employee is an independent contractor
Correct Answer: B
Explanation: Respondeat superior imposes vicarious liability on
employers when employees commit torts within the scope of
employment, regardless of employer authorization. Independent
contractors generally do not trigger this doctrine.
3. What document is required to form a general partnership under the
Revised Uniform Partnership Act (RUPA)?
A. Articles of incorporation
B. Certificate of organization
, C. No formal filing is required
D. Operating agreement
Correct Answer: C
Explanation: Under RUPA, a general partnership is formed by
default when two or more persons associate to carry on a business
for profit; no formal filing is required. Articles of incorporation are
for corporations, certificate of organization for LLCs.
4. Which of the following best distinguishes a corporation from a
general partnership regarding liability?
A. Partners have limited liability; shareholders have unlimited
liability
B. Both shareholders and partners have limited liability
C. Shareholders have limited liability; general partners have
unlimited personal liability
D. Shareholders are personally liable only for their investment
Correct Answer: C
Explanation: Corporate shareholders enjoy limited liability (losing
only their investment), while general partners in a partnership have
unlimited personal liability for partnership debts.
5. What is the primary effect of "piercing the corporate veil"?
A. It grants shareholders priority in bankruptcy
B. It makes shareholders personally liable for corporate debts
C. It converts a corporation into a partnership
D. It voids the corporate charter automatically
Correct Answer: B
Explanation: Veil piercing is an equitable remedy that disregards
the corporate entity to hold shareholders personally liable for
corporate obligations, typically when the corporation is used to
perpetrate fraud or is inadequately capitalized.
,6. Under corporate law, who has the authority to declare dividends?
A. Shareholders
B. Officers
C. Board of directors
D. Corporate secretary
Correct Answer: C
Explanation: The board of directors has the exclusive authority to
declare dividends based on available corporate assets and financial
condition. Shareholders elect directors but do not directly declare
dividends.
7. Which fiduciary duty is breached when a corporate director engages
in self-dealing without proper disclosure?
A. Duty of care
B. Duty of loyalty
C. Duty of good faith
D. Duty to inform
Correct Answer: B
Explanation: Self-dealing without disclosure violates the duty of
loyalty, which requires directors to put the corporation's interests
above their own. Duty of care relates to decision-making process,
not conflicts.
8. What is the quorum requirement for a shareholder meeting under
typical corporate bylaws?
A. Majority of outstanding shares
B. One-third of outstanding shares
C. All outstanding shares
D. Minority of outstanding shares (e.g., 10%)
Correct Answer: A
Explanation: Most corporate statutes and bylaws require a majority
of outstanding shares to constitute a quorum for shareholder
meetings, though articles may specify otherwise.
, 9. In a member-managed LLC, who has the authority to bind the LLC in
contracts with third parties?
A. Only the managing member
B. All members
C. Only managers appointed by members
D. External attorneys only
Correct Answer: B
Explanation: In a member-managed LLC, each member is an agent
of the LLC and has authority to bind it in the ordinary course of
business, similar to partners in a partnership.
10. Which of the following is NOT a requirement for express actual
authority?
A. Manifestation by the principal to the agent
B. Agent's reasonable belief of authority
C. Written documentation signed by both parties
D. Principal's consent
Correct Answer: C
Explanation: Express actual authority requires manifestation by
principal to agent and agent's consent, but does not require written
documentation—it can be oral. Written form is only required for
contracts under the statute of frauds.
11. What is the primary distinction between a direct shareholder suit and
a derivative shareholder suit?
A. Direct suits are for shareholder harm; derivative suits are for
corporate harm
B. Direct suits require board approval; derivative suits do not
C. Derivative suits are filed by the corporation; direct suits by
shareholders
D. Direct suits recover for the corporation; derivative suits recover for
