LES 305 EXAM 4 UPDATED ACTUAL
Exam Questions and CORRECT
Answers
The Howey test - CORRECT ANSWER - defines a security as a "contract, transaction, or
scheme whereby a person invests his money in a common enterprise and is led to expect profits
solely from the efforts of a promoter or third party." was established by the United States
Supreme Court.
Created by theU.S. Supreme Court; it defines a security as an investment in a common enterprise
that earns profits from the efforts of others.
20 DAYS - CORRECT ANSWER - The SEC must take action within this time period or
the registration will be deemed to be accepted
1933 Securities Act - CORRECT ANSWER - Negligence is enough - no scienter required.
Defense of due diligence
Immateriality
Investor knowledge
"Piercing the corporate veil" - CORRECT ANSWER - refers to a situation in which courts
put aside limited liability and hold a corporation's shareholders or directors personally liable for
the corporation's actions or debts
Business Judgment Rule - CORRECT ANSWER - Directors and officers may make
mistakes BUT they must carefully study and discuss their decisions. They may rely on qualified
professionals.
Fiduciaries - CORRECT ANSWER - act in the best interests of the corporation. Position
of trust and confidence.
,Articles of Organization - CORRECT ANSWER - Contract governing the rights and
relations of limited partners.
bylaws - CORRECT ANSWER - Operating rules of a corporation and its board; usually
describe the officers and their roles and authority, along with meeting procedures and notices.
professional corporations - CORRECT ANSWER - A statutory entity that permits
professionals such as lawyers and doctors to incorporate and enjoy limited personal liability on
all debts except for those arising from malpractice.
advances - CORRECT ANSWER - In partnerships, loans by the partners to the
partnership; makes the partner a creditor of the partnership.
foreign corporations - CORRECT ANSWER - A corporation in any state except the state
in which it is incorporated.
novation - CORRECT ANSWER - Process of reworking a contract to substitute parties or
terms, so that the old contract is abandoned and the new contract becomes the only valid
contract.
corporations - CORRECT ANSWER - Business entity created by statute that provides
limited liability for its owners.
partnership by implication - CORRECT ANSWER - A partnership that exists because the
parties agree to share profits in the absence of a formal agreement.
pooling agreement - CORRECT ANSWER - Agreement among shareholders to vote their
stock a certain way.
common stock - CORRECT ANSWER - Type of shares in a corporation that usually have
voting rights.
, publicly held corporations - CORRECT ANSWER - A corporation owned by shareholders
outside the officers and employees of the firm.
business judgement rule - CORRECT ANSWER - Duty of care imposed upon members of
corporate boards that require adequate review of issues and information, devotion of adequate
time to deliberations, and hiring of outside consultants as necessary for making decisions; the
standard does not require foolproof judgment, only reasonable care in making the judgment.
s corporation - CORRECT ANSWER - A form of corporation for tax purposes that permits
the direct flow-through of income and losses to the shareholders; no income tax on the entity and
no personal liability for the owners for business debts.
general partner - CORRECT ANSWER - Partner in a general or limited partnership whose
personal assets are subject to partnership creditors in the event of nonpayment of partnership
debts.
Dodd-Frank Wall Street Reform and Consumer Financial Protection Act - CORRECT
ANSWER - Federal law over 2000 pages in length that increases and modifies the
regulation of financial markets, investment firms, securities analysts, rating agencies, corporate
boards, and consumer credit (including mortgage disclosures).
corporate opportunity doctrine - CORRECT ANSWER - A business proposition or
investment opportunity that a corporation would have an interest in pursuing; precludes directors
from taking a profit opportunity when the corporation would have an interest.
board of directors - CORRECT ANSWER - Policy-setting governing group of a
corporation.
appraisal rights - CORRECT ANSWER - Rights of dissenting shareholders after a merger
or takeover to be paid the value of their shares before the takeover or merger
Exam Questions and CORRECT
Answers
The Howey test - CORRECT ANSWER - defines a security as a "contract, transaction, or
scheme whereby a person invests his money in a common enterprise and is led to expect profits
solely from the efforts of a promoter or third party." was established by the United States
Supreme Court.
Created by theU.S. Supreme Court; it defines a security as an investment in a common enterprise
that earns profits from the efforts of others.
20 DAYS - CORRECT ANSWER - The SEC must take action within this time period or
the registration will be deemed to be accepted
1933 Securities Act - CORRECT ANSWER - Negligence is enough - no scienter required.
Defense of due diligence
Immateriality
Investor knowledge
"Piercing the corporate veil" - CORRECT ANSWER - refers to a situation in which courts
put aside limited liability and hold a corporation's shareholders or directors personally liable for
the corporation's actions or debts
Business Judgment Rule - CORRECT ANSWER - Directors and officers may make
mistakes BUT they must carefully study and discuss their decisions. They may rely on qualified
professionals.
Fiduciaries - CORRECT ANSWER - act in the best interests of the corporation. Position
of trust and confidence.
,Articles of Organization - CORRECT ANSWER - Contract governing the rights and
relations of limited partners.
bylaws - CORRECT ANSWER - Operating rules of a corporation and its board; usually
describe the officers and their roles and authority, along with meeting procedures and notices.
professional corporations - CORRECT ANSWER - A statutory entity that permits
professionals such as lawyers and doctors to incorporate and enjoy limited personal liability on
all debts except for those arising from malpractice.
advances - CORRECT ANSWER - In partnerships, loans by the partners to the
partnership; makes the partner a creditor of the partnership.
foreign corporations - CORRECT ANSWER - A corporation in any state except the state
in which it is incorporated.
novation - CORRECT ANSWER - Process of reworking a contract to substitute parties or
terms, so that the old contract is abandoned and the new contract becomes the only valid
contract.
corporations - CORRECT ANSWER - Business entity created by statute that provides
limited liability for its owners.
partnership by implication - CORRECT ANSWER - A partnership that exists because the
parties agree to share profits in the absence of a formal agreement.
pooling agreement - CORRECT ANSWER - Agreement among shareholders to vote their
stock a certain way.
common stock - CORRECT ANSWER - Type of shares in a corporation that usually have
voting rights.
, publicly held corporations - CORRECT ANSWER - A corporation owned by shareholders
outside the officers and employees of the firm.
business judgement rule - CORRECT ANSWER - Duty of care imposed upon members of
corporate boards that require adequate review of issues and information, devotion of adequate
time to deliberations, and hiring of outside consultants as necessary for making decisions; the
standard does not require foolproof judgment, only reasonable care in making the judgment.
s corporation - CORRECT ANSWER - A form of corporation for tax purposes that permits
the direct flow-through of income and losses to the shareholders; no income tax on the entity and
no personal liability for the owners for business debts.
general partner - CORRECT ANSWER - Partner in a general or limited partnership whose
personal assets are subject to partnership creditors in the event of nonpayment of partnership
debts.
Dodd-Frank Wall Street Reform and Consumer Financial Protection Act - CORRECT
ANSWER - Federal law over 2000 pages in length that increases and modifies the
regulation of financial markets, investment firms, securities analysts, rating agencies, corporate
boards, and consumer credit (including mortgage disclosures).
corporate opportunity doctrine - CORRECT ANSWER - A business proposition or
investment opportunity that a corporation would have an interest in pursuing; precludes directors
from taking a profit opportunity when the corporation would have an interest.
board of directors - CORRECT ANSWER - Policy-setting governing group of a
corporation.
appraisal rights - CORRECT ANSWER - Rights of dissenting shareholders after a merger
or takeover to be paid the value of their shares before the takeover or merger
