Sample/practice exam 5 April year, questions and answers PDF

Preview

Summary

Download Sample/practice exam 5 April year, questions and answers PDF

Description

Company Law for Business 266

Multiple Choice Questions and Answers Tutors Only Topic 1: About Companies, company Law and Legal nature of Companies 1. From a shareholder’s point of view, the purchase of shares in a Pty Ltd company may be an attractive option because: a. The investor has limited liability.* b. The company has limited liability. c. Both the investor and the company have limited liability. d. The shares can be freely traded on a stock market. 2. Jim has purchased 25% of the shares in Zig Zag Pty Ltd, a small proprietary company. The legal effect of this transaction is that: a. Jim owes 25% of Zig Zag Pty Ltd’s liabilities. b. Jim owns 25% of the assets of Zig Zag Pty Ltd. c. Jim has a 25% say in the management of the company. d. Jim has acquired certain rights, such as voting rights and the right to receive a dividend (once declared).* 3. a. b. c. d.

Select the statement that most accurately describes the key features of companies: Companies must be incorporated (registered). Companies have one or more members. Companies have one or more directors. All of the above.*

4. a. b. c. d.

A company is a separate legal entity. This means that: The company is separate from its shareholders. The company is separate from its directors/officers. The company is separate from its shareholders, directors and officers. All of the above.*

5. a. b. c. d.

Concerning the management of a company, select the most appropriate statement: Companies are generally managed by individual directors. Companies are generally managed by the directors collectively.* Companies are generally managed by individual shareholders. Companies are generally managed by shareholders collectively.

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

1/23 1/23

6. Concerning the application of the Corporations Act 2001 (Cth), select the most appropriate statement: a. The Corporations Act 2001 (Cth) applies uniformly throughout Australia.* b. The Corporations Act 2001 (Cth) only applies to companies formed in states and territories that have adopted it. c. The Corporations Act 2001 (Cth) is the only source of law applicable to companies formed anywhere in Australia. d. The Corporations Act 2001 (Cth) only applies to companies that have adopted it. 7. a. b. c. d.

One of the following is not a role of ASIC: To regulate partnerships.* To investigate breaches of corporate law. To receive and process corporate information. To maintain a national database of corporate information that is accessible to the public.

8. In the case of Salomon v Salomon & Co Ltd (1897) the High Court of England held that: a. Mr Solomon acted as an agent of the company and was therefore liable for the company’s debt. b. Mr Solomon acted as a trustee for the company and was therefore liable for the company’s debt. c. The company was a separate legal entity (separate from its director) and it incurred debts in its own right.* d. The company was not liable to its creditors because the losses were caused by circumstances beyond Mr Solomon’s control. 9. a. b. c. d.

The case of Lee v Lee’s Air Farming Ltd (1961) illustrates that: A company is a separate person from its founder(s) and director(s). A company can contract with its founder(s) and director(s). Both of the above are correct.* Only public companies can contract with their founder(s) and director(s).

10. Kathy needs more capital for her business and she is considering whether to enter into a partnership or incorporate a small proprietary company in which she will be the sole director and shareholder. This company structure gives her which of the following advantages: a. It is quicker and easier to establish than a partnership. b. It allows her to limit her liability whilst leaving her in control.* c. It allows her to limit the company’s liability for the debts it incurs. d. All of the above are correct.

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

2/23 2/23

Topic 2: Piercing the Corporate Veil and Companies and Business Planning 1. a. b. c. d.

Select the answer that best describes the meaning and effect of the ‘corporate veil’: It is designed to make it impossible for anyone to find out who is in control of a company. It allows directors and officers to escape their legal obligations or to commit a fraud. It is terminology used to separate the company from its members and directors/officers.* It can only be lifted by the courts.

2. a. b. c. d.

The courts are generally reluctant to ‘lift the corporate veil’ because: The company is a separate legal entity. The company contracts in its own right. The company’s debts are its own liability, not that of its members or directors. All of the above.*

3. a. b. c. d.

One of the following is not a circumstance in which a court would ‘lift the corporate veil’: The company was formed to take advantage of its limited status.* The company was formed to enable perpetration of a fraud. The company was formed to circumvent breach of a (restraint of trade) clause. The company was formed to avoid an existing contractual obligation.

4. Concerning liability of partners for the debts of the firm, select the most appropriate statement: a. A partner is generally liable for the acts of a fellow partner.* b. A partner is always liable for the acts of other partners. c. A partner is never liable for the acts of other partners. d. A partner’s liability can be limited if they act in good faith. 5. One of the following statements relating to partnerships is correct? a. Partnerships are terminated and reconstituted each time a partner joins or leaves.* b. Partnership property is individually owned by the partner(s) who brought the asset(s) into the business. c. Partnership is a separate legal entity. d. A partnership cannot register a business name because it is not an incorporated entity.

6. When comparing trusts and companies, one of the following statements is incorrect: a. The trustee is the legal owner of the trust property, while the company’s assets belong to the company, not its directors or members. b. Directors owe fiduciary duties to the company, whereas a trustee does not owe such duties.* c. Company directors can take reasonable business risks, while trustees are required to act within the terms of the trust deed when dealing with the trust property. d. A shareholder of a company is in a contractual relationship with the company but a beneficiary of a trust is not bound in contract with the trust (or with any other beneficiaries).

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

3/23 3/23

7. a. b. c. d.

Concerning managed investment schemes, one of the following is incorrect: The scheme is funded by investments from the public and put in a collective investment. The investors are not involved in the management and running of the scheme. The scheme does not have a constitution.* Investors are directly entitled to the benefits of the scheme in proportion with their investment.

8. a. b. c. d.

A public company may be: Limited by shares or limited by guarantee. Unlimited with share capital or be incorporated as a ‘no liability’ company. Listed on a stock exchange or unlisted. All of the above.*

9. a. b. c.

In relation to a no liability company, one of the following is correct: The company may or may not have a constitution. It may be incorporated as a public or proprietary company. It may make a call on the unpaid amount of members’ shares, but it cannot enforce such a call.* d. All of the above are correct. 10. In a corporate group consisting of one parent company and three subsidiaries, which of the following statement is correct? a. Each company in the group is a separate legal entity.* b. Only the parent company is a separate legal entity. c. The group (in combination) is a separate legal entity. d. Any of the above, depending on whether the subsidiaries are wholly owned or partly owned.

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

4/23 4/23

Topic 3: Constituting Companies 1. Which of the following statement relating to pre-registration contracts is incorrect? a. Not enforceable under common law because a company yet to be formed does not have legal capacity (it is not yet a separate legal entity). b. Binding upon the company once it is registered and ratifies the contract. c. Binding upon the promoters if the company is not registered or fails to ratify the contract within a reasonable time. d. A company will never be bound by them* 2. Which of the following statements is incorrect relating to where a company’s internal rules may stem from: a. The company’s constitution. b. The replaceable rules contained in the Corporations Act 2001 (Cth). c. A combination of the constitution and replaceable rules only. d. The ASX listing rules, in the absence of any of the above.* 3. a. b. c. d.

Internal management of a company does not concern one of the following: The right of the company to own assets.* The rights and obligations of members. The rights and duties of directors. The division of powers between members and directors.

4. a. b. c. d.

A company’s constitution generally does not deal with: The rights and duties of members. Appointment and remuneration of all directors. Appointment and remuneration of all employees.* Conduct of members meetings.

5. a. b. c. d.

A company’s constitution is a statutory contract between: The company and its members and employees. The company and its directors and secretaries. The company and its members, and between the members themselves. Both (b) and (c) above.*

6. Section 140(1) of the Corporations Act 2001 (Cth) has the effect that: a. A clause in a company’s constitution is always enforceable by a member. b. A clause in a company’s constitution is only enforceable by a member in his or her capacity as a member.* c. A clause in a company’s constitution is subject to the replaceable rules. d. A clause in a company’s constitution will not normally bind existing members. 7. a. b. c. d.

After registration, a company may: Adopt a constitution by special resolution.* Adopt a constitution by ordinary resolution. Adopt a constitution with the express consent of ASIC. Adopt a constitution with the express or implied consent of ASIC.

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

5/23 5/23

8. Which of the following statement is incorrect concerning the consequences for breach of the statutory contract under section 140(1)? a. A breach of a statutory contract will always lead to a claim for damages.* b. A breach of a statutory contract does not lead to contravention of the Corporations Act. c. The consequences of a breach of a statutory contract are not the same as a breach of a commercial contract. d. A breach of a statutory contract can be grounds for the court to grant an injunction. 9. a. b. c. d.

One of the following is correct about company names: All companies are required to have a specific name. A company can have whatever name it likes. A company cannot always have whatever name it likes.* A small proprietary company is not required to display its name on company documents.

10. Which of the following statement is correct concerning the decision in Eley v Positive Government Security Life Insurance (1876)? a. The company’s constitution stated that Eley was to be the company’s solicitor and Eley was able to enforce this provision in his capacity as a solicitor. b. The company’s constitution stated that Eley was to be the company’s solicitor and Eley was able to enforce this provision in his capacity as a member. c. The company’s constitution stated that Eley was to be the company’s solicitor and Eley was able to enforce this provision in his capacity as a director. d. The company’s constitution stated that Eley was to be the company’s solicitor, but Eley could not enforce his right to be employed as a solicitor.*

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

6/23 6/23

Topic 4: Managing Companies, Members’ Meetings and Company Directors & other officers 1. a. b. c. d.

Which of the following is not a Board of Directors’ power? Management power. Power to determine dividends. Power to call members meeting. Power to alter company’s constitution.*

2. a. b. c.

Which of the following statements is correct? The company secretary is the chief administrative officer of the company.* The company secretary has extensive power to bind the company in contract. Under the Corporations Act 2001 (Cth), only large proprietary companies appoint a company secretary. d. The members in general meeting appoint the company secretary.

3. What is a quorum? a. The number of members required to pass a special resolution. b. The minimum number of members who must be present at a members’ meeting to properly conduct business which is set at 2 throughout the meeting under the replaceable rules.* c. The minimum number of members who must be present at a members’ meeting to d. properly conduct business which is set at 5 throughout the meeting under the replaceable rules. e. A person who votes on behalf of an absent natural person member. 4. The members of Bandict Ltd have passed a resolution to sell the company’s factory. Which of the following statements is correct? a. The directors have to comply with the members’ resolution. b. The directors do not have to comply with the members’ resolution as they can rely on the case of Automatic Self-Cleansing Filter Cunninghame.* c. The directors can ignore the members’ resolution as members do not have any say in any company matters. d. The directors have to comply with the members’ resolution and if they do not, they will automatically be removed by the members. 5. Which of the following statements is correct? a. For both public and proprietary companies, the members in general meeting have a statutory power to remove directors. b. For both public and proprietary companies, the members in general meeting only have a constitutional right to remove directors. c. In a public company, the members in general meeting have a statutory power to remove directors.* d. In a public company, the board of directors have a statutory power to remove directors. 6. Which of the following powers are generally conferred upon the board of directors through the company’s internal rules? a. Management power and the power over share transfers.* b. Management power and the power to create/amend the internal rules. c. Power over share transfers and the power to create/amend the internal rules. d. Power to issue shares and power to remunerate directors. Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

7/23 7/23

7. Which of the following statements is true? a. Any member can request the directors to call a general meeting. b. Members holding 10% of the votes, or 100 members, may request the directors to call a general meeting and if they fail to call the meeting in time, the members may call the meeting and the directors may be liable for the cost. c. Members holding 5% of the votes, or 100 members, may request the directors to call a general meeting and if they fail to call the meeting in time, the members may call the meeting and the directors may be liable for the cost.* d. Members holding 5% of the votes, or 100 members, may request the directors to call a general meeting and if they fail to call the meeting in time, the members may call the meeting but they will be liable for the cost. 8. What terminology would you use to define a director of a company who is an officer of a financial institution who has lent money to the company? a. Alternate director. b. Non-executive director. c. Managing director. d. Nominee director.* 9. Which of the following statement is correct? a. An executive director is a part-time director of the company who is not an employee. b. An executive director is both on the board of directors and a full-time employee of the company.* c. An executive director is a person appointed by a director to act in her or his place for a period of time. d. An executive director is the head of all other directors. 10. What is the minimum number of directors that a public company is required to have under the Corporations Act 2001 (Cth)? a. 3 directors.* b. 2 directors. c. 1 director. d. 5 directors because it is a public company.

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

8/23 8/23

Topic 5: Transacting by Companies 1. Which of the following statements is correct? a. Apparent authority exists where a principal holds out or represents an agent as having the necessary authority and the outsider relies on the principal’s representation to enter into a transaction with the company.* b. Apparent authority exists when an agent holds himself out as having the necessary authority and the outsider relies on the agent’s representation to enter into a transaction with the company. c. Apparent authority exists when a principal expressly gives an agent authority to enter into a transaction with an outsider. d. Apparent authority exists where a principal holds out or represents an agent as having the necessary authority and the outsider knows that the agent does not have authority but enters into the transaction anyway. 2. Bob has been appointed Managing Director of Pierce Pty Ltd. He is authorised by the company’s constitution to sign contracts of up to $100,000 and expenditure in excess of $100,000 requires members’ approval. Bob signs a contract to buy machinery from Princess Cut Inc of $200,000 without seeking members’ approval. Which of the following statement is correct? a. Pierce Pty Ltd is not bound by the contract because Bob has no authority to enter into a $200,000 contract with Princess Cut Inc. b. Pierce Pty Ltd is bound by the contract since Bob as Managing Director has customary power to enter into such contracts and Princess Cut Inc would not have known that Bob does not have authority.* c. Pierce Pty Ltd is not bound by the contract even though Bob as Managing Director has customary power to enter into such contracts since Princess cut Inc would have known that Bob does not have authority from the company’s constitution. d. Pierce Pty Ltd is bound by the contract since Managing Directors can always bind the company in contract. 3. Which of the following is not a type of authority given to an agent? a. Apparent authority. b. Express actual authority. c. Implied express authority.* d. Implied actual authority. 4. Which of the following cases established the “indoor management rule”? a. Freeman v Lockyear v Buckhurst Park Properties (Mangal) Ltd. b. Northside Developments Pty Ltd v Registrar-General. c. Royal British Bank v Turquand.* d. Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd. 5. The indoor management rule has now been incorporated in which section of the Corporations Act 2001 (Cth)? a. Section 128.* b. Section 140. c. Section 135. d. Section 127.

Company Law for business 266 Multiple choice Questions and Answers © Curtin Business School

9/23 9/23

6. Which of the following statements is true about the case of Northside Development Pty Ltd v Registrar General? a. In the case of Northside Developments Pty Ltd v Registrar-General, a person was able to rely on the “indoor management rule” when the person knew or were “put on inquiry” that the acts were not regular. b. In the case of Northside Developments Pty Ltd v Registrar-General, a person was not be able to rely on the “ind...