This document contains a 30 question multiple choice exam on business law topics. The exam covers common law systems, types of business organizations (corporations, LLCs, partnerships), agency law, alternative dispute resolution, corporate governance issues (duties of care and loyalty, business judgment rule), contracts, employment law, securities law (Sarbanes-Oxley Act), and property law. For each question there are 4 possible answer choices and some include a brief rationale for the correct answer.

1. LAW 531 ACTUAL FINAL EXAM
1) Which of the following is a distinguishing feature of a common law legal system?
A. Requiring guilt be proven beyond a reasonable doubt
B. The sole source of law is a comprehensive civil code
C. An appeal process
D. The making of law by the judges and the following of precedent
2) Which best describes the types of agency authority held by officers of a corporation?
A. Vicarious authority
B. Express and obvious authority
C. Implied and apparent authority only
D. Express, implied, and apparent authority
3) If an LLC fails to follow formalities such as keeping minutes of meetings, which of the following is
true?
A. Only the managers of a manager-managed LLC will lose limited liability.
B. All members will lose their limited liability.
C. This failure will not result in imposing personal liability on any member.
D. Only the parties responsible for the failure will lose limited liability.
Answer Rationale: Limited Liability Companies are not required to maintain the formalities of
corporation.

2. 4) Martha started a flower shop as a sole proprietor. After 1 year, she was forced to close the shop
because business was so bad. At that time, the business assets totaled $50,000, but the business
liabilities totaled $125,000. Which of the following statements is true?
A. Martha is personally liable for the additional $75,000.
B. Martha’s business creditors can collect only the $50,000 of business assets.
C. Martha’s business creditors can collect only the $50,000 now, but if Martha ever goes into
business again, they can get the assets of the new business.
D. Once Martha terminates the sole proprietorship, the business creditors cannot even get the
$50,000.
5) Partners of a general partnership
A. are protected from litigation against the partnership by statute
B. are liable for the obligations of the partnership only to the extent of their capital
contributions
C. do not have to pay taxes on the profits of the partnership that are distributed to them
D. are liable for all the obligations of their partnership
6) Which of the following forms of alternative dispute resolution allows both parties to see the strengths
and weaknesses of both sides of the case through the presentation of evidence?
A. Negotiated settlement
B. Minitrial
C. Mediation
D. Conciliation
Answer Rationale: Conciliation, mediation, and negotiated settlement do not involve the presentation of
evidence.

3. 7) A ___________ is a court-appointed party who conducts a private trial and renders a judgment.
A. fact-finder
B. arbitrator
C. judicial referee
D. negotiator
8) What is a form of alternative dispute resolution that is often used when the parties involved do not
want to face one another?
A. Arbitration
B. Fact-finding
C. Minitrial
D. Conciliation
9) Which of the following is true regarding mediation?
A. A mediator often meets with both parties at the same time.
B. A settlement agreement is never reached with a mediator.
C. A mediator does not make a decision or award.
D. If a settlement agreement is not reached in mediation, then the parties hire a new mediator.

4. 10) There are no accountants on the board of the Oriole Corporation, a privately held corporation. The
board routinely relies on a Certified Public Accountant (CPA) to explain the financial situation of the
corporation. The board does not do an independent analysis of the CPA’s report. In these circumstances,
the board is
A. violating a duty of loyalty
B. violating a duty to exercise due care
C. violating the business judgment rule
D. not violating any duty
11) Self-dealing by a director of a corporation can best be described as
A. A breach of a director's duty of notification
B. A breach of a director’s duty of care
C. A breach of the Business Judgment Rule
D. There was no breach of duty
Answer Rationale: Directors do have duties to the corporation. The good business judgment rule deals
primarily with third parties outside the corporation. The duty of notification is not an issue of self-
dealing.
12) Which of the following is likely to be a breach of a corporate officer’s or director’s duty of care?
A. Failing to anticipate a precipitous drop in consumer demand of the company’s product
B. Failing to make a reasonable investigation of relevant facts
C. Failing to predict the unexpected startup of a new competitor
D. Failing to foresee a sudden rise in the interest rate

5. 13) In what ways may officers and directors be protected by the corporation from liability for actions
taken as an officer or director?
A. The officer or director must purchase personal liability insurance to cover such losses.
B. Have the corporation purchase liability insurance and indemnify the officers and directors.
C. Officers and directors cannot be protected from liability.
D. Officers and directors are automatically protected from liability by virtue of corporate.
14) If a plaintiff voluntarily participates in a risky activity that results in injury, what is the most likely
defense to a claim that the plaintiff assumed the risk?
A. Contributory negligence
B. Defendant was negligent per se
C. Defendant assumed the risk under the “danger invites rescue” doctrine
D. Comparative negligence
Answer Rationale: Contributory negligence and comparative negligence are alternative legal doctrines to
determine how risk is allocated; they do not directly address the issue of assumption of the risk.
Negligence per se is not necessarily involved in assumption of the risk cases.
15) Mark is the treasurer of Sky-Hi Tech Corporation and, as such, he is responsible for protecting the
assets of the corporation. One of Mark’s subordinates, Jill, is in charge of reconciling the monthly
corporate bank statements. Over a period of several months, Jill embezzled a large amount of money
from Sky-Hi Tech, covering up the theft using her bank reconciliations. If Mark had adequately
supervised Jill, she could not have embezzled this money. Mark’s actions (or inactions) constitute a
breach of his duty of
A. due care
B. obedience
C. loyalty
D. good business judgment

6. 16) Barry buys a new sports car. The car sits low to the ground and because of the styling, visibility to
the rear is limited. About a month after Barry buys the car, he backs over his pet poodle as he is leaving
for work. In his strict liability suit against the car manufacturer, Barry will
A. win because driving a sports car is an inherently dangerous activity
B. win on the basis of design defect
C. win on the basis of packaging defect because the car could have been packaged in a
differently styled body
D. lose because he assumed the risk of backing up in a car when he could not see to the rear
17) If a judge rules that a party lost its case because of the Statute of Frauds, the judge has essentially
stated which of the following?
A. The losing party purposely deceived the other party about a material fact.
B. The losing party will not be allowed to introduce evidence to contradict a written agreement.
C. The losing party cannot enforce an oral contract that should have been in writing.
D. The losing party was found by the court to have lied, and therefore will lose the case.
18) What does the parol evidence rule do?
A. It limits the ability of parties to written contracts from introducing certain evidence related
to the contract.
B. It sets the rules for admissibility of evidence relating to releasing a criminal from a prison
term.
C. It sets the general rules for the admissibility of evidence in criminal actions.
D. It determines which contracts are required to be in writing.

7. 19) ABC LLC and XYZ Corp. entered into a contract whereby ABC is to supply XYZ with widgets. After
receiving the first shipment of widgets, XYZ finds that the widgets, while meeting the physical standards
specified in the contract, do not perform as XYZ anticipated. The contract is silent as to performance
specifications, but XYZ suspects that ABC knew that it was manufacturing and supplying widgets that
would not perform according to industry standard. XYZ initiates a lawsuit against ABC, alleging that ABC
knowingly supplied defective widgets. What process will XYZ use to help it develop its case against ABC?
A. Pleadings
B. Motion for summary judgment
C. Discovery
D. Trial
Answer Rationale: Pleadings are documents filed with the court. A motion for summary judgment and
trial both occur after a party has developed its case against the opposing party.
20) Under the Employee Retirement Income Security Act (ERISA), an employee’s benefits must vest
A. within 10 years
B. by the time of the employee’s retirement
C. in total within 5 years or gradually within 7 years
D. only as provided in the pension plan
21) Which of the following statutes provides that it is legal for employees to organize a union?
A. The Norris-LaGuardia Act
B. The National Labor Relations Act
C. The Labor-Management Relations Act
D. The Worker Adjustment and Retraining Notification Act
Answer Rationale: The National Labor Relations Act limits employers' actions against unions. The Labor-
Management Relations Act concerns "unfair labor practices." The Worker Adjustment and Retraining
Notification Act concerns plant closings and mass layoffs. As a statutory law, the requirements of ERISA
are explicit and provide clear vesting benefits to employees.

8. 22) William was a factory worker at the Spruce Industries plant. When management found out that
William is gay, he was fired. The plant’s action is
A. not prohibited under federal law
B. a violation of Title VII
C. a violation of the Equal Pay Act
D. a violation of the Americans with Disabilities Act
23) Janet is manager of a bank. She has all the qualifications to be promoted to bank manager. In fact,
she is better qualified than any of the men being considered for the position. However, the owner of the
bank believes that bank customers will not accept a woman as bank manager, so the owner promotes
one of the males. The owner’s actions would best be described as what?
A. Quid pro quo
B. Hostile work environment
C. Gender discrimination
D. Pregnancy discrimination
24) Which one of the following statutes allows a prevailing party to recover attorney’s fees in an action
against the government for an action of an agency?
A. The Freedom of Information Act
B. The Government Compensation Act
C. The Administrative Procedure Act
D. The Equal Access to Justice Act

9. 25) Which of the following would prevent someone from acquiring land by adverse possession?
A. The person never had to fight the original owner to remain on the land.
B. The person lived on the land secretly so that the original owner would not find out he or
she was there.
C. The person lived on the land without the original owner’s permission.
D. The person was the only person who lived on the land in question.
26) Which of the following would be classified as tangible personal property, as opposed to other
property categories, such as fixtures or intangible property?
A. A freestanding desk
B. Built-in cabinets in an office
C. A copyright to a literary work
D. A field of corn
27) As the CEO of a high tech company, you become aware that your chief competitor is working on a
new computer program that will revolutionize your industry. You know that if you can find out several
key functions about the new product, your own programmers will be able to duplicate the function of
the program without actually copying its code. Which of the following actions can you ethically take?
A. Paying the garbage company to deliver the competitor’s garbage to you
B. Hiring a former employee of the competitor and paying her a bonus to tell you the
competitor’s secrets
C. Hiring a researcher to review all available information about the competitor, including
patents, types and names of employees hired, reports by the competitor, including all SEC filings
D. Hacking into the competitor's computer systems to find out what you need

10. 28) From a practical perspective, what are some of the elements of Sarbanes-Oxley?
A. Ensuring transparency, accountability and internal controls
B. Ensuring companies are profitable
C. Ensuring that CEOs do not make more than 10 times the lowest paid employee
D. Ensuring that large shareholders do not have board representation
29) Under Title IX of the Sarbanes-Oxley Act, the penalty for someone who certifies “any statements as
set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the
statement does not comport . . .” is
A. no more than $1,000,000.00 or imprisoned no more than 10 years, or both
B. no more than $500,000.00 or imprisoned no more than 6 months, or both
C. no more than $2,000,000.00 or imprisoned no more than 3 years, or both
D. no more than $5,000,000.00 or imprisoned no more than 20 years, or both
Answer Rationale: False certifications under the Sarbanes-Oxley Act carry substantial criminal penalties.
30) Which is prohibited under the Sarbanes-Oxley Act?
A. High salaries for corporate executives
B. Using an independent accounting firm for audit purposes
C. Public companies making personal loans to their directors and executives
D. Directors and executives attending board meetings on a regular basis