- Under common law and the Model Business Corporation Act, which of the following is most accurate regarding Tara's liability?
Answer: Tara is not liable because the contract expressly excluded her personal liability and looked solely to the future corporation for payment.
When you see a promoter signing a contract before the corporation exists, the default rule is that the promoter is personally liable. But that rule is only a default—it can be overcome by the parties' clear intent. The key question is: did the third party agree to look only to the future corporation for payment?
Here, the contract expressly stated that Vertex Corp. alone would be liable and that Tara would have "no personal liability." Under common law and the Model Business Corporation Act, that language is effective: Ultra Office Supply knowingly dealt with a promoter and accepted the future corporation as the sole credit risk. Therefore Tara is not liable.
The wrong answers each miss this point. Saying a promoter "cannot disclaim personal liability by contract" is false; an express disclaimer is exactly how a promoter avoids liability, and corporation adoption is not required when the contract itself already excludes promoter liability. Likewise, the claim that "only a novation after incorporation can release" Tara is too narrow—novation is one way, but an express contractual disclaimer is another. Finally, the argument that Tara is not liable because furniture was never delivered is wrong: non-delivery may affect Vertex's obligations, but it is not the reason Tara escapes liability, and a contract can exist before delivery occurs.
Study tip: always separate the default promoter-liability rule from the parties' ability to contract around it. If the contract "looks solely" to the future corporation, the promoter is off the hook.
- Under the Uniform Limited Liability Company Act (2013), which of the following is most accurate regarding the effectiveness of the operating agreement and its amendment?
Answer: The operating agreement became effective on September 15, but the amendment is ineffective because a capital-contribution obligation can be imposed on a member only with that member's consent.
Whenever you see an operating agreement signed before articles of organization are filed, remember the ULLCA's timing rule: the agreement becomes effective when the articles are filed, unless the members agree otherwise. Here, Ursula and Victor signed before filing, but the agreement took effect on September 15, the filing date—not on the earlier signing date.
That makes the first half of the correct answer straightforward. The amendment is a different issue. Even though the operating agreement allows amendments approved by a majority of distributional interests, the ULLCA protects members from being forced to make additional capital contributions. A capital-contribution obligation can be imposed on a member only with that member's consent. Victor voted against the amendment, so it cannot bind him.
The choice saying the amendment is effective because a majority approved it misses this mandatory member-protection rule. The choice saying the agreement became effective when signed misstates the timing rule. And the choice saying the agreement did not become effective until both became members is wrong; filing is the trigger, not membership status. Finally, the idea that the amendment is effective unless it impairs Victor's existing rights is too vague—the precise protection is against compelled additional contributions.
For the exam, remember two key points: pre-filing operating agreements become effective at filing, and majority vote can amend many terms, but never impose an additional capital-contribution obligation on a non-consenting member.
- Under the Uniform Limited Liability Company Act (2013), which of the following is most accurate regarding Omar's argument?
Answer: Omar is bound by the operating agreement because a person becomes bound when they become a member, regardless of whether they sign the agreement.
When you see an LLC operating-agreement question under the ULLCA, the central issue is how a person manifests assent to the agreement. Contract-law rules about signing often mislead: for LLCs, membership itself can be the act that binds you.
Omar's argument fails. Under the ULLCA, a person becomes bound by the operating agreement when they become a member, regardless of whether they ever sign it. Because Omar was admitted as a member by contributing capital, he is bound by all agreement terms — including the arbitration clause and the capital-call provision. The statute treats becoming a member as the sufficient manifestation of assent, so no separate document or signature is needed iff his membership was valid.
The choice saying Omar is bound by the arbitration clause but not by the capital-call provision is wrong: it artificially splits the agreement. All operating-agreement terms govern a member, including capital obligations; nothing in ULLCA requires special affirmative consent for capital calls beyond membership itselfault.
. The choice that Omar is not bound because the operating agreement requires consent of all members shown by signature is also wrong: unanimous consent may be required to adopt an operating agreement, but that consent may be shown by conduct — including becoming a member — not only by signature. The choice asserting Omar isbound only if the agreement was in writing and expressly said nonsigning members are bound similarly misses the mark: ULLCA does not require a writing for an operating agreement, and it does not need a special "nonsigning members are bound" clause because membership status alone sufficientulfill.
As a study tip: on this exam, do not import traditional contract-formation requirements into LLC operating agreements. Ask instead whether the person became a member;if yes, the agreement's terms apply unless the agreement itself provides otherwise.
- Under the Revised Uniform Partnership Act, which of the following best explains Ben's status?
Answer: Ben is a partner because carrying on a business for profit as co-owners does not require equal management rights, and an agreement may allocate management exclusively to one partner.
When you see a partnership question, the central issue is whether the parties are carrying on a business as co-owners for profit. Under RUPA, "co-ownership" does not require equal management rights. Here, Amara and Ben signed a written agreement to share net profits equally and contribute capital—that is classic co-ownership. The fact that they gave Amara exclusive management is simply an agreed allocation of control, which RUPA permits. A partnership can exist even if one partner has no voice in daily operations, because management is not an essential element of partnership—co-ownership is. Thus, Ben is a partner.
The first wrong answer claims that Ben is not a partner because the agreement removed his management rights and that management rights are essential—this misstates RUPA, which treats management as a default right that partners can waive or modify. The second wrong answer suggests that profit-sharing is only prima facie evidence rebutted by the exclusion of management—but the exclusion of management does not rebut partnership because management is not required; moreover, the profit-sharing here is reinforced by a written agreement and capital contributions, making the inference strong. The fourth wrong answer conditions partnership on the supplier's knowledge—that is irrelevant; partnership status is determined by the parties' conduct and intent, not third-party awareness.
For the bar, remember: co-ownership of a business for profit is the touchstone, not equal management. If you see an agreement that strips one owner of management, that alone does not defeat partnership.
- Under the Model Business Corporation Act, which of the following is most accurate?
Answer: The corporation's existence began on June 1, and the June 20 meeting was a valid organizational meeting because the incorporators may complete the organization when no initial directors are named.
When a question tests corporate formation under the MBCA, the pivotal fact is the filing of the articles of incorporation. The MBCA makes corporate existence effective on the filing date, not on any subsequent organizational activity. Here, Miguel and Nora filed on June 1, so the corporation legally existed from that moment. The June 20 meeting was a valid organizational meeting. Under MBCA § 2.05, if the articles do not name initial directors, the incorporators are authorized to complete the organization—adopting bylaws and electing directors. There is no statutory deadline for this meeting; the authority does not "expire" simply because the articles are filed, so the statement that the June 20 meeting was invalid because the incorporators' authority expired is incorrect. The choice that existence began on June 20 misunderstands the role of the organizational meeting—it is a procedural step, not a condition precedent to existence. Finally, the election of directors is properly done by incorporators at the organizational meeting; the claim that only shareholders can elect directors confuses the initial organizational meeting with the annual shareholder meeting. Therefore, the corporation existed on June 1, and the meeting was valid. For the exam, remember the sequence: filing creates existence; organizational meeting organizes the structure. Don't let the "reasonable time" language in the passage mislead you—the MBCA imposes no such time limit on the incorporators' authority.
- Under the Model Business Corporation Act, which of the following is most accurate regarding personal liability?
Answer: Ivan is liable because he knew no corporation existed; Jenna is not liable because she lacked that knowledge.
Whenever you see a "purported corporation" and personal liability, the Model Business Corporation Act focuses on two things: did the person act on behalf of the corporation, and did the person know no corporation existed. Ivan learned the filing was rejected, yet he still signed the supply contract as "President of Apex Corp." That knowledge plus his action makes him liable. Jenna never learned of the rejection and did not sign the contract; signing the articles of incorporation is not the same as purporting to act on behalf of the corporation, and she lacked the required knowledge. So the accurate result is that Ivan is liable and Jenna is not. The choice saying both are liable because both signed the articles ignores the knowledge requirement and confuses incorporation documents with corporate action. The choice saying neither is liable because the Secretary of State's office confirmed the filing is also wrong—there is no de facto corporation or estoppel under the MBCA from a mistaken official statement, and it would swallow the statutory rule. Finally, the choice making Jenna liable only if she later ratifies by accepting benefits is wrong because ratification is an agency concept, not automatic from accepting benefits, and it does not define Ivan's current liability. Remember the MBCA test: acting on behalf of the corporation plus knowledge of defective incorporation—both elements are required.
- Under the Model Business Corporation Act and common law, which of the following is most accurate regarding Gina's liability to Hana?
Answer: Gina is liable because a promoter remains personally liable on a pre-incorporation contract unless the parties enter into a novation releasing the promoter.
Whenever you see a pre-incorporation contract, remember the default rule: promoters are personally liable on contracts they negotiate or sign for a not-yet-formed corporation. Signing "for Nova Corp." does not erase that liability—it merely makes the promoter the party who is bound until the corporation, after formation, steps in.
Here, Gina's signature as "Gina, for Nova Corp." still makes her a promoter on the lease. Nova Corp.'s later use of the equipment and lease payments constitute adoption, which binds the corporation to the contract. But adoption alone does not release Gina. Only a novation—an agreement among Gina, Nova Corp., and Hana substituting Nova Corp. for Gina—would release her personally. Since no formal assignment or new lease was executed, and no novation occurred, Gina remains liable. That is why the correct answer is that Gina is liable unless the parties entered into a novation.
The other choices each hide a trap. The statement that Gina is liable only if Nova Corp. has not "adopted" the lease is wrong because adoption creates corporate liability, not promoter release. The claim that disclosing the corporation removes liability is wrong because disclosure alone does not alter the promoter's personal default obligation. Finally, the assertion that Nova Corp.'s estoppel also protects Gina confuses the corporation's liability with the promoter's separate liability—estoppel prevents the corporation from denying the contract, but it does not shield the promoter.
Study tip: whenever a promoter question appears, ask two questions—Was there a novation? Did the contract itself expressly exclude promoter liability? If neither, the promoter is personally liable.
- Under the Revised Uniform Partnership Act, which of the following is most accurate regarding liability?
Answer: Paul is liable to the third party, but Quinn is not liable because she never consented to the representation and no partnership existed.
Whenever you see a RUPA fact pattern about someone claiming to be a partner, separate the person making the representation from the alleged partner. Under RUPA §308, a person who purports to be a partner, or consents to another's representation, is liable to a third party who extends credit in reliance. Paul signed as "Paul, partner in Paul & Quinn," so he made the representation; the third party relied by extending credit. That makes Paul liable even though no actual partnership existed. Quinn expressly refused and never consented to Paul's representation, and no actual partnership existed, so she did not hold herself out and is not liable.
The answer that neither is liable is wrong because a purported partner can be liable to a relying creditor regardless of whether an actual partnership existed. The answer that both are liable is wrong because Quinn did not consent and no partnership existed to bind her. The answer that Paul is liable only if he knew the representation was false is wrong: §308 liability turns on holding out plus reliance, not on knowledge. Finally, the answer that Quinn is liable only if she ratified Paul's conduct is incomplete: she could be liable if she consented or authorized the representation, but ratification is not the only route, and here she did neither.
Remember the trap: focus on who made or authorized the hold-out. The representor is liable; the non-consenting alleged partner is not.
- Under the Revised Uniform Partnership Act, which of the following is most accurate regarding whether Rosa is a partner?
Answer: Rosa is not a partner because the payment she receives is compensation for services, which is an exception to the profit-sharing presumption.
Whenever you see a profit-sharing fact pattern in a partnership question, start with RUPA's presumption: sharing net profits is prima facie evidence of a partnership. But that presumption collapses if the share fits a statutory exception. Here, Rosa and Sam orally agreed she would receive 25% of net profits for introducing customers. Because that payment is compensation for services, it falls directly within the exception, so Rosa is not a partner. Introducing one customer, even a major one, does not make her a co-owner of the landscaping business.
The choice saying Rosa is a partner because profit sharing is prima facie evidence and no exception applies overlooks the service-compensation exception. Likewise, the choice claiming her customer introduction shows she carried on the business as a co-owner overstates her role—referral services are not running the business. The choice saying Rosa is not a partner because she lacked control or management rights reaches the right result for the wrong reason: RUPA does not require every partner to have management rights, and passive investors can be partners. The decisive fact is that her profit share was payment for services.
Strategy: whenever you see "share of profits," immediately scan for the exceptions—wages, rent, debt repayment, interest, annuity, or goodwill. If one applies, the partnership presumption disappears.
- Under the Model Business Corporation Act, which of the following is most accurate regarding Elena's attempted revocation?
Answer: The revocation is ineffective because pre-incorporation subscriptions are irrevocable for six months from the date of the subscription unless the agreement provides otherwise.
Whenever you see a pre-incorporation subscription, don't default to ordinary contract offer rules. The Model Business Corporation Act creates a special rule: a subscription to buy shares before incorporation is irrevocable for six months from the date of the subscription, unless the agreement itself provides otherwise. That statutory irrevocability is the key.
Here, Elena and Farid signed on January 15, so Elena's attempted revocation on April 1 falls within that six-month window. Even though she had not yet paid and shares had not been issued, the corporation may demand payment. The subscription agreement is enforceable under the MBCA despite the absence of an acceptance or issuance.
The choices saying revocation is effective because the corporation had not yet accepted or issued shares are wrong because the MBCA does not make enforceability depend on acceptance or issuance; the subscription is automatically irrevocable for six months. The choice saying revocation is ineffective but from the date of incorporation is also wrong: the six-month period runs from the date of the subscription, not from filing the articles. That date matters here because it places the revocation inside the protected period.
Your study tip: for pre-incorporation subscriptions, memorize the statutory six-month irrevocability and its starting point—subscription date, not incorporation date. Also remember "unless the agreement provides otherwise," so always check the facts for a contrary term.
- Under the Revised Uniform Partnership Act, which of the following is most accurate regarding whether Carla or Darius is a partner of the delivery company?
Answer: Neither Carla nor Darius is a partner because sharing gross receipts, without more, does not establish a partnership.
Whenever you see a question about whether someone is a partner, the critical distinction under the Revised Uniform Partnership Act (RUPA) is between sharing profits and sharing gross receipts. A partnership is an association of persons to carry on a business for profit as co-owners. Merely receiving a share of gross revenue—the business's total income before expenses—is not enough to establish a partnership. Here, Carla and Darius are co-owners of the warehouse, but that makes them co-owners of a distinct asset, not co-owners of the delivery company. Their lease agreement entitles them to a flat rent plus 10% of the delivery company's gross receipts. Because this payment is calculated on gross receipts (revenue) rather than on net profits, it is classified as rent, not a share of business profits. Carla's bookkeeping fee is a fixed payment for services rendered, which similarly creates a creditor relationship, not a partnership. Therefore, neither is a partner. Why are the others wrong? The choice claiming "both are partners because they co-own the warehouse and share in gross receipts" fails because co-ownership of the leased property does not equate to co-ownership of the business, and sharing gross receipts is explicitly insufficient under RUPA. The choice saying "Carla is a partner because she provides services" is a trap—providing services for a fixed fee is an independent contractor or employee relationship, not a partner's profit share. The choice saying "Darius is a partner because rent is based on gross receipts" also misapplies the rule—rent based on gross receipts is still rent, not a profit share. For the exam, remember this mantra: gross receipts are for creditors and landlords; profits are for partners. If you see "gross receipts" or "fixed fee," the person is likely not a partner unless they also share in net profits.
