Bar Exam (Next Generation) Quiz: Creation

11 questions · exam conditions

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CreationQuestion 1 of 11

Ivan and Jenna execute articles of incorporation and mail them, along with the filing fee, to the Secretary of State. The Secretary of State rejects the filing because the corporate name is impermissibly similar to an existing corporation's name. Ivan, but not Jenna, learns of the rejection. A staff member at the Secretary of State's office then mistakenly tells Ivan that the filing had been accepted. Ivan signs a supply contract as 'President of Apex Corp.' on behalf of the purported corporation. The supplier later learns no corporation exists and sues Ivan and Jenna.

Under the Model Business Corporation Act, which of the following is most accurate regarding personal liability?

Ivan is liable because he knew no corporation existed; Jenna is not liable because she lacked that knowledge.

Both Ivan and Jenna are liable because both signed the articles of incorporation and thus purported to act on behalf of the corporation.

Neither Ivan nor Jenna is liable because the Secretary of State's office erroneously confirmed the filing, making the corporation valid by estoppel.

Ivan is liable, and Jenna is liable only if she later ratifies the contract by accepting benefits from it.

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Bar Exam (Next Generation) Quiz

Bar Exam (Next Generation) Quiz: Creation

Practice Creation in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Creation, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Next Generation).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

Under the Model Business Corporation Act, which of the following is most accurate regarding personal liability?

Ivan is liable because he knew no corporation existed; Jenna is not liable because she lacked that knowledge. (correct answer)
Both Ivan and Jenna are liable because both signed the articles of incorporation and thus purported to act on behalf of the corporation.
Neither Ivan nor Jenna is liable because the Secretary of State's office erroneously confirmed the filing, making the corporation valid by estoppel.
Ivan is liable, and Jenna is liable only if she later ratifies the contract by accepting benefits from it.

Explanation: 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.

Question 2

Amara and Ben decide to open a restaurant. They sign a written agreement stating that they will share all net profits equally, that each will contribute capital, and that Amara alone will manage daily operations while Ben will have no right to participate in management. After the restaurant suffers losses, a supplier who extended credit to the business seeks to hold Ben personally liable as a partner.

Under the Revised Uniform Partnership Act, which of the following best explains Ben's status?

Ben is not a partner because the agreement removed his right to participate in management, and management rights are an essential element of partnership.
Ben is not a partner because the sharing of net profits alone is only prima facie evidence of a partnership and can be rebutted by the agreement's express exclusion of management rights.
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. (correct answer)
Ben is a partner only if the supplier actually knew of the profit-sharing arrangement before extending credit.

Explanation: 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.

Question 3

Ursula and Victor agree to form an LLC by filing articles of organization on September 15. Before filing, they sign an operating agreement that includes a noncompetition clause binding on all members. The articles are filed on September 15. On September 20, the operating agreement is amended to add a capital-contribution obligation; Ursula votes for the amendment, Victor votes against it. The operating agreement states that amendments require the consent of members owning a majority of the distributional interests.

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?

The operating agreement became effective on September 15 when the articles were filed, and the amendment is effective because it was approved by a majority of the distributional interests as required by the agreement.
The operating agreement became effective on the date it was signed, September 15 remains the formation date, and the amendment is ineffective because Victor did not consent.
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. (correct answer)
The operating agreement did not become effective until Victor and Ursula both became members after filing, and the amendment is effective only if it does not impair Victor's existing rights.

Explanation: 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.

Question 4

Gina, a promoter, negotiates a one-year equipment lease with Hana on behalf of 'Nova Corp., a corporation to be formed.' Gina signs the lease as 'Gina, for Nova Corp.' Nova Corp. is later incorporated and uses the equipment for six months, making lease payments, but no formal assignment or new lease is executed. When Nova Corp. defaults on the remaining payments, Hana seeks payment from Gina personally.

Under the Model Business Corporation Act and common law, which of the following is most accurate regarding Gina's liability to Hana?

Gina is liable because a promoter remains personally liable on a pre-incorporation contract unless the parties enter into a novation releasing the promoter. (correct answer)
Gina is liable only if Nova Corp. has not 'adopted' the lease, because the corporation's use and payment constitute adoption, which automatically releases the promoter.
Gina is not liable because she disclosed that she was acting for the corporation, and the contract contemplated that Nova Corp. would become the obligor.
Gina is not liable because Nova Corp., by accepting the benefits of the lease after incorporation, is estopped from denying liability, and that estoppel also protects the promoter.

Explanation: 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.

Question 5

Paul, seeking to do business as a general partnership with Quinn, signs a contract as 'Paul, partner in Paul & Quinn' after Quinn explicitly told Paul that Quinn was unwilling to be a partner. Paul has never been in business with Quinn. A third party reasonably relies on Paul's representation and extends credit to 'Paul & Quinn.'

Under the Revised Uniform Partnership Act, which of the following is most accurate regarding liability?

Neither Paul nor Quinn is liable because no actual partnership existed and the third party should have verified the partnership's existence.
Both Paul and Quinn are liable because Paul's representation of a partner relationship binds both purported partners when a third party relies on it.
Paul is liable only if he knew the representation was false, and Quinn is liable only if she ratified Paul's conduct.
Paul is liable to the third party, but Quinn is not liable because she never consented to the representation and no partnership existed. (correct answer)

Explanation: 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.

Question 6

Elena and Farid sign a pre-incorporation subscription agreement on January 15, agreeing to purchase 1,000 shares each in a corporation to be formed, with payment due upon incorporation. The articles of incorporation are filed on March 1. On April 1, before paying, Elena writes to the corporation revoking her subscription. The corporation demands payment.

Under the Model Business Corporation Act, which of the following is most accurate regarding Elena's attempted revocation?

The revocation is effective because the corporation had not yet accepted the subscription by issuing the shares to Elena.
The revocation is effective because a pre-incorporation subscription is merely an offer that becomes irrevocable only when the corporation is formed and accepts it.
The revocation is ineffective because pre-incorporation subscriptions are irrevocable for six months from the date of the subscription unless the agreement provides otherwise. (correct answer)
The revocation is ineffective because pre-incorporation subscriptions are irrevocable for six months from the date of incorporation unless the agreement provides otherwise.

Explanation: 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.

Question 7

Tara, a promoter, signs a contract with Ultra Office Supply for furniture to be delivered to 'Vertex Corp., a corporation to be formed.' The contract states: 'Vertex Corp. shall be solely liable for all amounts due; Tara shall have no personal liability.' Vertex Corp. is incorporated the next week but never accepts or uses the furniture. Ultra demands payment, first from Vertex, then from Tara.

Under common law and the Model Business Corporation Act, which of the following is most accurate regarding Tara's liability?

Tara is liable because a promoter cannot disclaim personal liability by contract; the disclaimer is effective only if the corporation adopts the contract after formation.
Tara is liable because the contract was signed before the corporation existed and only a novation after incorporation can release a promoter.
Tara is not liable because the contract expressly excluded her personal liability and looked solely to the future corporation for payment. (correct answer)
Tara is not liable because the furniture was never delivered, and until delivery occurs, no enforceable contract obligation exists.

Explanation: 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.

Question 8

Omar is a member of a limited liability company organized under the Uniform Limited Liability Company Act (2013). He was admitted as a member upon contributing capital, but he never signed the operating agreement, which contains an arbitration clause and a capital-call provision. A dispute arises, and Omar argues he is not bound by the operating agreement because he never signed it.

Under the Uniform Limited Liability Company Act (2013), which of the following is most accurate regarding Omar's argument?

Omar is bound by the arbitration clause but not by the capital-call provision because capital obligations require his affirmative consent.
Omar is not bound by the operating agreement because an operating agreement requires the consent of all members, which can only be shown by signature.
Omar is bound by the operating agreement only if it was in writing and expressly stated that nonsigning members are bound by its terms.
Omar is bound by the operating agreement because a person becomes bound when they become a member, regardless of whether they sign the agreement. (correct answer)

Explanation: 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.

Question 9

Carla and Darius co-own a commercial warehouse as tenants in common. They lease the warehouse to a delivery company for a flat monthly rent plus 10% of the delivery company's gross receipts. Carla also provides bookkeeping services to the delivery company for a separate fee. A delivery company creditor seeks to hold Carla and Darius liable as partners of the delivery company.

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?

Both Carla and Darius are partners because they co-own the warehouse and share in the delivery company's gross receipts.
Neither Carla nor Darius is a partner because sharing gross receipts, without more, does not establish a partnership. (correct answer)
Carla is a partner because she provides services to the business, but Darius is not a partner because he only receives rent.
Darius is a partner because the rent is based in part on gross receipts, but Carla is not a partner because her bookkeeping fee is paid separately.

Explanation: 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.

Question 10

Rosa and Sam orally agree that Rosa will receive 25% of the net profits from Sam's existing landscaping business in exchange for introducing Sam to potential customers. Rosa introduces Sam to one customer, who becomes a major client. Rosa then demands a share of the business's profits and claims to be a partner. Sam denies that he and Rosa are in business together.

Under the Revised Uniform Partnership Act, which of the following is most accurate regarding whether Rosa is a partner?

Rosa is a partner because the receipt of a share of net profits is prima facie evidence of partnership, and no exception to that presumption applies.
Rosa is not a partner because the payment she receives is compensation for services, which is an exception to the profit-sharing presumption. (correct answer)
Rosa is a partner because a partnership agreement need not be in writing, and her introduction of a customer shows she carried on the business as a co-owner.
Rosa is not a partner because the agreement did not give her any right to control or manage the landscaping business.

Explanation: 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.

Question 11

Miguel and Nora sign and file articles of incorporation that name Miguel and Nora as the only incorporators and do not name any initial directors. The articles are filed on June 1. On June 20, Miguel and Nora hold a meeting at which they adopt bylaws and elect themselves as directors. Miguel believes the meeting was required to occur within a reasonable time after filing, and that the corporation did not exist until this meeting.

Under the Model Business Corporation Act, which of the following is most accurate?

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. (correct answer)
The corporation's existence began on June 1, but the June 20 meeting was invalid because the incorporators' authority to organize expired when the articles were filed.
The corporation's existence began on June 20 because the organizational meeting is required to create the corporation, and no corporate action could occur before that date.
The corporation's existence began on June 1, but the election of Miguel and Nora as directors is invalid because only shareholders may elect directors at an organizational meeting.

Explanation: 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.