Sample/practice Exam 5 April Year, Questions and Answers: Company Law For Business (Curtin University)

lOMoARcPSD|4046894
Sample/practice exam 5 April year, questions and answers
Company Law for Business (Curtin University)
StuDocu is not sponsored or endorsed by any college or university

Downloaded by Milk Tea (milktea377@sina.com)
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. Select the statement that most accurately describes the key features of companies:
a. Companies must be incorporated (registered).
b. Companies have one or more members.
c. Companies have one or more directors.
d. All of the above.*
4. A company is a separate legal entity. This means that:

a. The company is separate from its shareholders.
b. The company is separate from its directors/officers.
c. The company is separate from its shareholders, directors and officers.
5. Concerning the management of a company, select the most appropriate statement:

a. Companies are generally managed by individual directors.
b. Companies are generally managed by the directors collectively.*
c. Companies are generally managed by individual shareholders.
d. Companies are generally managed by shareholders collectively.
Company Law for business 266
Multiple choice Questions and Answers
© Curtin Business School 1/23
1/23
lOMoARcPSD|4046894
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. One of the following is not a role of ASIC:

a. To regulate partnerships.*
b. To investigate breaches of corporate law.
c. To receive and process corporate information.
d. 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. The case of Lee v Lee’s Air Farming Ltd (1961) illustrates that:
a. A company is a separate person from its founder(s) and director(s).
b. A company can contract with its founder(s) and director(s).
c. Both of the above are correct.*
d. 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.

2/23

lOMoARcPSD|4046894
Topic 2: Piercing the Corporate Veil and Companies and

Business Planning
1. Select the answer that best describes the meaning and effect of the ‘corporate veil’:
a. It is designed to make it impossible for anyone to find out who is in control of a company.
b. It allows directors and officers to escape their legal obligations or to commit a fraud.
c. It is terminology used to separate the company from its members and directors/officers.*
d. It can only be lifted by the courts.
2. The courts are generally reluctant to ‘lift the corporate veil’ because:
a. The company is a separate legal entity.
b. The company contracts in its own right.
c. The company’s debts are its own liability, not that of its members or directors.
3. One of the following is not a circumstance in which a court would ‘lift the corporate veil’:
a. The company was formed to take advantage of its limited status.*
b. The company was formed to enable perpetration of a fraud.
c. The company was formed to circumvent breach of a (restraint of trade) clause.
d. 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).

3/23

lOMoARcPSD|4046894
7. Concerning managed investment schemes, one of the following is incorrect:

a. The scheme is funded by investments from the public and put in a collective investment.
b. The investors are not involved in the management and running of the scheme.
c. The scheme does not have a constitution.*
d. Investors are directly entitled to the benefits of the scheme in proportion with
their investment.
8. A public company may be:

a. Limited by shares or limited by guarantee.
b. Unlimited with share capital or be incorporated as a ‘no liability’ company.
c. Listed on a stock exchange or unlisted.
9. In relation to a no liability company, one of the following is correct:

a. The company may or may not have a constitution.
b. It may be incorporated as a public or proprietary company.
c. It may make a call on the unpaid amount of members’ shares, but it cannot enforce such
a call.*
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.

4/23

lOMoARcPSD|4046894
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. Internal management of a company does not concern one of the following:

a. The right of the company to own assets.*
b. The rights and obligations of members.
c. The rights and duties of directors.
d. The division of powers between members and directors.
4. A company’s constitution generally does not deal with:

a. The rights and duties of members.
b. Appointment and remuneration of all directors.
c. Appointment and remuneration of all employees.*
d. Conduct of members meetings.
5. A company’s constitution is a statutory contract between:

a. The company and its members and employees.
b. The company and its directors and secretaries.
c. The company and its members, and between the members themselves.
d. 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. After registration, a company may:

a. Adopt a constitution by special resolution.*
b. Adopt a constitution by ordinary resolution.
c. Adopt a constitution with the express consent of ASIC.
d. Adopt a constitution with the express or implied consent of ASIC.

5/23

lOMoARcPSD|4046894
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. One of the following is correct about company names:

a. All companies are required to have a specific name.
b. A company can have whatever name it likes.
c. A company cannot always have whatever name it likes.*
d. 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.*

6/23

lOMoARcPSD|4046894
Topic 4: Managing Companies, Members’ Meetings and

Company Directors & other officers
1. Which of the following is not a Board of Directors’ power?

a. Management power.
b. Power to determine dividends.
c. Power to call members meeting.
d. Power to alter company’s constitution.*
2. Which of the following statements is correct?

a. The company secretary is the chief administrative officer of the company.*
b. The company secretary has extensive power to bind the company in contract.
c. 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.

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.

7/23

lOMoARcPSD|4046894
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
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
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.

8/23

lOMoARcPSD|4046894
Topic 5: Transacting by Companies

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.

9/23

lOMoARcPSD|4046894
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 “indoor management rule” when the person knew or were “put on
inquiry” that the acts were not regular.*
c. The case of Northside Developments Pty Ltd v Registrar-General developed the doctrine
of estoppel which prevents a principal from denying that an agent did not have authority
to bind the company.
d. The case of Northside Development Pty Ltd v Registrar General developed the indoor
management rule.
7. A company can always enter into a contract using its company seal if:
a. The seal is witnessed by the company secretary.
b. The seal is witnessed by 2 directors or a director and a company secretary. *
c. The seal is witnessed by the managing director.
d. The seal is witnessed by a director.
8. The company’s decision-making power is split between the organs of the company.
The organs of the company are:
a. The members in general meeting and each individual director.
b. Each individual member and the board of directors.
c. The members in general meeting and the board of directors.*
d. The members in general meeting, the board of directors and the employees of the
company.
9. Which one of the following generally has the customary authority to bind the company?
a. Any individual director.
b. The chairperson.
c. The managing director.*
d. A non-executive director.
10. XYZ Ltd’s company seal is affixed to a mortgage in breach of the

company’s constitution. Which of the following is correct?
a. The mortgage is unenforceable but the directors will be personally liable to the lenders for
the company’s debt.
b. The mortgage is unenforceable.
c. The mortgage is enforceable as the lender may assume that the company seal has been
affixed in accordance with the company’s constitution.*
d. The mortgage is unenforceable unless the lender made inquiries as to the company’s
compliance with the company’s constitution.

10/23

lOMoARcPSD|4046894
Topic 6: Directors Duties Part 1
1. Section 180(1) of the Corporations Act 2001 (Cth) imposes an obligation on directors to
exercise care and diligence but what is this measured against?
a. The other directors in the company.
b. The business judgements already serving as precedents in corporate law.
c. The degree of care and diligence that a reasonable person would exercise if they were a
director of the company in the same circumstances.*
d. The degree of care and diligence that the particular director reasonably believes to be
appropriate.
2. In relation to a director’s duty of care, which of the following statements is not correct?
a. A director is expected to read the company’s financial statements only if they are
qualified to interpret them.*
b. A director must, at all times, keep abreast of every aspect of the company’s business
affairs.
c. A director must take steps to ensure that they are familiar with the company’s business
and affairs.
d. A director must set in place effective mechanisms to ensure that the company is being
properly run.
3. In ASIC v Rich [2009] NSWSC 1229 it was held that the officers could rely on the
business judgment rule. Which of the following statements in relation to the business
judgement rule is correct?
a. Failure to undertake proper oversight of the company’s affairs cannot be a business
judgment.
b. A ‘business judgment’ involves a decision to take or not take action in respect to matters
relevant to the business operations of the company.
c. Directors may not be liable if they were not aware of available information that was
relevant to the business decision made.
d. All of the above are correct. *
4. Three directors of Spandex Ltd opened a new outlet in an elite shopping centre without
doing a proper feasibility study. Within six months of the opening of the new outlet, it
becomes apparent that the company was not in a financial position to have taken such a
step. The company is unable to pay its debts and a liquidator has been appointed. What
duty under general law would the directors of Spandex Ltd have breached by not carrying
out a feasibility study?
a. Conflict of interest.
b. Duty of care, skill and diligence.*
c. Good faith and proper purpose.
d. Disclosure.

11/23

lOMoARcPSD|4046894
5. Which of the following statements is correct in relation to the breach of the fiduciary duty
to prevent insolvent trading?
a. The duty may be breached if the company is insolvent or becomes insolvent by incurring a
debt and at that time, there are reasonable grounds for suspecting that the company is
insolvent or would become insolvent.
b. The duty will only be breached if the directors were acting dishonestly.
c. Directors may be held personally liable for debts incurred in breach of the duty
d. Both (a) and (c) are correct. *
6. Which of the following are defences to insolvent trading under section 588H?
a. A director was too ill and was not involved in management of the company at the time
when the debt was incurred. *
b. The directors had no idea that the company could become insolvent.
c. The directors can prove they acted honestly.
7. Which of the following statements about the duty to act in good faith is correct?
a. Directors owe the duty to individual shareholders of a company.
b. Directors owe the duty to the company as a whole. *
c. Directors owe the duty to employees of a company.
8. Do the directors of a company owe a duty to creditors?

a. Yes, directors usually owe a duty to the company’s creditors.
b. Directors only owe a duty to the company’s creditors if the company is solvent.
c. The directors’ duty to the creditors will increase as the solvency of the company
decreases.*
d. No, directors never need to concern themselves with the interests of creditors of a
company.
9. The duty to retain discretion means that:

a. The director should not disclose any material personal interest to the board of directors.
b. The director should disclose any material personal interest to the board of directors.
c. The director should remain independent, freely exercising their powers in the company’s
best interests.*
d. The director should stay away from board meetings when they have a material personal
interest in a matter to be discussed at the meeting
10. Which of the following is considered a proper purpose for issuing shares?
a. To maintain control.
b. To create or destroy a majority voting power.
c. To defeat a takeover.
d. None of the above. *
Topic 7: Directors Duties Part 2

12/23

lOMoARcPSD|4046894
1. A director’s duty to avoid a conflict of interest includes:

a. Not making a personal profit from an opportunity arising from their office.
b. Not taking up an opportunity that belongs to the company.
c. Improper use of position.
d. All of the above. *
2. Directors are in breach of their duty if they take up opportunities which belong to the
company and any profit from such ventures must be given up to the company. Which of
the following cases illustrates this principle?
a. Pender v Lushington (1877).
b. Bamford v Bamford [1970].
c. Cook v Deeks [1916]. *
d. ASIC v Vizard (2005).
3. Sarah is a non-executive director of Cookies Galore Ltd, a confectionary company, and is

considering taking up a position as a director of Brite Biscuits Ltd in addition to her first
directorship. How would you advise her to avoid breaching section 183 of the
Corporations Act 2001?
a. She may take up the second directorship, so long as she doesn’t divulge any of Cookies
Galore Ltd’s confidential information. *
b. If she resigns form Cookies Galore Ltd, she may take up the position in Brite Biscuits Ltd
and use any of the information acquired at Cookies Galore Ltd, regardless of whether it is
confidential or not.
c. She may not hold both directorship positions at the same time.
d. It will depend on her terms of engagement with Cookies Galore Ltd.
4. Chapter 2E of the Corporations Act 2001 (Cth) applies to which of the following
companies?
a. Public and large proprietary companies.
b. Only public companies.*
c. Only proprietary companies.
d. All companies.
5. Placido Ltd wishes to acquire a piece of land adjacent to its factory site. This land
belongs to Darren’s wife, Serena. Darren is one of the five directors of Placido Ltd.
Which of the following conditions must be complied with for this transaction to be valid?
a. Approval of Placido Ltd’s shareholders should be obtained.*
b. Approval of the court should be obtained.
c. The transaction cannot be valid.
d. Darren must not benefit from this transaction.
6. In the case of a public company, a director makes the correct disclosure under section 191
of the Corporations Act 2001 (Cth). Which section of the Corporations Act 2001 (Cth)
may not allow a director to vote at the directors meeting?
a. Section 194.
b. Section 195.*
13/23

lOMoARcPSD|4046894
c. Section 205G.
d. Section 201.
7. The requirement that only members can approve a related party transaction can be
overcome by utilising one of the exceptions in which section?
a. Section 210.
b. Section 211.
c. Section 213.
8. If a director of a proprietary company profits from an opportunity that arises from their
office, in what circumstances can they retain their profit?
a. Where the company’s constitution provides that the directors are entitled to retain any
profit.
b. Where the members in general meeting resolve to allow the directors to retain their profit.
c. Where the directors disclose their profit to the other directors.
9. Which of the following statements is true?

a. ASIC is the body responsible for enforcing a breach of a director’s statutory duties.*
b. A company may apply for a pecuniary penalty order under s1317J.
c. A contravention of civil penalty provisions can never give rise to a criminal offence.
d. All of the above.
10. If a director of a public company profits from an opportunity that arises from their office,
in what circumstances can they retain their profit?
a. Where the company’s constitution provides that the directors are entitled to retain any
profit.
b. Where the members in general meeting resolve to allow the directors to retain their profit.
*
c. Where the directors disclose their profit to the other directors.
Topic 8: Members Remedies and Reporting & Disclosure

1. Which of the following circumstances will a member not be able to use section 140 of the
Corporations Act 2001 (Cth) to obtain a personal remedy?
a. Where a shareholder has been deprived of his or her right to vote.
b. Where a shareholder has not been given notice to attend the Annual General Meeting of
the company.
c. To enforce the company’s constitution whereby a member has been appointed as an
accountant.*
14/23

lOMoARcPSD|4046894
2. Sandra Veil and Gina Rendall are minority shareholders in Dee Pty Ltd. They recently
discovered that while the company paid minimal dividends this financial year, the salaries of
the executive directors increased by over 200%. They are contemplating commencing an
action against the directors for oppressive and unfair conduct. Which of the following
statement is incorrect?
a. The mere fact that dividends were low and directors’ remuneration packages were high is
not of itself enough to indicate oppressive and unfair conduct.
b. Minority shareholders will never succeed in establishing oppressive and unfair conduct
in circumstances such as these.*
c. A deliberate policy of paying low or no dividends can amount to oppressive conduct.
d. Sandra and Gina may be able to seek remedy under sections 232 to 235 of the
Corporations Act 2001 (Cth).
3. Which of the following remedies may be sought to rectify the effects of oppressive,
unfairly prejudicial or unfairly discriminatory conduct?
a. The company is wound up.
b. The company’s constitution is modified.
c. A receiver is appointed.
4. The rule in Foss v Harbottle provides:

a. That the majority directors cannot abuse the minority shareholders.
b. That the majority shareholders cannot abuse the minority shareholders.
c. That only the company can commence a legal action where the company has been
wronged.*
d. That only the majority shareholders of a company can commence a legal action where the
company has been wronged.
5. Dale, a member of Emcal Ltd, asserts that Matthew, a director and very influential
member of the company, has engaged in conduct which has significantly benefited his family
at the expense of the company. Dale would like court action to be taken against Matthew to
redress this very serious abuse of position. However, the other directors of Emcal Ltd rarely
question Matthew’s decisions or dare challenge him. How would you advise Dale to
proceed?
a. To commence a common law derivative action against Matthew directly.
b. To commence a statutory derivative action against Matthew directly.
c. To request ASIC to institute proceedings against Matthew.
d. To apply to the court for leave to commence a statutory derivative action against
Matthew.*
6. Which of the statement is correct about statutory derivative action?

a. Only members can commence a statutory derivative action.
b. In order to bring a statutory derivative action, a person must apply for leave of court.*
c. If the court grants leave to the company to commence a derivative action, that is
confirmation that the directors have done a wrong to the company.
d. Statutory derivative action can only be commenced if the wrongdoing directors have not
acted in good faith.

15/23

lOMoARcPSD|4046894
7. Which condition does a member not have to satisfy under section 237 of the
Corporations Act 2001 (Cth) to obtain leave of the court to commence a statutory derivative
action?
a. It is probable that the company itself will not bring the proceedings, or properly take
responsibility for them, or for the steps in them.
b. The applicant is acting in good faith and there is a serious question to be tried.
c. It is in the best interests of the company that the applicant be granted leave.
d. At least 21 days before making the application, a written notice is given to the company.*

a. All registered companies must keep financial records.*
b. Small proprietary companies are exempt from keeping financial records.
c. Public companies are required to lodge financial records with ASIC.
9. Street Smart Pty Ltd is a large proprietary company. Which of the following statements
is correct?
a. The company must hold an AGM and present a financial report.
b. The company is required to send financial reports to ASIC within four months after
the end of the financial year.
c. The company is required to send financial reports to its members within four monthes
after the end of the financial year.
d. Both b and c are correct. *
10. Which of the following statements is incorrect about an audit report?

a. The auditor must report to the members on whether the company’s financial reports
comply with accounting standards.
b. The auditor must report to the directors on whether the company’s financial reports
comply with the company’s internal rules.
c. The auditor must report to the members on whether the company’s financial reports give
a true and fair view of the company’s financial position.
d. None of the above.*
Topic 9: Financing Companies, Shares and Shareholding

1. Which of the following statement is incorrect concerning creditors?
a. The creditors have an equitable interest in the company.
b. The creditors are paid a return of capital before the shareholders when a company is
wound up.
c. The creditors are entitled to a payment of interest regardless of whether the company
has made a profit or a loss.
16/23

lOMoARcPSD|4046894
d. The creditors always control the company.*
2. Which of the following statement is correct concerning shareholders?

a. The shareholder that has acquired 10% of a company’s share capital is entitled to 10%
of the company’s profits as dividends.
b. In a winding up, capital is returned to shareholders after the creditors have been paid.
*
c. Debentures are another form of share capital.
d. There is no real difference between equity and debt capital as the company’s capital
belongs to the company.
3. Which of the following is a characteristic of a share?

a. It confers rights which are not enforceable by law.
b. It is a debt due by the company to the holder.
c. It cannot be sold by the owner.
d. It is personal property of the shareholder made up of a bundle of rights.*
4. An issue of debentures enables a company to:

a. Lend money to the public.
b. Restrict the class of persons who may invest in the company.
c. Avoid paying tax on its income.
d. Borrow money from the general public.*
5. As a means of protecting the interests of debenture holders, a company that has entered
into a trust deed must:
a. Furnish certain information to ASIC and the trustee for debenture-holders.*
b. Engage only in a restricted range of business.
c. Obtain the consent of ASIC before making any payment.
d. Appoint as directors only persons who hold certain minimum
education qualifications.
6. Alan owns 100 ordinary shares in Coco Limited. Which of the following statement is
correct concerning Alan’s rights as a shareholder?
a. Alan should be entitled to at least 100 votes at a members’ meeting.
b. Alan’s shares are likely to rank first in the return of capital on winding up the
company.
c. Alan will always be able to rely on receiving a dividend from the company.
d. Alan’s rights as a shareholder can be enforced under s140(1) of the Corporations
Act 2001 (Cth).*
7. Bill owns 5000 six per cent redeemable preference shares in Coco Limited. Which of the
following statement is incorrect concerning Bill’s rights as a shareholder?
a. Bill’s preference shares have different rights attached to them compared with
Alan’s ordinary shares.
b. Coco Limited should be able to redeem Bill’s shares out of profits of the company or
proceeds of new share issue.
c. Bill’s preference shares should rank ahead of Alan’s ordinary share in winding up
of Coco Limited.
d. None of the above statement is correct*

17/23

lOMoARcPSD|4046894
8. Which of the following statements is incorrect?

a. Holders of cumulative preference shares have the right to be paid dividends in arrears
if dividends are not paid in one year.
b. Holders of participating preference shares are entitled to receive surplus capital on
winding up together with the ordinary shareholders.
c. Holders of redeemable preference shares have an automatic right to dividend
payments.*
d. Section 254A of the Corporations Act 2001 (Cth) requires the company’s constitution
to set out the rights attached to preference shares issued by the company.
9. The correct procedure for reducing the dividend rate of preference shares from 6% to
4% is:
a. With an ordinary resolution of all shareholders of the company at a general meeting.
b. With a special resolution of all the shareholders of the company at a general meeting.
c. With a special resolution of the preference shareholders at a class meeting and an
ordinary resolution of the ordinary shareholders at a general meeting.
d. With a special resolution of the preference shareholders at a class meeting and a
special resolution at a general meeting.*
10. Which of the following statement is incorrect:

a. Members can change the directors’ right to determine dividends by passing a
special resolution under S136 of the Corporations Act 2001 (Cth).
b. Directors can pay a dividend to shareholders even if the company has made losses, so
long as the conditions in S254T of the Corporations Act 2001 (Cth) are satisfied.
c. A dividend may only be paid out of profits of the company.*
d. A company’s constitution can allow members to declare dividends, thereby endorsing
the directors’ determination of the amount of dividend that the company should pay.
Topic 10: Members Remedies and Reporting & Disclosure

1. Which of the following statements is incorrect?
a. The doctrine of capital maintenance has been abolished as the Corporations Act now
allows a company to reduce its issued capital by repurchasing its shares or providing
financial assistance to others to enable them to purchase the company’s shares. *
b. The doctrine of capital maintenance is intended to maintain the company’s capital for
the benefit of the company’s creditors.
c. The doctrine of capital maintenance generally operates to prevent a company from
reducing its issued capital by repurchasing its shares or providing financial assistance to
others to enable them to purchase the company’s shares.

18/23

lOMoARcPSD|4046894
d. The doctrine of capital maintenance has been significantly diminished as the

Corporations Act permits financial assistance to others to enable them to purchase the
company’s shares as long as it does not materially prejudice creditors or members.
2. Under the rule in Trevor v Whitworth (1887) a company may?

a. Not reduce its issued capital. *
b. Freely purchase its shares.
c. Pay dividends out of its capital.
d. Purchase its shares only if its constitution authorises it to do so.
3. What is a permitted share buy-back?

a. The company offers to buy members’ shares at a particular price. Provided the procedural
rules are complied with, the member must sell their shares back to the company.
b. The company offers to buy selected members’ shares at a particular price. Provided the
procedural rules are complied with, the selected members must sell their shares back to
the company.
c. The company offers to buy members’ shares at a particular price. Provided the
procedural rules are complied with, the member can accept or reject the company’s offer
to sell their shares back to the company.*
d. None of these statements are an accurate description of a share buy-back.
4. Chas Ltd sent a document to all its members offering to acquire from them up to 12% of
their shares at $10 per share. Which type of buy-back procedure would this require?
a. Minimum holding.
b. Equal access over 10/12 limit.*
c. Equal access within 10/12 limit.
d. Selective buy-back.
5. Which of the following statements is true for a selective buy-back of shares?

a. A selective buy-back can only occur if all shareholders are given an opportunity to sell
their shares and an ordinary resolution of shareholders is required.
b. A selective buy-back can only occur if some shareholders are given an opportunity to sell
their shares and a special resolution of shareholders is required. *
c. A selective buy-back can only occur if some shareholders are given an opportunity to sell
their shares and no resolution of shareholders is required.
d. A selective buy-back can only occur if all shareholders are given the same opportunity to
sell their shares and a special resolution of shareholders is required.

19/23

lOMoARcPSD|4046894
6. Street Smart Ltd wishes to raise $150 million through the issue of new shares to the
public. To satisfy the requirements of the Corporations Act 2001 (Cth), what type of
disclosure document must Street Smart Ltd prepare?
a. An offer information statement.
b. A profile statement.
c. A prospectus.*
7. Clean Air Ltd, a waste management company, has won a major contract to collect rubbish
from 20 suburbs in Western Australia. To be able to fulfil this contract, Clean Air Ltd
wishes to raise $5 M from the public to enable it to purchase waste collection trucks. To
satisfy the requirements of the Corporations Act 2001 (Cth), which of the following
documents would you advise Clean Air Ltd to prepare?
a. An advertisement in a local newspaper.
b. An offer information statement.*
c. A statutory declaration.
d. A profile statement.
8. Which one of the following defences may be available in relation to a defective

prospectus?
a. Due diligence defence.
b. Lack of knowledge defence.
c. Reliance on information provided by another party.
9. In accordance with section 731 of the Corporations Act 2001 (Cth), in which of the
following circumstances would the due diligence defence be available?
a. The director made all reasonable inquiries and reasonably believed that the statement
was not misleading or deceptive.*
b. The director did not believe in the statement but made it anyway.
c. The director was aware that the statement was misleading.
d. The director was aware that the statement was false.
10. Big Fizz Pty Ltd wishes to issue shares in order to raise capital of $2 million to expand
the business. Which of the following statements is correct?
a. Big Fizz Pty Ltd will need to seek approval from ASIC.
b. Big Fizz Pty Ltd may issue shares to the public provided it is not raising more than $10
million.
c. Big Fizz Pty Ltd may issue shares as a small scale offering, provided the offer is made to
fewer than 20 people and the offer does not exceed $2 million within a twelve month
period.*
d. Big Fizz Pty Ltd cannot offer shares because a proprietary limited company is prohibited
from offering shares to the public.

20/23

lOMoARcPSD|4046894
Topic 11: External Administration and Winding Up

1. Which of the following persons are not permitted to apply to the court for winding up a
company that is insolvent?
a. A contributory.
b. A past member liable to contribute in a winding up.
c. A director.
d. An employee.*
2. Who appoints a receiver?

a. A secured creditor or the board of directors.
b. A secured creditor or the court.*
c. The court or the board of directors.
d. The court or members in general meeting.
3. What is the difference between a receiver and a receiver manager?

21/23

lOMoARcPSD|4046894
a. A receiver collects the debt only, whereas the receiver manager collects the debt and
widely manages the company.*
b. There is no difference.
c. The receiver collects the debt and widely manages the company, whereas the
receiver manager collects the debt only.
d. The creditor may not secure their entitlement from a receiver, but they may from a
receiver manager.
4. Which of the following statement is incorrect about voluntary administration?

a. Voluntary administration commences with an appointment of an administrator.
b. Voluntary administration ends when a deed of company arrangement is agreed and
executed.
c. Voluntary administration is an expensive process as it requires court approval.*
d. A purpose of voluntary administration is to maximise the possibility of the company
continuing.
5. Who may take action to enforce their security or recover their property without an
administrator’s consent?
a. A secured creditor.
b. The owner or lessor of property used by the company.
c. A secured creditor with a security interest over food that will pass its use by date during
the administration period.*
d. (a) and (b).
6. Within how many days after the administration begins must an administrator convene the
first meeting of the company’s creditors?
a. 20 days.
b. 8 days.*
c. 5 days.
d. 25 days.
7. Which of the following statements is correct about the requirement of a court order?
a. All winding up commences with an application for a court order.
b. Creditors voluntary winding up requires an order of the court.
c. Members voluntary winding up requires a court order.
d. Compulsory winding up requires a court order.*
8. On winding up, which debts or amounts are paid first?

a. Debts secured by non-circulating security interests.*
b. Employee wages.
c. Debts secured by circulating security interests.
d. Debts owing to unsecured creditors.
9. Which of the following is an unfair loan to a company?

a. A loan from a director.
b. A loan on which the interest and charges are extortionate on its terms.*
c. A loan that is to be repaid within 6 months.
d. A loan that results in the company becoming insolvent.
10. An insolvent transaction that is also an uncommercial transaction can be avoided if it was
entered into:
a. Up to 3 years before the relation-back day.
b. Up to 2 years before the relation-back day. *
22/23

lOMoARcPSD|4046894
c. Up to 4 years before the relation-back day.

d. No matter when it was entered into prior to winding up.
A director of a public company has a material personal interest in a

transaction with a company (that is not a related party transaction). In
what circumstances can they retain their profit?
Selected
Answer: b.
Where the director discloses their interest to the other directors and the members in
general meeting resolve to allow the directors to retain their profit.
Answers: a.
Where the director discloses their interest to the other directors and the company’s
constitution or the replaceable rules provides that the directors are entitled to retain
any profit.
b.
Where the director discloses their interest to the other directors and the members in
general meeting resolve to allow the directors to retain their profit.
c.
Where the directors disclose their profit to the other directors and the company
relies on RR s194.
d.
(a) or (b) above.

23/23

Sample/practice Exam 5 April Year, Questions and Answers: Company Law For Business (Curtin University)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sample/practice Exam 5 April Year, Questions and Answers: Company Law For Business (Curtin University)

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|4046894

Sample/practice exam 5 April year, questions and answers

Company Law for Business (Curtin University)

StuDocu is not sponsored or endorsed by any college or university

Multiple Choice Questions and

Answers Tutors Only

Topic 1: About Companies, company Law and Legal

4. A company is a separate legal entity. This means that:

5. Concerning the management of a company, select the most appropriate statement:

7. One of the following is not a role of ASIC:

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

Topic 2: Piercing the Corporate Veil and Companies and

5. One of the following statements relating to partnerships is correct?

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

7. Concerning managed investment schemes, one of the following is incorrect:

8. A public company may be:

9. In relation to a no liability company, one of the following is correct:

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

Topic 3: Constituting Companies

2. Which of the following statements is incorrect relating to where a company’s

3. Internal management of a company does not concern one of the following:

4. A company’s constitution generally does not deal with:

5. A company’s constitution is a statutory contract between:

7. After registration, a company may:

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

9. One of the following is correct about company names:

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

Topic 4: Managing Companies, Members’ Meetings and

1. Which of the following is not a Board of Directors’ power?

2. Which of the following statements is correct?

5. Which of the following statements is correct?

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

7. Which of the following statements is true?

9. Which of the following statement is correct?

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

Topic 5: Transacting by Companies

1. Which of the following statements is correct?

3. Which of the following is not a type of authority given to an agent?

4. Which of the following cases established the “indoor management rule”?

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

10. XYZ Ltd’s company seal is affixed to a mortgage in breach of the

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

Topic 6: Directors Duties Part 1

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

8. Do the directors of a company owe a duty to creditors?

9. The duty to retain discretion means that:

Topic 7: Directors Duties Part 2

Company Law for business 266

Downloaded by Milk Tea (milktea377@sina.com)

1. A director’s duty to avoid a conflict of interest includes:

3. Sarah is a non-executive director of Cookies Galore Ltd, a confectionary company, and is

Downloaded by Milk Tea (milktea377@sina.com)

9. Which of the following statements is true?