Business associations Flashcards
Business judgment rule
A presumption under which a director’s business decision may not be challenged if the decision was: (i) made in good faith, (ii) was informed, and (iii) had a rational basis.
Can a transaction be set aside if a director had a personal interest in the transaction?
A transaction cannot be set aside merely because a director had a personal interest in the transaction if:
(i) the director disclosed the material facts of the transaction to disinterested persons (or the shareholders), who approved the transaction, or
(ii) the transaction was fair to the corporation.
Directors’ standard of care
A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation (duty of loyalty). She must also use the care that person in like position would reasonably believe appropriate under the circumstances (duty of care).
Promoters
Promoter procures commitments for capital and instrumentalities on behalf of a corporation that will be formed in the future. Generally, promoters are personally liable on all such contracts–even after the corporation is formed and also becomes liable.
Exception: Promoter will not be liable if the agreement between the parties expressly indicates that the promotor is not to be bound.
Are corporation’s liable for a promoter’s contracts?
No, unless the corporation expressly or impliedly adopts the contract.
Partnership
An association of two or more persons to carry on as co-owners a business for profit
Fundamental corporate change
Directors must first pass a resolution to implement the plan and the plan must be approved by the shareholders
Appraisal
Shareholders who dissent from a fundamental corporate change can force the corporation to purchase their shares at a fair price. Shareholders must:
- File an objection before or at the shareholder’s meeting,
- Must not vote in favor of the plan, and
- Must send the corporation written demand for the FMV of their shares
