Business Associations Flashcards
Shareholder Inspection Rights
Shareholder has a right to inspect if:
(1) they are indeed a shareholder
(2) proper purpose
*amount of shares held is irrelevant
*propert purpose is broad, can include investigating fraud, reviewing financial statements, seeing if corp formalities were followed
Derivative Suit
lawsuit where a shareholder demands that the corporation sue the board of directors directly for some violation
Requires
(1) make a demand to BOD or show demand is futile
(2) adequately rep. all S/H
(3) S/H must hold shares throughout suit
Duty of Care (Corp)
director to act
(1) reasonably prudent director
(2) with the requisite skill, knowledge, and care of an ordinary director and employ their personal skills in their care
(3) properly informed in regard to the corporate decisions that they make.
Exception to Conflict of Interest for Duty of Loyalty (Corp)
conflicted transaction may be valid if the conflict is disclosed and either
1) a majority of disinterested directors approve OR
2) majority of disinterested directors approve or if the transaction is fair.
Equitable Subordination
General rule, shareholders who are unsecured creditors are NOT subordinate to outside unsecured creditors
However (1) court might subordinarte shareholder’s claims if any kind of wrongdoing is attributable to them - known as the DEEP ROCK doctrine
Promoter
a personwho undertakes to procure commitments for a corproation before it is formed.
Promoter Liability
Promoter who enters into a contract knowing that there has been no valid incorpation is personally liable to the contract - EVEN IF the person they enter into the contract with knows the corpriation has not been formed
Promoter Liability Exceptions
promoter is liable unless
(1) contract expressly states promoter not to be bound, in which case the agreement is considered to a revokable offer
(2) all parties have agreed to novation
Piercing the Corporate Veil
piercing happens if
(1) corp. formalities have been ignored and injustice happens
(2) corp used to perpetrate fraud
(3) alter - ego
(4) undercapitlization
Partnership
An association of two or more persons to carry on as co owner a business for profit
Partnership Formation Facts
an agreement to share profits raises a presumption parties intended to enter into a partnership
(1) no requirement that parties subjectively intend to form a partnership
(2) must determine if the parties intend to carry on as co-owners a business for profit
(3) no formalities are required to form a partnership
(4) may be formed without filling anything with the state
(5) courts generally look to the intent of th parties to see if partnership exists
Partnership Liability
(1) partners are jointly and severally liable - holding them liable to third party obligations
(2.1) partner cannot be held liable for partnership obligation unless partner was prsonally served in the lawsuit AND
(2.2) and judgement was not fully satisfied out of partnership assets
De facto corporation
(1) attempted to incorporate in good faith,
(2) is otherwise eligible to incorporate, and
(3) subsequently acted like a corporation in good faith.
Direct Suit
Alleges that the defendants breached a duty owed directly to the shareholder
Directors Fiduciary Duties
Duty runs to corporation, not the shareholders
Duty of Competance
Duty of Loyalty
Duty of Care
Derivative Suits - Proceedings
(1) may not be brought until 90 days after the deamd is made unless S/H is notified earlier that copr will not take action or irreperable injury will occur
(2) may be brough after majority of disinterested directors (but at least 2) find that demand is not in corps best interest
(3) demand in some states will be excused if futire
Duty of Loyalty (BA)
Requires director to act in good faith with reasonable belief they are acting in corp’s best interest
Minority Shareholder Remedies
(1) can try and force dividend distribution (very hard to do)
(2) if directors are oppressing minority, minority shareholder may seek dissolution
(3) can seek court order to have company purchase his share at fair value
Apparent
Arises from a princiapl manifestations which cause a 3rd party to believe the agent has authority.
As a general rule, in partnerhips, all general partners have apparent authority
Express Authority
Oral or written words with direct definite language
Typically within the four corners
providing agent with authority
De Jure Corporation
(1) File Articles of Incorporation
(2) Initial Agent’s name
(3) Street address - office
(4) Corp Name
(5) Authorized number of sahres
(6) Name and adress of incorporators
Liability of Directors and Officers (Corp)
Generally no personal liability
Corp Directors and Officers (Meetings)
(1) one annual meeting, all other meetings are special meetings
(2) Quorum required
(3) Presence by any means
(4) Withdraw can break quorum
(5) Diessent / abstention
Ultra Vires
Act outside business purpose
Very limited modernly, so hard to argue for corp to get out of contract due to it being out of scope
