Business Associations

Question 1

Business Judgment Rule (3)

Answer 1

Director’s decision may not be challenged if:

(1) good faith
(2) with care that an ordinarily prudent person would exercise in a like position (informed)
(3) in a manner reasonably believed to be in the best interest of the corporation (rational basis)

Question 2

Right of appraisal

Answer 2

SHs who dissent from fundamental corp change can force corp to purchase their shares at fair price if:

(1) file an objection to transfer before or after Sh meeting
(2) did not vote in favor of the plan
(3) send corp written demand for fair value of shares
(4) deposit shares with corp as directed.

Question 3

Promoter

Answer 3

A person who procures commitments for capital and instrumentalities on behalf of a corporation to be formed. Personally liable unless the agreement expressly provides they won’t be bound.

Question 4

Inspection rights

Answer 4

SHs generally have right to inspect their corporation’s books and records for a proper purpose (a purpose related to SH status).

Question 5

Partnership

Answer 5

Association of two or more persons who are carrying on as co-owners of a business for profit

Question 6

Sharing of profits

Answer 6

Creates a presumption that a general partnership exists

Question 7

Partnership liability

Answer 7

Each partner is liable for (1) debts of partnership, (2) partners’ torts in scope of business, (3) partners’ authorized contracts

Question 8

Dissociating partner’s liability

Answer 8

Liable for future partnership debts until actual notice of dissociation is given to creditors or 90 days after filing notice with state

Question 9

Test for partnership property v. partner property

Answer 9

Whose money was used

Question 10

Partner management

Answer 10

Absent agreement, each partner is entitled to equal control

Question 11

Partner salary

Answer 11

Absent agreement, no salary (except for winding up expenses)

Question 12

Partner profits and losses

Answer 12

Absent agreement, profits shared equally and losses shared like profits

Question 13

Dissociation

Answer 13

In the absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice of express will of any general partner to dissociate

Question 14

Priority of distribution in wind up (3)

Answer 14

(1) creditors
(2) partner capital contributions
(3) profits

Question 15

Formation of limited partnership

Answer 15

Must file certificate with state that includes names of all general partners

Question 16

General partners

Answer 16

Liable for all obligations and have right of control

Question 17

Limited partners

Answer 17

Limited liability. Traditionally could not manage, but no with RULPA, can manage

Question 18

Control of LLCs

Answer 18

Can be member-managed or manager-managed

Question 19

Formation of LLCs

Answer 19

File articles of organization and adopt operating agreement

Question 20

Dissolution of LLC

Answer 20

On unanimous consent of members or as provided in operating agreement

Question 21

Rights and duties of partners

Answer 21

Duty of loyalty, right of action for accounting

Question 22

De facto corporation (3)

Answer 22

(1) relevant incorporation statute
(2) parties made good faith, colorable attempt to comply
(3) some exercise of corporate privileges

Question 23

Duty of care

Answer 23

A director owes the corporation a duty of care. She must act in good faith and do what a prudent person would do with regard to her own business

Question 24

Duty of loyalty

Answer 24

A director owes the corporation a duty of loyalty. She must act in good faith and with a reasonable belief that what she does is in the corporation’s best interest.

Question 25

Alter ego liability (2)

Answer 25

(1) did shareholder abuse corporation

(2) fairness requires piercing corporate form

Question 26

Derivative suit requirement (4)

Answer 26

(1) stock ownership when claim arose and throughout suit
(2) adequate representation of corporate interest
(3) written demand on corporation (unless futile)
(4) corporation must be joined as D

Question 27

Proxy requirements (4)

Answer 27

(1) writing
(2) signed by record shareholder
(3) directed to secretary of corp.
(4) authorizing another to vote shares

Question 28

Fundamental change requirements (3)

Answer 28

(1) board resolution
(2) written notice to SHs
(3) SH approval

Question 29

Section 16(b)

Answer 29

Applies to nationally listed corps and/or corps with 500+ SHs & $10 mm. in assets. All profits from buying AND selling stock within a single six-month period are recoverable by the corporation