Business Organizations

Question 1

ratification (of an agent’s act by a principal)

Answer 1

(i) principal must ratify the entire contract

(ii) after knowing material facts of transaction

(iii) principal and 3P must have legal capacity to enter into the contract

(iv) ratification must occur before 3P withdraws from the contract

Question 2

scope of employment

Answer 2

An act is considered within the scope of employment if:

(a) it was done for the principal’s benefit

(b) it was the type of act the employee was hired to do

(c) it was committed “on the job”

Question 3

[Partnership] duties that partners owe

Answer 3

Partners owe the fiduciary duties of loyalty and care to the partnership

duty of loyalty requires that partners NOT:
— compete w/ partnership business
— advance an interest adverse to the partnership
— usurp a partnership opp’y

duty of care requires that partners NOT:
— engage in grossly negligent or reckless conduct
— engage in intentional misconduct
— engage in a knowing violation of the law

Question 4

Rule 10b-5

Answer 4

To establish a claim under Rule 10b-5, plaintiffs (including the SEC) must show:
(i) Manipulation or Deception (through misrepresentation and/or omission);
(ii) Materiality;
(iii) “In Connection With” the purchase or sale of securities, and
(iv) Scienter.

Private plaintiffs have the additional burden of establishing
(v) Standing - Purchaser/Seller Requirement;
(vi) Reliance (presumed if there was an omission);
(vii) Loss Causation; and
(viii) Damages

Question 5

Articles of incorporation: what do they need to contain?

Answer 5

— Name of corporation (must include Corporation, Company, Limited, etc.)

— Name and address of local agent for service of process;

— Names and addresses of incorporators; and

— Number of authorized shares in each class of stock

— Unless stated in the articles, RMBCA presumes “any lawful business” purpose

Question 6

business judgment rule

Answer 6

[corporations]
In the absence of fraud, illegality, or self-dealing, the good faith actions of a director or officer will not be disturbed

Question 7

[corporations] fiduciary duties

Answer 7

Duty of loyalty: A director/officer must act in good faith and in the best interest of the corporation

Duty of care: a director/officer must act as a prudent person in like circumstances, using any special skills. Actions protected by business judgment rule.

Question 8

piercing the veil

Answer 8

Alter ego = the corporation is just an ‘alter ego’ of the company due to failure to observe the corporate formalities of separating the shareholders’ funds from those of the company

Fraud = if parties engaged in fraud or fraud-like behavior

Undercapitalization = failure to maintain sufficient funds to cover corporation’s liabilities