Business Organizations

Question 2

What is Actual Authority?

Answer 2

An agent has actual authority if the principal expressly or implicitly authorizes the agent to take actions on the principal’s behalf.

Question 3

What does the Alter Ego Doctrine entail?

Answer 3

A court may hold a shareholder personally liable if the corporation and shareholder act as one entity, typically when the corporate form is misused.

Question 4

How can corporations alter their purpose?

Answer 4

Corporations may amend their purpose through proper shareholder and board approvals.

Question 5

What is Apparent Authority?

Answer 5

Apparent authority exists when a third party reasonably believes, based on the principal’s actions, that the agent has authority.

Question 6

What authority do Directors have in managing corporate affairs?

Answer 6

Directors have the authority to manage corporate affairs and make decisions on behalf of the corporation.

Question 7

What does Authority to Bind refer to?

Answer 7

A partner may bind a partnership through actions within the ordinary course of business or with actual authority.

Question 8

Can Directors reject management recommendations?

Answer 8

Yes, Directors may reject recommendations from management if not in the corporation’s best interests.

Question 9

What constitutes Bad Faith by Directors?

Answer 9

Directors act in bad faith if they fail to address shareholder concerns or engage in decisions without a reasonable basis.

Question 10

What is the Business Judgment Rule?

Answer 10

Courts presume directors act in good faith, with reasonable care, and in the corporation’s best interest unless proven otherwise.

Question 11

Are corporations allowed to make charitable contributions?

Answer 11

Corporations may make reasonable charitable contributions aligned with their business purposes.

Question 12

What is a Conflict of Interest?

Answer 12

Transactions involving conflicts of interest are permissible if fully disclosed, approved by disinterested parties, and fair to the corporation.

Question 13

What does the Corporate Opportunity Doctrine state?

Answer 13

Officers and directors must not take for themselves business opportunities belonging to the corporation unless rejected after full disclosure.

Question 14

What is Cumulative Voting?

Answer 14

Shareholders may allocate their votes across candidates to enhance minority shareholder representation.

Question 15

What is a Derivative Action?

Answer 15

A shareholder may sue on behalf of a corporation if the corporation fails to assert a valid claim.

Question 16

What is Direct Action in corporate law?

Answer 16

Shareholders may sue directly for injuries affecting their individual rights.

Question 17

What is the Direct Liability of the Partnership?

Answer 17

A partnership is directly liable for actions of its partners if conducted in the ordinary course of business.

Question 18

What fiduciary duties do Directors have in insolvency?

Answer 18

In insolvency, directors owe fiduciary duties to creditors, prioritizing fair treatment.

Question 19

What discretion do Directors have over dividend decisions?

Answer 19

The board of directors has broad discretion over declaring dividends unless there is abuse of discretion.

Question 20

What is the Duty of Care?

Answer 20

Directors and officers must act diligently and prudently as a reasonably competent person in similar circumstances.

Question 21

What does the Duty of Good Faith require?

Answer 21

Directors and officers must act with honesty, integrity, and a belief that their actions serve the corporation’s best interests.

Question 22

What is the Duty of Loyalty?

Answer 22

Directors and officers must prioritize the corporation’s interests over personal or conflicting interests.

Question 23

What is the Duty of Reasonable Supervision?

Answer 23

Employers must supervise employees to ensure compliance with policies and reduce risk.

Question 24

What is the Duty to Disclose?

Answer 24

Directors must disclose material facts relevant to corporate governance and decision-making.

Question 25

How do Employees differ from Partners?

Answer 25

Employees act under employer control, while partners share control, management, and profits.

Question 26

What is Equitable Subordination?

Answer 26

A court may subordinate a creditor’s claim to prevent unfairness or abuse by the creditor.

Question 27

What is Express Authority?

Answer 27

Authority granted explicitly, either orally or in writing, by the principal to the agent.

Question 28

What are the Fiduciary Duties of Corporate Officers and Directors?

Answer 28

Officers and directors owe duties of loyalty and care to act in the corporation’s best interests.

Question 29

What is the Fiduciary Duty to Declare Dividends?

Answer 29

Directors must act in good faith when deciding whether to declare dividends, ensuring no bad faith or self-dealing.

Question 30

What is Fraudulent Inducement/Misrepresentation?

Answer 30

A contract may be voided if entered based on false statements of material fact made intentionally or negligently.

Question 31

What is the difference between Frolic and Detour?

Answer 31

A frolic is a substantial deviation from employment duties, while a detour is a minor deviation.

Question 32

What defines a General Partnership?

Answer 32

A general partnership is formed when two or more persons carry on a business as co-owners for profit.

Question 33

What does Implied Authority refer to?

Answer 33

Authority inferred from a principal’s conduct or circumstances necessary to carry out express authority.

Question 34

What is a Novation?

Answer 34

A novation replaces an old contract with a new one, releasing the original party from liability.

Question 35

What is Partnership by Estoppel?

Answer 35

A person may be held liable as a partner if they represent themselves as one and others rely on this representation.

Question 36

What does Piercing the Corporate Veil mean?

Answer 36

Courts may disregard corporate limited liability to prevent fraud or injustice if the corporate form is abused.

Question 37

What is Promoter Liability?

Answer 37

Promoters are personally liable for contracts made on behalf of an unformed corporation unless the corporation adopts the contract and releases the promoter.

Question 38

What is Ratification?

Answer 38

A principal may retroactively authorize an agent’s unauthorized actions by knowingly accepting their benefits.

Question 39

What is Ratification by Shareholders?

Answer 39

Shareholders may ratify corporate actions after the fact to validate decisions outside typical authority.

Question 40

What is the Right to Inspect Corporate Records?

Answer 40

Shareholders have the right to inspect corporate records upon proper notice and for a legitimate purpose.

Question 41

What defines the Scope of Employment?

Answer 41

An employee’s conduct falls within the scope of employment if it is authorized or reasonably related to their duties.

Question 42

What is the Shareholder Derivative Action - Demand Requirement?

Answer 42

Shareholders must demand the board take action before filing a derivative suit unless demand is futile.

Question 43

What is Shareholder Standing?

Answer 43

Shareholders must have standing, such as ownership at the time of the transaction, to bring certain legal actions.

Question 44

What does the Ultra Vires Doctrine state?

Answer 44

Corporate acts beyond the scope of its stated purpose may be challenged, though this is rare due to broad modern purposes.

Question 45

How should Corporate Assets be valued?

Answer 45

Corporate assets must be valued using recognized standards to ensure accurate reporting and decision-making.

Question 46

What are Voting Agreements?

Answer 46

Shareholders may enter agreements to vote their shares collectively in specific ways.