Business Organizations - Quiz 4 Flashcards
1
Q
What are the rules for directors’ qualifications?
A
- Directors must be natural persons; they cannot be artificial entities
- Default Rule: No other qualifications exist, but the articles of incorporation or bylaws may impose reasonable qualifications that do not limit the ability of a nominee or director to discharge his or her duties as a director
2
Q
What document fixes the number of directors in a corporation?
A
The fundamental documents. The number of directors can also be changed in the manner set forth in those documents.
3
Q
What is the default rule for election of board members?
A
all board members are elected annually and serve until their successors are elected and qualify
4
Q
What is an inside director?
A
A director who is employed by the corporation
5
Q
What is an outside director?
A
A director who is not employed by the corporation
6
Q
What is an independent director?
A
A director who is independent of management
7
Q
What is the default rule for binding corporations?
A
the directors of a corporation may bind a corporation only when they act at a legal meeting of the board. If they purport to act at a meeting which is not a legal meeting, their action is not that of the corporation and the corporation is not bound.
8
Q
Who has the power to call special meetings in a corporation?
A
In the absence of any governing provision, some courts have held that the corporation president has the power to call a special meeting.
9
Q
Who has the power to set the time and place of a meeting in a corporation?
A
In the absence of any controlling provision, the person calling the meeting has the authority to choose the time and the place.
10
Q
What is the default rule for notice for meetings in corporations?
A
Regular meetings of the board of directors may be held without notice to the directors. Additionally:
a. Every director must be given reasonable notice of a special meeting.
b. Notice must be given at least two days before the special meeting and need not state the purpose of the meeting.
11
Q
T/F: Action taken at a meeting without notice to all directors is still valid.
A
FALSE. Action taken at a meeting without notice to all directors is INVALID.
12
Q
T/F: A director’s participation in a meeting without objection waives that director’s objection to lack of notice
A
True
13
Q
What is the default rule for director voting in corporations?
A
directors may not vote by proxy and that each board member has one vote.
14
Q
What is the default rule for quorum of directors in corporations?
A
a quorum of the board of directors is a majority of the number of directors fixed in the fundamental documents or elsewhere.
15
Q
Do corporations need to maintain minutes for meetings of directors?
A
Yes; however, the failure to record minutes does not invalidate action taken at the meeting.
If minutes are recorded, they are considered the best evidence of what occurred at the meeting.
16
Q
What is the exception to holding a meeting of directors in corporations?
A
Directors may take action without meeting if they do so unanimously and in writing.
1. The records of actions taken without a meeting are kept in the same manner as minutes of meetings
17
Q
T/F: Boards of directors may delegate nearly all of their functions to board committees
A
True
18
Q
What functions may not be delegated by boards of directors to board committees
A
changes to bylaws and fundamental decisions that require the approval of shareholders
19
Q
T/F: Shareholders may serve on board committees.
A
FALSE. Only board members may serve on board committees.
20
Q
T/F: If an LLC’s operating agreement so provides, the LLC will be manager-managed (ULLCA § 407(a))
A
True
21
Q
T/F: The manager or managers do not have the power to decide any matter relating to the activity and affairs of the company.
A
FALSE. They DO have the power to decide any matter relating to the activity and affairs of the company.
22
Q
What is required to undertake an act outside the ordinary course of an LLC’s activities and affairs.
A
The affirmative vote or consent of ALL members.
23
Q
T/F: If more than one manager is chosen in an LLC, each manager has equal rights in the management and conduct of the company’s activities and affairs.
A
True
24
Q
What is the default rule for general partner decision making in LPs?
A
the general partner’s decision making scope includes any matter relating to the activities and affairs of the entity
25
T/F: General partners have authority to decide matters outside the ordinary course of the limited partnership’s activities and affairs.
True
26
What three matters require a vote of all the partners in a partnership?
i. Amending the partnership agreement;
ii. Converting between the status of LP and LLLP; and
iii. Selling all, or substantially all, of the LP’s property outside the usual and regular course of the LP’s activities and affairs.
27
T/F: A majority vote of the partners is required for mergers, conversions, and share exchanges.
FALSE. Unanimous consent is required for mergers, conversions, and share exchanges.
28
What is the rule for a director's right to examine the corporation's records?
1. Any director shall have the right to examine the corporation’s books and records for a purpose reasonably related to the director’s position as a director.
2. The defendant corporation bears the burden of proving that any such inspection is for an improper purpose
29
Any request for communications among corporation directors and officers must:
1. State a proper purpose;
2. Encompass communications constituting books and records of the corporation, i.e., those that affect the corporation’s rights, duties, and obligations; and
3. Be sufficiently tailored to direct the Court to the specific books and records relevant to the director’s proper purpose.
30
T/F: Directors are entitled to inspect the books and records of subsidiaries
True.
31
What must directors disclose to other board members?
information known by the director to be material to the discharge of their decision-making or oversight functions
32
In manager-managed LLCs, managers have the same information rights that members have in member-managed LLCs, including the right to:
“inspect and copy any record maintained by the company regarding the company’s activities, affairs, financial condition and other circumstances” but only to the extent the information is material to the [manager’s] rights and duties under the operating agreement
33
LLCs are required to furnish to managers, without demand, any information concerning the company’s:
a. Activities
b. Affairs
c. Financial conditions
d. And other circumstances which the company knows and is material to the proper exercise of the member’s rights and duties
34
T/F: LLCs managers’ rights extend to information, not merely records.
True
35
T/F: A general partner’s rights to inspect and copy and to receive information are virtually identical to those of LLC managers
True
36
Does a limited partnership have to maintain a set of required information including tax returns and financial statements?
Yes. General partners are entitled to inspect and copy this required information without having any particular purpose for seeking the information.
37
What are the standards for each entity for a breaching the duty of care?
1. Delaware standard for liability is gross negligence.
2. MBCA standard for liability is ordinary negligence.
3. LLC standard for liability is gross negligence.
4. Partnership standard for liability is gross negligence.
5. Limited partnership standard for liability is gross negligence.
38
What does the fiduciary duty of care require for Delaware directors?
the fiduciary duty of due care requires that directors of a Delaware corporation use that amount of care which ordinarily careful and prudent men would use in similar circumstances, and consider all material information reasonably available in making business decisions.
39
What does the duty of care require for directors?
directors sufficiently inform themselves before reaching decisions
40
What is the focus of the analysis of the duty of care for directors?
The “focus of a duty of care analysis is not the substance of the decision the directors made but rather the process they undertook in making it. Due care in the decision making context is process due care only.”
41
What does the MBCA require of directors when becoming informed in connection with their decision-making function?
discharge their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances.
42
What are the elements of the business judgement rule?
1. A business judgment;
2. the judgment’s rationality;
3. the decision maker’s belief that the decision is in the entity’s best interests (loyalty);
4. the decision maker’s good faith; and
5. the decision maker’s compliance with the duty of care.
43
T/F: if any of the five elements of the business judgement rule are not present, entire fairness is the standard of review.
True
44
T/F: the business judgement rule protects every decision a director makes.
FALSE. The business judgement rule only protects business decisions.
45
When does the business judgement rule apply to corporation's decisions to make charitable contributions?
The business judgement rule applies if the contributions are "reasonable."
46
T/F: Under the business judgement rule, the rationality standard requires only that the board's decision not constitute waste.
True
47
What does waste entail under the business judgement rule?
Waste entails an exchange of corporate assets for consideration so disproportionately small as to lie beyond the range at which any reasonable person might be willing to trade.
48
Under the business judgement rule, the intent to act in the entity's best interest requires directors:
directors to believe their decision to be in the best interests of the entity
49
T/F: Under the business judgement rule, proof that the directors did not take the action in the honest belief that it was in the best interests of the corporation rebuts the presumption and removes the decision from business judgment rule protection.
True
50
What is the Delaware standard for a director's intent to act in the entity's best interest under the business judgement rule?
the business judgment rule is “a presumption that in making a business decision, the directors of a corporation acted . . . in the honest belief that the action taken was in the best interest of the company.”
51
What is the MBCA standard for a director's intent to act in the entity's best interest under the business judgement rule?
“each member of the board of directors, when discharging the duties of a director” to “act . . . in a manner the director reasonably believes to be in the best interests of the corporation.”
52
Under the business judgement rule, what does good faith mean?
a. Good faith is the absence of bad faith, which has been characterized as conduct “which does not involve disloyalty (as traditionally defined) but is qualitatively more culpable than gross negligence.”
53
What is exculpation?
a Delaware corporation could excuse its directors from all liability for breach of the duty of care—even liability for gross negligence in the process employed for making decisions
54
T/F: An exculpation provision is effective even when the entire fairness test, rather than the business judgment rule, applies
True
55
T/F: Exculpation protects officers and directors
FALSE. Exculpation only protects directors.
56
T/F: Exculpation does not apply to equitable relief.
True
57
Who can directors rely on in decision making?
the corporation’s officers and employees and other persons with “professional or expert competence” who were “selected with reasonable care.”
58
How can you survive a Rule 32.1 motion to dismiss in a due care case where an expert has advised the board in its decision-making process?
the complaint must allege particularized facts (not conclusions) that, if proved, would show, for example, that:
1. the directors did not in fact rely on the expert;
2. their reliance was not in good faith;
3. they did not reasonably believe that the expert’s advice was within the expert’s professional competence;
4. the expert was not selected with reasonable care by or on behalf of the corporation, and the faulty selection process was attributable to the directors;
5. the subject matter that was material and reasonably available was so obvious that the board’s failure to consider it was grossly negligent regardless of the expert’s advice or lack of advice; or
6. that the decision of the Board was so unconscionable as to constitute waste or fraud.
59
T/F: RUPA, ULLCA, and ULPA impose no duty of care on managers, but contain provisions entitling managers to rely on anyone or anything
FALSE. RUPA, ULLCA, and ULPA impose a duty of care on managers, but contain no provisions entitling managers to rely on anyone or anything
60
What fiduciary duty does conflicted decision making implicate?
The duty of loyalty
61
What is a conflict of interest?
A conflict of interest is an interest in the decision or underlying transaction that differs from the interest of the entity and its investors
62
What is a conflicted transaction/interested transaction?
If a manager has a conflict of interest with respect to a transaction, the transaction is a conflicted transaction or interested transaction
63
T/F: Managers must disclose their conflicts
True
64
What is a disabling conflict?
A conflict is disabling if the court considers it sufficiently severe to prevent the particular director from deciding what is in the best interests of the entity.
1. Such a conflict renders the manager not “fit” to make the particular decision.
2. Generally, only a material conflict of interest is disabling.
65
What three kinds of relationships constitute conflicts of interest for directors?
1. In a transaction directly between the director and the corporation,
2. As a party with an interest in a transaction between the corporation and a third party, and
3. As a party with an interest in or material relationship with, a party to the transaction.
66
T/F: Courts have chosen to ignore structural bias in board decision making that results from the structure of the corporation.
True. However, courts hold directors conflicted when bias-inducing facts not common to most directors are shown.
67
How does Delaware refer to unconflicted directors?
as “disinterested and independent” directors while the MBCA refers to them as “qualified” directors
68
In what two instances does a "disabling interest" exist in Delaware?
1. The first is when (1) a director personally receives a benefit (or suffers a detriment), (2) as a result of, or from, the challenged transaction, (3) which is not generally shared with (or suffered by) the other shareholders of his corporation, and (4) that benefit (or detriment) is of such subjective material significance to that particular director that it is reasonable to question whether that director objectively considered the advisability of the challenged transaction to the corporation and its shareholders.
2. The second instance is when a director stands on both sides of the challenged transaction. This latter situation frequently involves the first three elements listed above. As for the fourth element, whenever a director stands on both sides of the challenged transaction he is deemed interested and allegations of materiality have not been required.
69
What three kinds of conflicts does a director have in a conflicting interest transaction in an MBCA jurisdiction?
1. In a transaction directly between the director and the corporation,
2. As a party with an interest in a transaction between the corporation and a third party, and
3. As a party with an interest in or material relationship with, a party to the transaction.
70
What is a qualified director in an MBCA jurisdiction?
A qualified director is a director for whom the transaction is not a director’s conflicting interest transaction and who has no material relationship to a director for which the transaction is a director’s conflicting interest transaction
71
What are Uniform Act Conflicts?
The fiduciary duty of loyalty of the decision maker includes the duties to refrain from dealing with the entity in the conduct of the entity’s affairs as or on behalf of a person having an interest adverse to the entity.
72
What is the standard for director approval in conflicted decisions under the MBCA?
qualified directors must deliberate and vote outside the presence of, and without the participation of, the other directors
73
What is the standard for director approval in conflicted decisions under Delaware law?
the conflicted and beholden directors may deliberate and vote together with the disinterested and independent directors.
74
How can a violation of a fiduciary duty be excused in director approvals of conflicted decisions?
the voting managers or investors must be fully informed of all material facts.
75
T/F: A manager's failure to disclose material information is itself a breach of the duty of loyalty.
True
76
What is the standard of review under Delaware law for judicial approval of conflicted decisions?
the standard of review depends initially on whether the corporate fiduciaries (i) were disinterested and independent (the business judgment rule), (ii) faced potential conflicts of interest because of the decisional dynamics present in a particular recurring and recognizable situation (enhanced scrutiny), or (iii) confronted actual conflicts of interest such that the directors making the decision did not comprise a disinterested and independent board majority (entire fairness).
77
When will courts apply the business judgement rule to conflicted decisions?
when the challengers have not proven any conflict or where any conflicted transaction received disinterested approval.
78
When will courts apply enhanced scrutiny in a conflicted transaction?
Enhanced scrutiny, the intermediate standard of review, is applicable when an investor seeks to buy a controlling stake or more in the entity.
79
When will courts apply the entire fairness standard in a conflicted transaction?
Entire fairness is the standard of review for a conflicted transaction that has not been approved by disinterested directors or shareholders
80
In conflicted transactions, what are the elements of the entire fairness standard?
1. Fair dealing
2. Fair price
81
What is fair price?
A fair price is one that a reasonable seller, under all of the circumstances, would regard as within a range of fair value; one that such a seller could reasonably accept.
82
What is the burden of proof for partnerships, LPs, and LLCs to prove fair price under the entire fairness standard?
the burden is on the conflicted partners or members to prove the fairness of the transaction.
83
What is the burden of proof for partnerships, LPs, and LLCs to prove fair price under the entire fairness standard?
84
What is the burden of proof for Delaware corporations to prove fair price under the entire fairness standard?
the burden is on the conflicted directors, but shifts to the persons challenging the transaction upon proof that after full disclosure, the transaction was approved by a majority of disinterested directors that did not constitute a majority of the board.
85
What is the burden of proof for MBCA corporations to prove fair price under the entire fairness standard?
the burden is on the conflicted directors and does not shift with proof of disinterested approval.
86
What is the default rule for partnerships, LLCs, and LPs for approval of conflicted transactions?
Under the default rules, partnerships, LLCs, and limited partnerships may authorize or ratify acts or transactions that would otherwise violate the fiduciary duty of loyalty. However, they can do so only by a unanimous vote of the partners or members
87
T/F: RUPA, ULLCA, and ULPA do not recognize fairness to the entity as a defense in conflicted transactions
FALSE. They DO recognize fairness to the entity as a defense
88
T/F: Corporations cannot limit or eliminate the liability of directors for breaches of the duty of loyalty.
True
89
T/F: Partnerships, LLCs, and limited partnerships can alter or eliminate aspects of the duty of loyalty if not manifestly unreasonable.
True
90
What four elements must an otherwise valid transaction meet to be considered valid?
The transaction (1) is unconflicted, (2) has been approved by a majority of the unconflicted directors on the board or a committee, (3) has been approved by the unconflicted shareholders, or (4) is entirely fair to the corporation
(if the conflicted transaction satisfies none of these tests, the transaction is avoidable and the court can invalidate it)
91
When are courts reluctant to order rescission?
Courts are reluctant to order rescission against a party who had no notice of the breach of duty that would justify it or where the rights of third parties would be affected.
92
What is laches?
an equitable doctrine by which courts deny relief to claimants who have unreasonably delayed in asserting their claims.
93
What circumstances trigger laches?
a. When did the parties know about the conflict? (If one party didn’t know something material about the conflict (it was hidden from them), the court may allow the case to proceed)
b. Did the party affected do their due diligence to uncover the material facts of the case?
94
T/F: If the statute of limitations has not run, laches do not apply.
FALSE. Laches may apply even if the statute of limitations has not yet run.
95
T/F: A court may not grant any remedy against a director for conflict if the transaction has been approved by disinterested directors or shareholders or if the court has determined that the transaction is fair to the corporation—even if the director acted in bad faith
True
96
Under the MBCA, when is a director not liable for conflicted decisions?
a director is not liable if he or she established that the challenged conduct was reasonably believed by the director to be in the best interests of the corporation
97
In Delaware, when is a director liable in conflicted decisions?
self-dealing fiduciaries are liable because they breached their duty of loyalty if the transaction was unfair, regardless of whether they acted in subjective good faith.
98
T/F: Managers who abstained from voting and deliberation are generally not liable for an invalid action
True. However, a manager who knowingly accepts a personal benefit flowing from a self-interested transaction and refuses to return it upon demand, can be thought to have ratified the action taken by the board in his absence and, thus, share in the full liability of his fellow directors
99
What three remedies are available against managers who breached their duties of loyalty?
1. The corporate officer forfeits all rights to compensation
2. Attorneys' fees
3. Rescission. If rescission is impractical, the court may aware rescissory damages.
100
What are rescissory damages?
monetary damages equal to the value a plaintiff would have received from rescission of the transaction
101
What is the opportunity doctrine?
The doctrine prohibits fiduciaries from taking their entity’s opportunities without the entity’s consent.
102
The corporate opportunity doctrine, as delineated by Guth holds that a corporate officer or director may not take a business opportunity for his own if (4 things):
1. the corporation is financially able to exploit the opportunity;
2. the opportunity is within the corporation’s line of business;
3. the corporation has an interest or expectancy in the opportunity; and
4. by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimical to his duties to the corporation.
103
Guth also states that a director or officer may take a corporate opportunity if (4 things):
1. the opportunity is presented to the director or officer in his individual and not his corporate capacity;
2. the opportunity is not essential to the corporation;
3. the corporation holds no interest or expectancy in the opportunity; and
4. the director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity
104
Under Guth, what seven factors should courts take into account in evaluating an opportunity case?
1. the entity’s financial ability to exploit the opportunity,
2. whether the opportunity is in the entity’s line-of-business,
3. whether the entity has an interest or expectancy in the opportunity,
4. whether taking the opportunity will bring the fiduciary in conflict with the entity,
5. whether the opportunity came to the fiduciary in the fiduciary’s personal or fiduciary capacity,
6. whether the opportunity is essential to the entity, and
7. whether the fiduciary used entity resources to pursue the opportunity.
105
Under the seven Guth factors, what is an entity's line-of-business.
An entity’s line-of-business is the type of business it conducts or could plausibly come to conduct.
106
Under the seven Guth factors, what is an entity's interest?
Two Definitions:
i. Interest may mean that the entity is interested in the opportunity, or that the opportunity is the object of the entity’s plans.
ii. Interest may mean that the entity has a contract or property right to the opportunity
107
Under the seven Guth factors, what does "conflict with the entity" mean?
If taking the opportunity would bring the fiduciary into conflict with the entity, this is a factor that is taken into account.
108
Under the seven Guth factors, what does "personal or fiduciary capacity" entail?
Whether the fiduciary learned of the opportunity in the fiduciary’s personal capacity or its fiduciary capacity is a factor taken into account.
a. Controlling shareholders owe fiduciary duties, and are thus subject to the opportunity doctrine.
b. Non-controlling shareholders are sometimes subject to the opportunity doctrine on the basis of the small number of shareholders in the corporation, the active participation by these shareholders in management decisions, and their close and intimate working relations.
109
Under the seven Guth factors, what does "essential to the entity" mean?
That an opportunity is necessary or essential for an entity’s survival or success strengthens the entity’s claim to the opportunity.
110
Under the seven Guth factors, what does "use of entity resources" mean?
Whether the fiduciary used the entity’s resources to develop the opportunity is a factor the courts consider.
111
T/F: A fiduciary may lawfully take a specific opportunity if the fiduciary properly discloses the opportunity to the entity and the entity authorizes the taking
True.
112
If an entity grants authorization before the fiduciary takes the opportunity, the entity is said to reject or renounce the opportunity. What do rejection and renunciation entail?
a. Rejection occurs if an entity deliberately declines a specified opportunity.
b. Renunciation occurs if an entity announces, before the particular opportunities are specified, that it is not interested in opportunities within some class or category.
113
How can an entity ratify a fiduciary's taking of an opportunity under the corporate opportunity doctrine?
If the entity grants authorization after the fiduciary takes the opportunity, the entity is said to ratify the taking.
114
T/F: the opportunity doctrine is within the duty of care
FALSE. It is within the duty of LOYALTY.
115
T/F: Some states allow a corporation to renounce, in its certificate of incorporation or by action of its board of directors, any interest or expectancy of the corporation in, or in being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or 1 or more of its officers, directors or stockholders
True
116
What remedies may entities recover for opportunities who usurped their opportunities?
Compensatory, and in appropriate cases punitive, damages from the fiduciary.
- Fiduciaries who breach their duties of loyalty may also be required to surrender the profits earned from the opportunity.
117
How can entities prevent usurpation of corporation opportunities?
to restrict the flow of sensitive information to directors the board has reason to distrust
118
What are the elements of aiding and abetting liability?
Aiding and Abetting liability may be imposed on one who aids and abets the commission of an intentional tort if the person
(a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or
(b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.
119
What does the oversight duty require?
every corporate board must at least attempt to put in place a reasonable information and reporting system and to monitor the corporation’s central compliance risks
i. It also requires that the board take action when a majority of the directors is aware of evidence of corporate misconduct (red flag).
120
What does Section 302(a)(4) of the Sarbanes-Oxley Act of 2002 require?
that the company’s chief executive officer and chief financial officer review each quarterly or annual report and certify that, “based on the officer’s knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition of operations.”
121
What are internal controls?
policies or procedures put in place to safeguard assets, provide reliable financial information, promote efficient operations, and ensure compliance with more basic policies and procedures
122
What are preventative controls?
They seek to discourage errors from occurring. An example would be a policy that the chief financial officer must approve the hiring of an employee at a salary in excess of a certain dollar amount.
123
What are detective controls?
They seek to discover errors after they occur. An example would be a requirement that each department head review a list of expenditures charged to the department each month
124
What are directive controls?
They seek to encourage positive actions or outcomes. An example would be a requirement that employees complete a training seminar.
125
With respect to public companies, Sarbanes-Oxley Section 404 requires that:
[E]ach annual report . . . contain an internal control report, which shall—
1. (1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and
2. (2) contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.
126
Sarbanes-Oxley Section 302(a)(4) requires:
that each report state that the signing officers—the CEO and CFO—“are responsible for establishing and maintaining internal controls.”
1. For large companies, the Certified Public Accounting firm that prepares the report must “attest to, and report on” the manager’s assessment
127
What four kinds of failures do directors who make decisions have liability for?
i. The first is failure to act in good faith.
ii. The second is failure to act in a manner the director reasonably believes is in the corporation’s best interests.
iii. The third is failure to inform themselves to the extent they reasonably believed appropriate.
iv. The fourth is acting while lacking objectivity because of a conflict of interest.
128
What two standards for oversight liability are purported in Caremark?
We hold that Caremark articulates the necessary conditions predicate for director oversight liability:
1. (a) the directors utterly failed to implement any reporting or information system or controls; or
2. (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations…
129
To establish demand futility under Caremark's second prong, what must the complaint plead?
the Complaint must plead [particularized facts] that the board knew of evidence of corporate misconduct—the proverbial “red flag”—yet acted in bad faith by consciously disregarding its duty to address that misconduct.
130
To establish demand futility under Caremark's second prong, what must a Delaware plaintiff plead?
Under Delaware law the plaintiff must even more particularly plead facts specific to each director, demonstrating that at least half of them could not have exercised disinterested business judgment in responding to a demand.
131
What two tests are available to determine whether a demand is futile?
i. The test established in Aronson v. Lewis applies to claims involving a contested transaction, i.e., where it is alleged that the directors made a conscious business decision in breach of their fiduciary duties.
ii. The second test established in Rales v. Blasband applies where the subject of a derivative suit is not a business decision of the Board but rather a violation of the Board’s oversight duties.
132
T/F: Dodd-Frank’s whistleblower protections cover individuals only when they report a violation to the SEC before they are fired.
True.
133
T/F: Delaware law does not allow a shareholder to sue directors only if a majority of the board has disabling conflicts of interest.
FALSE. Delaware law DOES allow a shareholder to sue directors only if a majority of the board has disabling conflicts of interest
133
T/F: Delaware law does not allow a shareholder to sue directors only if a majority of the board has disabling conflicts of interest.
FALSE. Delaware law DOES allow a shareholder to sue directors only if a majority of the board has disabling conflicts of interest
