Business Orgs Flashcards
Corporations & Partnerships
The business judgement rule shields corporate leadership from liability for…
(1) good faith decisions (2) reasonably believed to be in the (3) best interests of the corporation. [F22]
Acting agains the best interests of a corporation is a violation of…
…the duty of loyalty. [F22]
Virginia ___ allow corporations to cap liability of leadership in articles of incorporation.
Does.
But does not apply to willful misconduct. [F22]
Who can bring an action for breach of fiduciary duty of loyalty by corporate leadership?
(1) The corporation or (2) shareholders via a derivative action on behalf of the corporation.
This is true even if small and closely held. [F22]
___ generally are not liable for the debts of a corporation or for contracts signed as agents of a corporation.
Shareholders, directors and officers. [J22]
anyone who purports to act on behalf of a corporation knowing that the entity has not been incorporated is
personally liable unless the other party also knew that there was no incorporation. [J22]
Directors owe fiduciary duties of ___ to the corporation.
Care and loyalty. [J22]
The duty of loyalty includes ___
the duty not to misappropriate, or usurp, a corporate opportunity. [J22]
In determining whether an opportunity belongs to the corporation and must be offered to the corporation before a director takes it for herself, a court will consider factors such as:
(1) the similarity of the opportunity to the business of the corporation, and
(2) how the director learned of the opportunity. [J22]
Upon dissolution, the partnership __
-does not immediately terminate
-enters a winding up phase
[F15]
During winding up, a partnership is bound by a partner’s act if:
the act is appropriate for winding up the partnership business. [F15]
(Liability) After their dissociation, dissociated partners __
can have lingering liability unless the partnership dissolves. [F15]
To create a limited partnership, the partners must…
-file a certificate of limited partnership with the SCC and pay the required filing fee
-include registered agent and office, names and addresses of all general partners, and location of principal office
-least one general and one limited partner. [F15]
partnership at will - partner’s dissociation by express will triggers ___
a dissolution of the partnership.
[F15]
A loan from the corporation to a director ___ per se improper.
Is not.
Especially where approved of by disinterested directors. [J15]
A corporate director’s failure to do due diligence can be…
…a breach of their fiduciary duty of loyalty outside of protection from the business judgement rule. [J15]
Purchasing assets of another corporation is…
…not a fundamental corporate change. [J15]
A fundamental corporate change, like the sale of substantially all assets, requires:
- Resolution by board at a valid meeting
- Notice of special meeting (25-60 days in advance)
- Approval by more than 2/3 of all shares entitled to vote. The articles may provide for different percentage, but not less than a majority
- File notice with the state corporation commission
Exception where all shareholders approve. [J15]
Upon dissolution of a corporation, the Board of Directors is required to…
…pay creditors’ claims before distributing assets to the shareholders.
A director who votes for or assents to (including by failing to dissent or abstain) a distribution that violates the Va. Code is liable to the corporation and its creditors for the amount of the improper distribution. The director can recoup from the shareholders who received the improper distribution and can sue other directors for contribution. No liability for a proper distribution.
Shareholders are liable for the amount received in an improper distribution. [F16]
A limited partner ___ have actual authority to bind the partnership in contract.
Does not. [J16]
Limited partners can lose their limited liability if they…
participate in the control of the business and the other party reasonably believes that the limited partner is a general partner. [J16]
General partners owe a ___ to the partnership.
fiduciary duty of loyalty.
Self-dealing can be a breach.
When a fiduciary breaches his duty, disgorgement of profits is generally the appropriate remedy. [J16]
A member of a nonstock corporation may inspect…
the minutes of Board of Directors’ meetings and obtain a list of the members, as long as the member acts with a proper purpose and gives the requisite notice. [F17]
Unless otherwise provided in the corporation’s articles of incorporation, the members of a nonstock corporation may remove a director…
with or without cause at a meeting specially called for that purpose.
A simple majority vote is sufficient to remove a director (unless otherwise provided in the articles). [F17]
Articles of Incorporation provide that officers and directors shall be entitled to indemnification “to the fullest extent permitted by Virginia law.”
Corporation has obligated itself to provide…
indemnification & advance funds or pay for reasonable expenses (includes counsel fees & judgments) even if he is removed as a director
caveat: the obligation to indemnify does not apply if the director engaged in willful misconduct or a knowing violation of law.
[F17]
Doctrine of employment-at-will
an employment contract for an indefinite period is terminable at any time after reasonable notice by either party for any reason or no reason at all. [F18]
How many votes is a shareholder entitled to? Under what conditions?
1 vote for each outstanding share of stock held, on each corporate matter submitted to a vote at a shareholder meeting.
Must be free of duress and intimidation from corporate management.
shareholder-employee: must be free from reprisal by employer [F18]
When can corporate veil be pierced?
-The separate personalities of the entity and its owners do not practically exist, and adhering to the formal separation between them would allow an injustice to occur.
-The owners controlled or used the entity to evade personal obligations, perpetrate a fraud or a crime, commit an injustice or gain an unfair advantage.
Extraordinary remedy rarely applied. [J20]
A partnership is formed when…
two or more people associate to carry on as co-owners a business for profit.
No formalities, writing, or formal agreement are required to form a partnership; the parties’ intent may be implied from their conduct.
Sharing profits triggers a presumption of partnership, and other indicia of partnership include sharing control and sharing losses. [F19]
Purported partnership (partnership by estoppel)
a person who represents herself as a partner, or consents to being represented by another as a partner, is liable to third parties who extend credit to the apparent partnership in reliance on the representation. [F19]
Procedural steps to perfect the right to sue in a derivative suit
(1) Standing: shareholder must have owned stock at the time of the alleged wrongdoing & must fairly and adequately represent the interests of the corporation.
(2) Demand: Shareholder must make written demand on the corporation prior to bringing the suit.
After making demand, the shareholder must wait until the demand is rejected / until 90 days pass, unless he can show irreparable injury to the corporation.
If the demand is rejected, the shareholder may file the suit only if he alleges that the demand was not properly rejected by a disinterested decision-maker. [F19]
Shareholders have ___ to enter into agreements that are…
broad latitude.
…set forth in either the articles, bylaws or a written agreement signed by all the shareholders
Partners who formed a professional corporation but continue to conduct their business as a partnership may have ___
their rights and liabilities determined according to the law of partnership.
To obtain judicial dissolution of a corporation, plaintiff shareholders must prove:
(1) deadlock in the management of the corporation,
(2) oppressive or illegal conduct by the majority, or
(3) waste of corporate assets.
A partnership is liable for the torts of a partner…
…committed within the ordinary course of partnership business. [F20]
Each partner is ___ liable for the debts of the partnership, although…
Jointly and severally.
…the creditor must seek to recover from the partnership entity first, before pursuing recovery from individual partners. [F20]
Under the doctrine of respondeat superior, an employer is liable for the torts of his employee committed…
…within the scope of his employment. [F20]
Courts generally hold the employer liable for an employee’s minor deviations (detours).
Where an employer is found liable, the employer has an indemnification claim against the tortfeasor employee.
Generally no liability for independent contractors unless inherently dangerous activities / negligent hiring. [F17]
In order to bind a principal in contract, the agent must…
act with actual or apparent authority, or the principal must subsequently ratify the contact. [F20]
Actual authority
may be express or implied; is based on the principal’s communications with the agent and the agent’s reasonable belief that he is authorized. [F20]
Apparent authority
third party reasonably believes, based on manifestations of the principal, that the agent is authorized. [F20]
Ratification
a subsequent affirmation of an unauthorized contract.
principal must know the material terms of the contact / be aware of his lack of knowledge.
(principal cannot avoid ratification by relying on his ignorance of the contract terms where he was deliberately ignorant of those terms)
Silence may constitute ratification where a person would be expected to speak. [F20]
Doctrine of respondeat superior - an act is within the scope of the employment if
(1) it was expressly or impliedly directed by the employer, or is naturally incident to the business, and
(2) it was performed, although mistakenly or ill-advisedly, with the intent to further the employer’s interest, or from some impulse or emotion that was the natural consequence of an attempt to do the employer’s business, and did not arise wholly from some external, independent, and personal motive on the part of the employee to do the act upon his own account. [J19]
An action by the Board of Directors of a ___ corporation must be approved by…
Non-stock.
…a majority of the directors in a vote taken when a quorum is present. [J21]
A conflict of interest transaction made by a director on behalf of a corporation is permissible if:
(1) it is approved by disinterested directors or members after disclosure of material facts, or
(2) it is fair the corporation. [J21]
The sale of substantially all assets outside the regular course of business is…
a fundamental corporate change and must be approved by the members of the non-stock corporation. [J21]
A partner is ___ from the partnership upon death.
Dissociated.
Disassociation does not necessarily trigger dissolution and winding up of the partnership. However, to continue, the partnership must buy out the dissociated partner’s interest. [F21]
The buy-out price of a dissociated partner’s interest is __
the greater of the partnership’s:
(1) liquidation value (partner’s share if business were liquidated) or
(2) going-concern value (liquidation value + good will), on the date of dissociation. [F21]
The dissociated partner will remain liable only to:
a third party who transacted business with the partnership within 1 year of the dissociation & who reasonably believed that the dissociated partner was still a partner without notice or knowledge otherwise. [F21]
Partnership must indemnify the dissociated partner for __
all partnership obligations, whether incurred before or after the partner’s dissociation. [F21]
