Closely-Held Corporations &LLCs Flashcards
Corporation is registered in Delaware, and its certificate of incorporation states that it should be treated as a close corporation. Corporation has five shareholders, restricts transfer of its shares, and has no publicly traded security.
Which of the following shareholder agreements nevertheless remains INVALID?
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A. A shareholder agreement sterilizing the board’s discretion.
B. A shareholder agreement that provides that a shareholder can veto certain actions by the board of directors.
C. A shareholder agreement that treats the corporation like a partnership, where shareholders make all the business decisions as a group with each shareholder getting an equal say.
D. None of the above.
D. None of the above.
Ranch, Inc. was a corporation registered in Delaware with five shareholders. Two of the shareholders, Larry Majority and Larissa Majority, were siblings who together owned 60% of the company’s outstanding shares and appointed all seven members of the board of directors. The other three shareholders all belonged to the Minority family and were the second cousins of Larry and Larissa. There was a long history of conflict between the Majority family and the Minority family, stemming in part from the Majority family’s repeated attempts to buy the Minority family’s shares at what the Minority family believed to be an unfairly low price. Larissa was the CEO of the corporation, and Larry was the COO. They each received a substantial salary for their positions. After deducting these salaries, the corporation essentially earned no profits. None of the members of the Minority family were employed by Ranch, Inc. The corporation had not paid a dividend for five years. If the Minority family sued the Majority family for breach of their fiduciary duty of good faith, which of the following arguments LEAST supports the Minority family’s claim?
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A. The existence of a familial relationship between the two families.
B. The Majority family’s desire to buy out the Minority family at an unfairly low price.
C. The Minority family being frozen out from employment by the corporation.
D. A history of conflict between the two families.
A. The existence of a familial relationship between the two families.
Delicious Ice Cream, Inc. was a closely-held corporation registered in New York. The company had two shareholders: Mint, who owned 70% of the corporation’s outstanding shares, and Banana, who owned the remaining 30%. Mint was very concerned about the possibility that Banana would force the corporation to dissolve if the company was not run precisely how he wanted and so consulted an attorney to explain what types of behavior might put her at risk of Banana succeeding. The attorney correctly advised Mint that under New York law, involuntary dissolution was available for all of the following types of behavior EXCEPT:
A. Conduct that is fraudulent.
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B. Conduct that undermines the deal the parties privately thought they were getting when they bought stock in the company.
C. Conduct that undermines the deal the parties objectively demonstrated they thought they were getting when they bought stock in the company.
D. Conduct that is illegal.
B. Conduct that undermines the deal the parties privately thought they were getting when they bought stock in the company.
The operating agreement for Construction, LLC, a limited liability company registered in Delaware, provided that the company would be managed by professional managers. The operating agreement also stated, “The managers of Construction LLC shall have absolutely no personal liability to the members.” Despite this clause, the managers of Construction, LLC will remain liable for their breaches of:
A. The fiduciary duty of good faith.
B. The fiduciary duty of loyalty.
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C. The contractual implied duty of good faith and fair dealing.
D. None of the above.
C. The contractual implied duty of good faith and fair dealing.
Owner tells Manager, “Please lease apartment 5B. Get the highest rent you can, but do not rent the apartment for anything less than $1,000 per month.” Owner then advertises in the newspaper, “Contact Manager to rent apartment 5B.” The advertisement provides Manager’s phone number but says nothing about the amount of rent. Renter sees the advertisement, calls Manager, and offers to rent the apartment for $950 per month. Manager accepts. Is there a contract?
A. Yes, because Manager had apparent authority.
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B. Yes, because Manager had actual authority.
C. No, because Manager lacked apparent authority.
D. No, because Manager lacked actual authority.
A. Yes, because Manager had apparent authority.
