Common Law, Definitions, Theories Flashcards
Reverse Piercing the Corporate Veil
When a plaintiff successfully pierces the corporate veil and acquires stock to the defendant’s other corporations. Plaintiff will then foreclose or dissolve other corporations and liquidate assets.
Piercing the Corporate Veil (Common Law)
Two part analysis:
- Establish the corporation is an alter ego of the individual.
a. Co-mingling
b. Corporate formalities
c. Capitalization - Fraud or injustice
a. Intent
b. Stratehic behavior
De Facto Corporation
- Good faith effort on behalf of the incorporator to incorporate the company.
- Had a legal right to form the corporation (legal business)
- Acted as if corporation was formed (corporation formalities)
Corporation by estoppel
remember this is an economic remedy not legal question
Plaintiff treated entity as though it were a corporation if the person dealing with the entity:
- Thought it was a corporation all along (treated the entity as though it were incorporated)
- Would earn a windfall (or obtain unfair advantage or benefit) if now allowed to argue that entity was not a corporation.
*Does not apply to tort creditors because tort creditors did not purposefully avail themselves to doing business with the corporation).
BOD Approval for business transaction
Analysis:
- Public or private?
- Is transaction unique?
- Repetitive in nature?
- Is the plaintiff on notice?
What does BOD do?
- establish vision, mission, values
- policy making
- set strategy and structure
- Decision making
- Appoints officers
- Oversight responsibility
- Financial controls and reporting
- Ethical standards
Derivative Suit
BCL §626 & 627: Shareholder suing must be a shareholder at the time of complained transaction and must be a shareholder at the time of suit. Must first write the board and ask that the board takes action. Must pay bond in case shareholder loses, to pay for attorney’s fees. Damages go to the corporation
suit is initiated by the shareholders on behalf of the corporation.
Elements:
- shareholder past and present
- misconduct
- must state harm with particularity—> specific complaint
- Must bring demand requirement–> ask the BOD to sue. (If BOD is involved this element is excused—see In re Oracle)
Direct Suit
Suit is initiated by the shareholders on behalf of the shareholders.
Damages go to the shareholders
Charitable Contributions (Common Law)
- must reasonably believe donation would advance interests of the corporation.
- must be modest in amount
- can’t be made to a pet charity
Remember: Court will not interfere will business decisions made by BOD absent fraud, conflicts of interest, waste, criminal activity (Ford)
Promoter’s
Promoters are liable nder K of the corp to be formed unless one party did not intend to hold promoter liable.
- Through language
- Through Signature
Corporation becomes liable by adopting contracts through express action (BOD Action) or impliedly (adopting a lease for example)
How would corporation adopt K when its fully formed?
- Interim K with an expiration date (date of incorporation)
- Treat corporation as an implied offer
- BOD can hold a meeting and vote on adopting the K for itself (express acceptance)
- Impliedly accept (reap the benefits of the K)
Implied authority
Authority is given to an agent and the agent has some flexibility on how to accomplish task.
Apparent authority
3rd party’s perception of the agent’s authority
Express AUthority
Explicit instructions how to operate
Partnership Dissolution
National Biscuit Company v. Stroud
- Partnership Dissolves:
When a partnership gives notice that they are no longer a partnership, the partnership dissolves. - Winding up:
The partnership resolves its affairs (such as paying vendors, loans, taxes—-this can last years) - Termination:
Partnership officially ends
Partnership (Common law)
Feinwick
- Intent of the parties, express or implied;
- Whether there was joint control or management of the business
- Whether there was a sharing of profits and losses;
- A combination of property, skill, knowledge (no one factor is determinative; its essential to examine the parties relationship as a whole)
- Capital investment
- Conduct toward 3rd parties (hold self out as a partner)
- Language of agreement
- Rights upon dissolution
Are partners agents of the partnership?
Yes, See UPA §9. Partners have the ability to bind the partnership.
Each partner has a right to manage (18(e))
Can indivduals create a corporation to avoid personal liability?
Yes, that is one of the main benefits of forming a corporation or an LLC. There is limited liability to shareholders.
What is prima facie evidence that there is a partnership?
UPA §7- shared losses and profits.
How are fiduciary duties created?
Define.
Out of relationships.
Definition: Working in the best interest of another person or organization, in good faith, loyalty, trust, disclosure, duty of care
Big 3:
- Good faith
- Loyalty
- Duty of care (disclosure)
Enterprise Liability (Carlton)
Trigger: Business is split into “brother-sister” corporations so that each corporation’s assets are isolated from the risks of the others.
Rule: a plaintiff needs to prove that a shareholder used the corporation as his agent to conduct business in an individual capacity. A couty will pierce the corporate veil when it finds that the corporation is an agent of its shareholder and hodl principal vicariosly liable under the respondent superior doctrine.
Reverse Piercing
Allows credits of a corporate shareholder to collect its judgment from a corporation.
Trigger: Corporation has no assets, but the shareholder owns shares of another
After P satisfies the United of Interest and Fraud or Injustice standards and pierces the corporate veild, then he essentially becomes a shareholder who can liquidate the companies for cash.
Virginaia’s test (hardest to pierce)
1) P must establish that the corporate entity was an alter-ego of the shareholder. Must establish D exercised undue domination and control of the corporation. Courts consider whether the D observed corporate formalities, kept corporate records, paid dividends, and whether there were other officers and directors.
2) . P must also establish that the corporation was a device to sham used to conceal wrongs, fraud, or crime.
Perpetual Real Estate Services.
