Common Law, Definitions, Theories

Question 1

Reverse Piercing the Corporate Veil

Answer 1

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.

Question 2

Piercing the Corporate Veil (Common Law)

Answer 2

Two part analysis:

1. Establish the corporation is an alter ego of the individual.
   a. Co-mingling
   b. Corporate formalities
   c. Capitalization
2. Fraud or injustice
   a. Intent
   b. Stratehic behavior

Question 3

De Facto Corporation

Answer 3

1. Good faith effort on behalf of the incorporator to incorporate the company.
2. Had a legal right to form the corporation (legal business)
3. Acted as if corporation was formed (corporation formalities)

Question 4

Corporation by estoppel

Answer 4

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:

1. Thought it was a corporation all along (treated the entity as though it were incorporated)
2. 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).

Question 5

BOD Approval for business transaction

Answer 5

Analysis:

1. Public or private?
2. Is transaction unique?
3. Repetitive in nature?
4. Is the plaintiff on notice?

Question 6

What does BOD do?

Answer 6

1. establish vision, mission, values
2. policy making
3. set strategy and structure
4. Decision making
5. Appoints officers
6. Oversight responsibility
7. Financial controls and reporting
8. Ethical standards

Question 7

Derivative Suit

Answer 7

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:

1. shareholder past and present
2. misconduct
3. must state harm with particularity—> specific complaint
4. Must bring demand requirement–> ask the BOD to sue. (If BOD is involved this element is excused—see In re Oracle)

Question 8

Direct Suit

Answer 8

Suit is initiated by the shareholders on behalf of the shareholders.

Damages go to the shareholders

Question 9

Charitable Contributions (Common Law)

Answer 9

1. must reasonably believe donation would advance interests of the corporation.
2. must be modest in amount
3. 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)

Question 10

Promoter’s

Answer 10

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)

Question 11

How would corporation adopt K when its fully formed?

Answer 11

• 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)

Question 12

Implied authority

Answer 12

Authority is given to an agent and the agent has some flexibility on how to accomplish task.

Question 13

Apparent authority

Answer 13

3rd party’s perception of the agent’s authority

Question 14

Express AUthority

Answer 14

Explicit instructions how to operate

Question 15

Partnership Dissolution

Answer 15

National Biscuit Company v. Stroud

1. Partnership Dissolves:
   When a partnership gives notice that they are no longer a partnership, the partnership dissolves.
2. Winding up:
   The partnership resolves its affairs (such as paying vendors, loans, taxes—-this can last years)
3. Termination:
   Partnership officially ends

Question 16

Partnership (Common law)

Answer 16

Feinwick

1. Intent of the parties, express or implied;
2. Whether there was joint control or management of the business
3. Whether there was a sharing of profits and losses;
4. A combination of property, skill, knowledge (no one factor is determinative; its essential to examine the parties relationship as a whole)
5. Capital investment
6. Conduct toward 3rd parties (hold self out as a partner)
7. Language of agreement
8. Rights upon dissolution

Question 17

Are partners agents of the partnership?

Answer 17

Yes, See UPA §9. Partners have the ability to bind the partnership.

Each partner has a right to manage (18(e))

Question 18

Can indivduals create a corporation to avoid personal liability?

Answer 18

Yes, that is one of the main benefits of forming a corporation or an LLC. There is limited liability to shareholders.

Question 19

What is prima facie evidence that there is a partnership?

Answer 19

UPA §7- shared losses and profits.

Question 20

How are fiduciary duties created?

Define.

Answer 20

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:

1. Good faith
2. Loyalty
3. Duty of care (disclosure)

Question 21

Enterprise Liability (Carlton)

Answer 21

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.

Question 22

Reverse Piercing

Answer 22

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.

Question 23

Virginaia’s test (hardest to pierce)

Answer 23

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.