Commonly tested topics

Question 1

Is business judgment rule rebuttable?

Answer 1

YES

Question 2

Three ways to avoid liability under duty of loyalty

Answer 2

1) approval by disinterested board members
2) approval by disinterested shareholders
3) court concludes transaction was fair

Question 3

Who can call special meeting?

Answer 3

1) some percentage of board
2) president or some number of officers/directors
3) specified group of shareholders

Question 4

When do shareholders have right to inspect corporate records?

Answer 4

–Restricted to normal business hours
–must give 5 days’ notice
–must state proper purpose

Question 5

Is an irrevocable proxy for a shareholder legal?

Answer 5

YES, can be if law provides

Question 6

Shareholder power to amend corporate bylaws?

Answer 6

-can amend or repeal existing bylaws
-can pass new bylaws
-can limit directors’ ability to change bylaws

Question 7

On exam, if right to sue arises, what topics should you discuss?

Answer 7

1) direct action
2) derivative action

Question 8

Demand timing for board action (derivative lawsuit)

Answer 8

Board has 90 days to act before filing derivative action

Exceptions: demand rejected or irreparable harm would occur

Question 9

when may board dismiss derivative action?

Answer 9

if action not in corporation’s best interest, UNLESS board not disinterested/not acting in good faith

Question 10

Does presence in board meeting include phone call?

Answer 10

YES, so long as director can hear and participate, counts as attending

Question 11

When discussing duty of care, what rule must be brought up?

Answer 11

1. Duty of care
2. Business judgment rule (rebuttable presumption that director reasonably believed his actions were in best interest of corp, so long as in good faith)

Question 12

When does business judgment rule not apply?

Answer 12

-no good faith
-not informed
-no objectivity/material interest
-failed to timely investigate

Question 13

LLC: Member-management vs manager-managed

Answer 13

Member-managed: members have authority to bind LLC

Manager-managed: managers have authority to bind

Question 14

LLC: Do individual members of LLCs have duty of loyalty to bring derivative action on behalf of LLC against itself?

Answer 14

YES

Question 15

Three duties of loyalty for member-managed LLC

Answer 15

1) account for profits and benefits
2) refrain from dealing on behalf of adverse interest
3) refrain from competition