Corporations Flashcards
Business judgment rule
presumption that a director’s decision may not be challenged if the director acted
(1) in good faith,
(2) with the care that an ordinarily prudent person would exercise in a like position, and
(3) in a manner the director reasonably believed to be in the best interest of the corporation.
Corporate law allows directors to rely on the opinions of experts and corporate insiders generally but not from personally interested parties
Whether a director with a personal interest in a transaction is protected from personal liability when the board approves the transaction but the director fails to disclose all of the material facts of the transaction to the board
A transaction cannot be set aside merely because a director had a personal interest in the transaction if the director disclosed the material facts of the transaction to disinterested members of the board or the shareholders, who approved the transaction, or the transaction was fair to the corporation.
Whether the directors derived a personal benefit from the transactions that they approved
A corporation’s articles of incorporation may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken, except to the extent that the director received a benefit
to which he was not entitled, intentionally inflicted harm on the corporation or its shareholders, approved unlawful distributions, or intentionally committed a crime.
Whether voting provisions in the articles of incorporation or bylaws control when they conflict
The vote required for approval may be set in the articles of incorporation or the bylaws, but when the two conflict, the articles of incorporation control.
Who may vote at a shareholders meeting
only shareholders of record on the record date may vote at a shareholders’ meeting. They do not have to vote in person; they may give another a written and signed proxy giving the other the right to vote the shares.
Revocation of proxies
Proxies generally are revocable unless they say that they are irrevocable and are coupled with an interest (situations in which the proxy holder essentially pays for the right to be a proxy, such as where the proxy holder has purchased the underlying shares from the owner of record). Proxies may be revoked by a subsequent instrument or by the shareholder of record showing up to vote in person.
Outstanding shares
Only outstanding shares may be voted. Shares that were issued and outstanding, but that have been repurchased (“treasury shares” in some jurisdictions) are not outstanding. Therefore, they are not counted in determining the number of votes needed to approve a proposal and cannot be voted.
Promoter
A promoter is a person who procures commitments for capital and instrumentalities on behalf of a corporation that will be formed in the future. As a general rule, promoters are personally liable on all such contracts, and this liability continues even after
the corporation is formed and even if the corporation also becomes liable on the contract by adopting it.
EXCEPTION: A promoter will not be liable on a preincorporation contract if the agreement between the parties expressly indicates that the promoter is not to be bound. In such a case, the “contract” is considered to be an offer to the proposed corporation.
Adoption of promoter K
As a general rule, a corporation is not liable on a contract entered into by a promoter. However, the corporation can become liable if it adopts a promoter’s contract. Adoption can be express (e.g., by resolution by the board of directors with knowledge of the material facts) or implied (e.g., by acquiescence or conduct normally constituting estoppel, such as accepting the benefits of the contract if done with knowledge of the material facts).
