Corporations Flashcards
The fiduciary duty of loyalty is owed to
the corporation itself and not to the shareholders
*unlike some other states, Virginia does not recognize an exception to this rule in closely held corporations
The business judgment rule does not protect decisions made that were
not made on behalf of the organization.
A corporate officer is protected by the Virginia business judgment rule when
he makes a good faith decision he reasonably believes to be in the best interests of the corporation.
Virginia law allows corporation to cap
liability of officers and directors in the articles of incorporation.
However, such a cap does not apply to willful misconduct
Under Virginia’s Non-Stock Corporations Act, an action by the Board of Directors must be approved by
a majority of the Directors in a vote taken when a quorum is present.
The Virginia Code defines a conflict
of interest transaction as
a “transaction with the corporation in which a director of the corporation has an interest that precludes him from being a disinterested director.” VA Code §13.1-871A.
A conflict of interest transaction is permissible if either
(1) it is approved
by disinterested directors or members after disclosure of material facts or (2) it is fair to the corporation.
The sale of substantially all assets outside the regular course of business is a ___________ _________ ______ and must __ ________ __ ___ _______ __ ___-_____ ___________.
fundamental corporate change; approved by the members of the non-stock corporation
Partnership v. Corporation Liability
Partners in a general partnership have unlimited personal liability for the debts of the partnership, whether such debts arise from contract or tort. On the other hand, shareholders in a corporation, as a general rule, enjoy limited liability and are not personally liable for the debts of the business.
Exceptions for Corporation Liability
Limited liability for shareholders is not absolute and there are several ways, including piercing the corporate veil, in which shareholders may become personally liable for the debts of the corporation.
When should the court pierce the corporate veil?
Shareholders generally are not personally liable for the debts of the corporation. Where, however, shareholders have controlled or used the corporation to evade a personal obligation or perpetrate a fraud or crime, to commit an
injustice or to gain an unfair advantage, the court may pierce the corporate veil and hold shareholders liable for the debts of the corporation.
In Virginia, piercing is an extraordinary remedy rarely applied; however, piercing the corporate veil is justified when the unity of interest is such that the separate personality of the corporation and the individual no longer exist and to adhere to that separateness would work an injustice.
