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Corporations Flashcards

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1
Q

Gen’l rule of BUSINESS JUDGMENT RULE

A

A director must discharge her duties in accordance w/ her good faith business j’ment of the BEST INTERESTS OF THE CORPORATION.

Actions must have been ON BEHALF of corporation. BJR doesn’t apply to extent decisions weren’t on behalf of corp.

Act in GOOD FAITH

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2
Q

What standard applies to Business J’ment Rule?

A

GOOD FAITH

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3
Q

What’s rule of DUTY OF LOYALTY?

A

Director cannot acquire any PERSONAL ADVANTAGE, or make any PROFIT FOR HERSELF

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4
Q

DUTY OF LOYALTY: What’s the effect of a director getting a personal advantage in a deal where he was under a duty of loyalty?

A

May be COMPELLED TO ACCOUNT to the corp

Deal may also be VOIDABLE

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5
Q

Does VA Code allow corporations to cap the liability of officers and directors in the articles of incorporation?

A

Yes, but cap DOES NOT APPLY TO WILLFUL MISCONDUCT

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6
Q

FIDUCIARY DUTY OF LOYALTY: Who is it owed to (corporation/shareholders/etc.)?

A

Owed to CORPORATION itself, not shareholders

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7
Q

FIDUCIARY DUTY OF LOYALTY: What is usurping a corporate opportunity?

A

Officers and directors may not take a business opportunity that corp may reasonably be interested w/o first offering it to the corporation.

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8
Q

When shareholder wants to bring breach of fiduciary duty of loyalty claim, how should she do it (i.e. sue corp directly/something else)?

A

Action for breach of duty of loyalty should be brought either 1. by CORPORATION ITSELF, or 2. AS A DERIVATIVE ACTION on behalf of corp

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9
Q

What is a shareholder derivative suit?

A

Suit brought by a SH to enforce a CORPORATE cause of action where corp has not sued to protect its own rights.

Recovery almost always runs to corp itself, not SH

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10
Q

SH Derivative Suit: What’s the test of a derivative action?

A

Whether a recovery would benefit the corporation generally and all the SHs vs. only an ind’l or a determinate group or class of ind’ls

SH may bring derivative suit if directors refuse to enforce the corporation’s rights in court

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11
Q

SH Derivative Suit: What are the 2 conditions for SH to bring suit?

A
  1. Standing

2. Demand Req’t

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12
Q

SH Derivative Suit: What’s the standing req’t?

A

P must 1. have been SH AT TIME OF ACT OR OMISSION (and maintain SH status throughout proceeding) and,

  1. SH must FAIRLY AND ACCURATELY represent interests of corp
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13
Q

SH Derivative Suit: What’s the DEMAND REQ’T?

A

Before commencing action, SH must make written demand on the corporation to take SUITABLE ACTION.

SH must WAIT 90 DAYS after demand, unless:

  1. Notified IN WRITING demand is REJECTED, or
  2. IRREPERABLE INJURY to corp if wait 90 days
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14
Q

Under VA Non-Stock Corporations Act, what are the req’ts for a Bd of Directors action/vote?

A

Must be approved by MAJORITY OF THE DIRECTORS in a vote taken WHEN QUORUM IS PRESENT.

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15
Q

What is an impermissible CONFLICT OF INTEREST TRANSACTION?

A

Transx w/ the corporation where a DIRECTOR has an INTEREST THAT PRECLUDES him from being a DISINTERESTED DIRECTOR.

But, it’s permissible if either:

  1. APPROVED BY DISINTERESTED DIRECTORS or members after disclosure of mat’l facts, or
  2. it’s FAIR TO THE CORPORATION
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16
Q

What constitutes a FUNDAMENTAL CORPORATE CHANGE?

A

Charter amendments

Mergers

Consolidations

Sale of Assets

Dissolution

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17
Q

If bylaws are silent as to quorum, what does VA law provide?

A

Members holding 1/10th of the votes entitled to be cast

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18
Q

What’s the gen’l rule re liability of SH’s in a corp?

A

They enjoy LIMITED LIABILITY and are NOT PERSONALLY LIABLE FOR DEBTS of the business.

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19
Q

When is PIERCING THE CORPORATE VEIL appropriate?

A

When SHs have controlled or used the corporation to

  1. EVADE A PERSONAL OBLIGATION
  2. PERPETRATE A FRAUD or CRIME,
  3. to COMMIT AN INJUSTICE or
  4. gain an UNFAIR ADVANTAGE

EVERY PRINCESS OR FAIRY CAN IMAGINE

20
Q

What are the 3 grounds for piercing the corporate veil?

A
  1. Corp is operated as owner’s ALTER-EGO
  2. Corp is UNDERCAPITALIZED against foreseeable liabilities at corp outset
  3. to PREVENT FRAUD or AVOID EXISTING OBLIGATIONS
21
Q

PIERCING CORPORATE VEIL: When is it justified?

A

When the UNITY OF INTEREST is such that separate personalities of the corp and ind’l NO LONGER EXIST and

To adhere to that separatness would WORK AN INJUSTICE

22
Q

PIERCING CORPORATE VEIL: What must be done procedurally?

A

Sue the 1. Corp and 2. the SHs

23
Q

Can a SHAREHOLDER AGREEMENT apportion liability in the event of suit/penalty for unpaid taxes?

A

Yes, SH’s have broad latitude to enter into agreements concerning, among other things, corporate governance, distributions, and the r’ship among the SHs.

24
Q

What is req’d for a SH Agreement to be valid?

A

Must be set forth in either:

  1. ARTICLES, BYLAWS, or
  2. WRITTEN AGMT SIGNED BY ALL SH’s.
25
Q

What are types of DISSOLUTION?

A
  1. Dissolution by CORPORATE ACT
  2. Dissolution by INITIAL DIRECTORS or INCORPORATORS (if biz hasn’t started yet or no stock issued)
  3. Dissolution by CONSENT
26
Q

What’s the procedure for DISSOLUTION BY CORPORATE ACT?

A
  1. SH Vote (quorum of 2/3rd)
  2. Statement of Intent (filed w/ SCC –> must stop all business, except winding up)
  3. Mail notice to each creditor.
  4. Articles of Dissolution (after all assets have been distributed to creditors and SHs)
  5. State Tax Commission’s Consent
  6. Certificate of Dissolution (issued by SCC)
27
Q

What are the 3 forms of INVOLUNTARY DISSOLUTION?

A
  1. AUTOMATIC Dissolution
  2. Dissolution BY ORDER OF SCC
  3. JUDICIAL dissolution
28
Q

What would cause AUTOMATIC DISSOLUTION?

A
  1. Failure to FILE REPORTS or PAY TAX

But can be REINSTATED W/ RELATION BACK

29
Q

What would plaintiffs have to show for JUDICIAL DISSOLUTION?

A

Must prove either:

  1. DEADLOCK in the mgmt of the corp.
  2. OPPRESSIVE OR ILLEGAL CONDUCT by the majority, or
  3. WASTE of corporate assets
30
Q

When can a fired employee bring wrongful discharge claim?

A

When employee discharged in violation of an established PUBLIC POLICY.

So if there’s a right established by STATUTE in furtherance of public policy, employee may have claim for wrongful discharge.

31
Q

May a SH inspect books and records of corporation?

A

Yes, upon 5 days written notice and w/ proper purpose.

May inspect minutes of board of director’s meetings and obtain a list of members.

32
Q

Can members of a corporation remove a director? If so, how?

A

Yes. They may do so WITH OR WITHOUT CAUSE at a meeting CALLED FOR THAT PURPOSE.

SIMPLY MAJORITY is sufficient, unless articles of incorporation provide otherwise.

33
Q

Does VA law provide for indemnification of directors/officers?

A

Yes, corporation must pay for or reimburse ALL REASONABLE EXPENSES, including ATTY FEES and any JUDGMENT against him.

Applies even if he’s removed as director.

Does NOT apply to WILLFUL MISCONDUCT OR KNOWING VIOLATION OF LAW

34
Q

What is a closely held corporation?

A

Corporation with only a few SHs.

35
Q

Are distributions of corporate assets permitted when the corporation is insolvent?

A

No.

36
Q

When is a corporation considered insolvent?

A

When its debts exceed its assets, or

If making a distribution will prevent the corporation from meeting its liabilities

RULE HOLDS TRUE EVEN DURING WINDING UP PERIOD

37
Q

What duties do directors owe to corporations?

A
  1. Duty of Loyalty

2. Duty of Care

38
Q

Are directors personally liable for wrongful distributions?

A

Yes.

39
Q

What is a director’s duty of care?

A

Means directors must make decisions as a prudent person would.

40
Q

If a director votes against or abstains in a vote for a wrongful distribution, are they personally liable for it?

A

NO, only directors that vote for illegal distributions can be held liable.

41
Q

When is a director deemed to have voted for or assented to an improper distribution?

A

If they’re present and fail to dissent or abstain.

42
Q

What type of vote is req’d for a FUNDAMENTAL CORP CHANGE?

A
  1. Notice given to SH before meeting (25 to 60 days before vote)
  2. Requires 2/3rd vote OF ALL OUTSTANDING SHARES
43
Q

What actions constitute a FUNDAMENTAL CORPORATE CHANGE?

A
  1. Charter Amendments
  2. Mergers
  3. Consolidations
  4. Sale of Assets
  5. Dissolution
44
Q

Is a member/shareholder entitled to inspect the minutes of a Bd of Director’s meeting and obtain a list of members? If so, what is req’d?

A

Yes

Must have (1) PROPER PURPOSE, and (2) give requisite NOTICE

45
Q

Can members of a nonstock corporation remove a director? If so, how?

A

Members may remove a director, W/ OR W/O CAUSE, at a SPECIALLY CALLED MEETING FOR THAT PURPOSE.

SIMPLE MAJORITY is enough, unless otherwise provided in articles

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