Corporations

Question 1

Duty of Care/Business Judgement Rule

Answer 1

Directors and officers owe the corporation a fiduciary duty of care. 1. take reasonable steps to monitor the corporations management, best interests of the corporation, disclose material infromation to the board, and rely on information from others who they reasonable believe are reliable. The business judgement rule the courts will not second guess the decisions of the director or officers so long as the decisions are made 1. in good faith 2. with care of a ordinarly prudent person in that position would excercise and 3. reasonable believes to be in the best interest of the corporation. A violation of the duty of care can subject the director to personal liability unless the articles or bylaws limit this.

Question 2

Shareholder derivative Claims

Answer 2

A derivative claim is a lawsuit brought by a shareholder on behalf of the corporation. The corporation must have a valid cause of action which it failed to pursue. The shareholder must make a written demand on the board before commencing the derivative action. The shareholder must then wait 90 days to file the derivative action. Unless the board rejects it before then. Damages are given to the corpoation not the shareholder who brought the action.

Question 3

Conflict Interest Transactions

Answer 3

Directors and officers have a duty to avoid implicating their personal conflciting intersts in making business decisicons for the corporation. There is a conflicting interst when 1. the

Question 4

Piercing the Corporate Veil

Answer 4

A creditor can pierce a corporate veil in a LLC to hold individual shareholders personally liable. It can be done when: 1. the shareholder has dominated the corporation to the exent that the corporation is the shareholders alter ego. 2. Failed to follow corporate formalities. 3. Undercapitalization 4. Fraud or illegailty.