Corporations

Question 1

Business Judgement Rule

Answer 1

• Presumption that a director’s decision may not be challenged if the director:
  
  • Acted in good faith;
  • With the care that an ordinarily prudent person would exercise in that position (prudence); and
  • In a manner the director reasonably believe to be in the best interest of the corporation (no self-interest)

Question 2

Director’s Personal Interest in a Transaction Will Not Cause It to Be Set Aside If…

Answer 2

• The director disclosed the material facts of the transaction to disinterested members of the board or shareholders who approved the transaction; or
• The transaction was fair to the corporation

Question 3

Director Liability Cannot be Eliminated To the Extent that the Director…

Answer 3

• Received a benefit to which he was not entitled;
• Intentionally inflicted harm to the corporation or shareholders;
• Approved unlawful distributions; or
• Intentionally committed a crime

Question 4

Proxies (Revocable or Irrevocable?)

Answer 4

• Generally revocable unless:
  
  • Expressly irrevocable;
  • Coupled with an interest

Question 5

Proxies Can be Revoked By

Answer 5

• Subsequent instrument; or
• Showing up to the meeting and voting

Question 6

President of a Corporation’s Authority to Bind the Corporation

Answer 6

• Presumed unless specifically limited by the corporations
• As to day-to-day ordinary contracts
• Extraordinary required board authorization

Question 7

What Power Can the Board Not Grant the President

Answer 7

• Power the board itself does not have

Question 8

Fundamental Corporate Changes Require What

Answer 8

• Directors pass a resolution to implement the plan; and
• Shareholder approval

Question 9

Appraisal Remedy

Answer 9

• Shareholder who dissent from a fundamental corporate change can force the corporation to repurchase their shares at a fair price
• Shareholder must:
  
  • File an objection to the transfer before or at the shareholders’ meeting at which the vote is taken;
  • Not vote in favor of the plan; and
  • Send the corporation a written demand for the faire value of its shares
• Shareholder then deposits his shares with the corp.
• If corporation disagrees, corporation must file suit to determine value

Question 10

Promoter Definition and Liability

Answer 10

• Definition: procures commitments for capital and instrumentalities on behalf of corporation that will be formed in the future
• Generally personally liable on all such contracts they enter into on behalf of the corporation formed
• Exceptions:
  
  • Not liable on a preincorporation contract if the agreement between the parties expressly indicates the promoter will not be bound (considered to be an offer to the future corporation)
• Tip: Remember a promoter is not an agent because you can’t be an agent to a corporation that doesn’t exist

Question 11

Corporate Liability on Promotor Contract

Answer 11

• Generally, a corporation is not liable on a promoter contract
• A corporation can become liable on the contract if it adopts the contract
• Adoption can be express or implied
  
  • Express - Official action with knowledge of material facts
  • Implied - Someone with authority to adopt, with knowledge of material facts, accepts the benefits of the contract (this is an acquiescence/estoppel type argument)

Question 12

Director Can Rely on Reports From…

Answer 12

• Officers whom director reasonably believes to be reliable and competent
• Outsiders as to matter director reasonably believes to be within outsider’s professional competence

Question 13

Inspection Rights

Answer 13

• Shareholder have a right to inspect corporate records for a proper purpose
• 5 days written notice
• Can bring attorney, accountant, other agent to facilitate inspection
• Proper purpose = relating to shareholder status

Question 14

Derivative Action vs Direct Action (and what you have to do for derivative)

Answer 14

• Derivative - seeks to vindicate wrongs done to corp
  
  • Must make a demand on board (requirement dispensed with in many states if the request would be futile, like accusing entire board of wrongdoing because they won’t file an action against themselves)
• Direct - Wrongs done to shareholder

Question 15

Controlling Shareholder Must Refrain From…

Answer 15

• Using control to obtain special advantage; or
• to cause corp to take action that unfairly prejudices minority shareholders