Corporations

Question 1

What must be included in Articles of Incorporation

Answer 1

1. name of corp.;
2. address; nature of biz (can be “conduct or promote any lawful business”);
3. total # of auth’d shares of stock, classes of stock, par value, rights;
4. name + address of each incorporater;
5. name + address of each of first directors if dif from incorporators

Question 2

What else may be included in Articles of Incorporation?

Answer 2

1. Any provision for mgmt. and governance of corp.
2. Personal liability of stockholders
3. Any provision eliminating or limiting directors’ liabilities for $ damages

Question 3

What is required to change the Articles of Incorporation?

Answer 3

Shareholder vote

Question 4

Bylaws Basics

Answer 4

1. Initial bylaws adopted by directors or incorporators (b4 stockholders exist).
2. Once stockholders exist (corp. rec’d pmt for stock), then bylaw power is to stockholders…but
3. AoI can delegate power to adopt, amend, or repeal bylaws to Directors.

Question 5

Promoters

Answer 5

Sets up corp. (solicits investors) & acts as agent prior to formation
o Promoters are personally liable for anything in pre-inc. phase
o Post-inc., corp. must adopt the contract (expressly by novation or implicitly by ratification via accepting benefits) and then corp. is liable rather than promoter.

Question 6

Boilermakers Local 151 Retirement Fund v. Chevron Corp.

Answer 6

Chevron adopted a forum selection clause in its bylaws requiring suits to be in Delaware. Shareholders fought for vested rights. Court held that Delaware courts apply internal affairs doctrine: corp. has right to limit internal suits to only one jurisdiction to avoid conflicting demands.

Question 7

What relationship does corporate law focus on

Answer 7

1. Stockholders
2. Directors
3. Managers

Question 8

Burwell v. Hobby Lobby

Answer 8

MAJORITY (ALITO) takes position that corps are nothing more than an org. form used by humans to achieve their desired ends. Here, controlling family of closely held corp. structures corp. for specific religious beliefs which can be passed through in operations.
DISSENT (GINSBURG): Corp. are legal persons designed to max corp. profit. “No consciences, no beliefs, no feelings, no thoughts, no desires.”

Question 9

Limited Liability

Answer 9

Unless otherwise stated in AoI, shareholders are not liable for corp. debts (except by liability for their conduct or acts e.g., breach of fiduciary duty).

Question 10

Affirmative Asset Partitioning

Answer 10

Owners’ personal creditors cannot satisfy claims with the corporation’s assets.

Question 11

Defensive Asset Partitioning

Answer 11

Corp creditors cannot satisfy claims w/ shareholders’ personal assets.

Question 12

Basic Theory of Piercing the Corporate Veil

Answer 12

Imposing liability on shareholders for their conduct

Question 13

Vertical or Alter Ego Piercing the Corporate Veil Factors

Answer 13

(Unity of interests between shareholders and corporation such that they are not separate)
1. Whether corp was adequately capitalized?
2. Whether it was solvent?
3. Whether it observed corp. formalities (very important)? Incl: failure to hold shareholder/BoD meetings, keep minutes of meetings, keep separate accounts or books, or adopt bylaws/charters.
4. Whether dominant shareholder siphoned funds (e.g. comingling)?
5. Whether corporation functioned as façade for dominant shareholder?
6. Overall factor that corporate form promotes injustice or fraud. Required.

Question 14

Sea-Land Services, Inc. v. Pepper Source,

Answer 14

Pepper Source stiffed Sea-Land on shipping contract. Pepper Source had been dissolved; owner Marchese owned 5 dif corps. Sea-Land tried to pierce into Marchese (vertical), then reverse pierce into other corps. HELD: Remanded for hearing on whether injustice existed. Though there was evidence of a unity of interest here “injustice” requires more proof.

Question 15

Enterprise Liability or Horizontal Piercing Theory

Answer 15

Corps are operated collectively as a unique enterprise.

Question 16

Walkovszky v. Carlton

Answer 16

Tort claim where Carlton operates 10 cab corps w/ 2 cabs each to carry min insurance. Plaintiff tries to have Ct recognize all companies as a single enterprise which can be held liable for the tort. HELD: Insufficient for Walkovszky to plead that corporation lacked separate identity, was part of a single enterprise, and was deliberately undercapitalized. This would open all corps to liability any time debts exceeded assets. Also, no commingling of assets (Failed to show unity of interest and purpose and scope).

Question 17

Reverse Piercing The Corporate Veil Factors

Answer 17

1. commingling of assets and resources
2. undercapitalization
3. failure to respect corporate formalities and records
4. sanction fraud or promote injustice

Question 18

Sarissa Capital Domestic Fund LP v. Innoviva, Inc.

Answer 18

Sarissa tried to sue the board of Innoviva arguing that the directors were grossly overpaid, failed to oversee risk, and contributed to poor stock performance. There was a settlement agreement that allowed 2 Sarissa directors on the board. But then Innoviva’s larger voters came along, and Innoviva rejected the settlement. Court sided with Sarissa that there was already a settlement based on the actions of an agent (VP) who manifested this to Sarissa. There was actual and apparent authority.

Question 19

Business Judgment Rule

Answer 19

Directors enjoy a presumption of managing the corporation in good faith. Court will not interfere in questions of policy or biz management except in face of fraud, illegality, or conflict of interest.

Question 20

AP Smith Mfg. v Barlow

Answer 20

Shareholders challenge corp.’s $1500 donation to Princeton as breach of fiduciary duty. BoD claims charitable contribution was to advance goodwill. HELD: Gift w/in BoD’s authority as long as charitable $ are not unusually large & not given to pet charity (i.e. serve personal interest of directors).

Question 21

Shareholder Primacy

Answer 21

Did the corporate directors act to maximize shareholder value? Delaware adopts this today w/ modifications by recognizing that a corp. may act in short run to depress value, but long-term to max value.

Question 22

Dodge v. Ford Motor Co.

Answer 22

Ford shareholders demanded special dividend after they ceased in 1916 as Mr. Ford and BoD planned to reinvest profits to create smelting plant and assist public by cutting cost of cars. Goal: Every American family should have a Ford (makes Co. less profitable). HELD: Ford must pay special dividend b/c profits too excessive not to distribute. TODAY, this would not work. This would be a business decision if no conflict of interest.

Question 23

Who has the power to determine dividends?

Answer 23

Directors alone have power to declare/determine dividends. Cts will only interfere if fraud, misappropriation of assets, or breach of good faith.

Question 24

Shlensky v. Wrigley

Answer 24

Shelensky sued that Wrigley mismanaged Cubs by not installing lights for night games, depressing team revenue. Wrigley arg’d baseball was a daytime sport & key for neighborhood. HELD: Shlensky claim failed b/c act was pure biz decision w/o fraud, illegality or conflict of interest.

Question 25

Authorized Shares

Answer 25

Max limit in Articles of Incorporation. Only s-holders can amend AoI to add auth’d shares if all outstanding shares sold.

Question 26

Outstanding shares

Answer 26

Shares currently sold to investors & not repurchased

Question 27

Common Shares

Answer 27

Shares with no special privileges

Question 28

Preferred Shares

Answer 28

Shares w/ some privileges (e.g. pmt of dividends or asset distribution for liquidation)

Question 29

Shareholders Rights

Answer 29

* Participate in profits via dividends at BoD decision * Residual claimants in liquidation * Elect/remove directors * Vote on fundamental matters (e.g. mergers, amend AoI) * Put forth/include proposal for voting (“Shareholders proposal”) * Right to inspect books and records (so long as purpose is proper) * Right to file derivative suit * NOT agents of corp.

Question 30

Blasius Industries v. Atlas Corp.

Answer 30

Blasius is active investor in Atlas and req’d to disclose intent to control. Atlas BoD was not interested in being acq’d. Blasius sought to expand BoD to 15-member max per AoI; Atlas responded by amending bylaws to expand from 7 to 9 and appointed the vacancies to keep control 2 weeks prior to shareholder vote on Blasius proposal. HELD: BoD violated duty of loyalty.

Question 31

Blasius Standard of Review

Answer 31

When directors make decision that limits shareholders’ ability to exercise core rights, BoD action is subject to strict scrutiny. Must show decision was justified by a compelling interest to protect corp. from outside shareholder’s constituent threat to the business.

Question 32

Coster v. UIP Companies

Answer 32

UIP held by 2 shareholders without system to resolve deadlock. Shareholder’s widow wanted bought out, but c/n agree on price and widow refused to allow BoD to operate. Other s/h and employee (mgmt.) decided to issue new shares to break deadlock and est. new majority. Coster claimed issuance of shares was violation of Blasius to limit her voting rights. HELD: Even though BoD’s acts passed “entire fairness review,” Court of Chancery should have investigated whether BoD acted for primary purpose of interfering w/ Coster’s voting rights.

Question 33

What to consider with voting schemes and rules?

Answer 33

1. Who gets to vote? 2. On what matter? 3. How do they vote?

Question 34

Plurality Voting

Answer 34

(DE Default) One share, one vote per vacancy. Each director elected one at a time.

Question 35

Majority Voting

Answer 35

Requires each BoD nominee to receive a majority of votes (50%+1) to be elected to the BoD.

Question 36

Cumulative Voting

Answer 36

Shareholders given a pocket of votes = # of shares owned * # seats voted for. Then all votes are cast at once. (In theory, s-holder can place all votes for one candidate)

Question 37

Ringling Bros. v. Ringling

Answer 37

Corp had split shares among 3 family members (315, 315, 370). Sisters’ pooling agreement w/ 315 each where arbitrator would be appointed to break ties. Invoked arbitrator. Lower Ct accepts arbitrator’s vote, which App Ct. rejects as not binding based on pooling agreement (contract) language. As breach of contract remedy, Ct holds that defaulting sister’s votes are nullified and all other directors elected.

Question 38

Voting Agreement in Advance

Answer 38

Shareholders can agree in advance how they will vote. Directors cannot agree how to vote in advance b/c it is against public policy (could bind them to act counter to the fiduciary duty in a situation).

Question 39

Pooling Agreement

Answer 39

Contract to vote together

Question 40

Irrevocable Proxy

Answer 40

Shareholders assign a vote to a person

Question 41

Voting Trust

Answer 41

Shareholders assign their voting rights to a trustee, who votes as the trustee decides – shareholders have no say.

Question 42

Shareholder meetings (in general)

Answer 42

1. Annual to vote on directors (proposed by nominating committee) 2. May also hold add’l special meeting 3. Notice and proxy materials must be sent in advance 4. Must have a quorum

Question 43

Validity Quorum

Answer 43

Default: Majority of shares entitled to vote are represented in person or by proxy. Meeting is valid (may be changed in the bylaws but cannot be less than 1/3)

Question 44

Deliberative Quorum

Answer 44

Vote is valid. Default: Majority of shares present/ represented at meeting. Note: Some special decisions require majority of outstanding shares (e.g. mergers, amendments to charter/AoI)

Question 45

Controlling Shareholder Consent

Answer 45

1. Consent by controlling s/h to a BoD action in lieu of meeting must be in writing. 2. Prompt notice must be given to non-consenting shareholders of action taken w/o meeting w/ less than unanimous consent.

Question 46

Espinoza v. Zuckerberg

Answer 46

Shareholder derivative suit challenged a vote by Facebook's BoD to raise BoD compensation as self-dealing breach of loyalty. FB defense was Zuckerberg would have approved the transaction and he controlled 61%, but never formally voted. Court: Motion to dismiss denied, because formalities were not followed for consent of stockholders in lieu of meeting.

Question 47

Consent of Stockholders in Lieu of Meeting Formalities

Answer 47

(1) Consent in writing or electronic transmission (2) Consent delivered to corp w/in 60 days of deliver of first consent (3) Effective time of consent max 90 days. If merger, shareholders can file dissent to protect their appraisal rights under §228.

Question 48

Entire Fairness Standard of Review

Answer 48

Requires a defendant to show that the transaction was entirely fair. That the transaction was fair in its dealing and fair in the price.

Question 49

Shareholder proposal procedural requirements

Answer 49

1. Ownership req’s 2. Format guidelines (max 500 words) 3. Timely (120 days b4 proxy material circulated) 4. Corp. must offer proposer to correct errors w/in 14 days 5. 1 proposal/shareholder

Question 50

Shareholder Proposal Key Reasons for Not Including

Answer 50

1. Relevance (involving less than 5% of assets or not significantly related) 2. Management Functions 3. Director Elections

Question 51

Trinity Wall Street v. Wal-Mart

Answer 51

On heels of mass shooting, Trinity proposal was for Wal-Mart BoD to examine if selling high-capacity firearms endangered public safety, reputation of W-M, or offensive to W-M’s family values. W-M obtained “no-action letter” from SEC on grounds that proposal interfered w/ ordinary biz operations (not relevance) (SEC Rule 14a-8(i)(7)). Held: Affirmed proposal qualified for exclusion.

Question 52

Shareholder Inspection Rights

Answer 52

(1) Stockholder (2) has right to inspect books and records for any proper purpose. If request is for potential derivative suit, then (3) demand must be made in proper form.

Question 53

Shareholder must prove proper purpose to inspect

Answer 53

1. Shareholder list 2. Stock ledger

Question 54

Corporation must prove improper purpose to withhold

Answer 54

1. Corp. books & records (incl. BoD minutes, s-holder mtg minutes, BoD acts by written consent) 2. Subsidiary’s books/records

Question 55

Pillsbury v. Honeywell, Inc.

Answer 55

Ct denied Pillsbury’s right to inspect Honeywell’s books b/c Honeywell proved he acted w/ improper purpose by wanting to cease weapon production for Vietnam. No economic interest motivated his share-ownership, purchased solely for activism. Pillsbury also just owned one share.

Question 56

Proper Purpose

Answer 56

Anything reasonably related to economic investment interest as shareholder

Question 57

AmeriSource Bergen v. Lebanon

Answer 57

Ct granted shareholders broad inspection rights to books re: AB’s role in opioid crisis b/c AB already spent $1B in related litigation & investigations. S-holders had credible basis for actionable Corp. mismanagement claim.

Question 58

Shareholder Fiduciary Duties

Answer 58

Shareholders owe no fiduciary duties, BUT controlling shareholder owes duties to minority shareholders (not corp) & requires adoption of specific procedural safeguards. Controlling shareholder is a fact-intensive question, not simply 50%+1 (e.g. Musk at 26% is controlling).

Question 59

Tooley Test

Answer 59

Test for Direct vs. Derivative Claims 1. Who suffered direct harm? (Direct only if plaintiff shows injury independent of harm caused to the corporation) 2. To whom should relief flow?

Question 60

Tooley v. Donaldson, Lifkin & Jenrette

Answer 60

As minority shareholder, Tooley claimed he was harmed by BoD extending tender offer that ultimately led to freezeout of remaining minority s/hs. HELD: Direct claim may have been plausible, but claim was not ripe b/c merger had not closed.

Question 61

Procedures for Derivative Claims

Answer 61

1. P was shareholder at time of transaction. 2. P must make demand: allege w/ particularity P’s attempts to get BoD to bring suit and reasons BoD declined OR allege demand would be futile.

Question 62

Procedures for Judging Demand

Answer 62

1. BoD may evaluate demand by est. special committee. Zapata. 2. If demand not made and not futile, claim dismissed. 3. If demand refused, P can challenge BoD’s decision to refuse but such a decision is usually subject to BJR

Question 63

Demand Futility Test

Answer 63

Demand is futile if it would be futile for at least 1/2 of directors.... (1) Show director rec’d material personal benefit from alleged misconduct; (2) Show director would face substantial likelihood of liability on any of the claims; or (3) Show director lacks independence from someone who rec’d material personal benefit or would face substantial likelihood of liability. (From: Zuckerberg v. United Foods)

Question 64

Zapata Special Committee Test

Answer 64

A Special Committee can bind a corp. when (1) cmte is independent such that it acts in good faith and w/ reasonable basis for its findings AND (2) Ct should apply its own biz judgment to determine if a motion to dismiss should be granted.

Question 65

Zapata v. Maldonado

Answer 65

Maldonado made demand on Zapata BoD, but all directors conflicted. BoD added 2 directors after demand made and put them in a special cmte w/ full authority to bind corp. re: demand. Special committee decided suit would be harmful to corp. and declined to sue. Ct affirmed Sp. Cmte.’s power to bind org.

Question 66

In re: Oracle derivative litigation

Answer 66

HELD: 2 Stanford profs were placed on a special litigation committee but were held not independent to investigate alleged insider trading by Oracle BoD members who were a fellow prof and 2 benefactors of Stanford.

Question 67

Special Litigation Committee Independence Test

Answer 67

Is a director, for any substantial reason, incapable of deciding with only the best interests of the corp. in mind?

Question 68

Beam ex rel. Martha Stewart Living v. Stewart

Answer 68

HELD: Dismissed suit for failure to make demand b/c Beam failed to show majority of directors were interested such that demand was futile. The relationships were also known before, unlike the Oracle case. Rule: Social or personal relationships alone are not enough to show a director lacks the independence to consider demand.

Question 69

102(b)(7) Waiver

Answer 69

Allows AoI to relieve directors (not officers) of liability for breach of duty of care. Cannot waive duty of loyalty, obligation of good faith, or intentional misconduct, or conflicted/self-dealing transactions.

Question 70

Kamin v. AmEx Co.

Answer 70

P made demand challenging BoD’s choice to distribute stock-in-kind ($4M value) rather than taking tax loss ($8M value) due to accounting treatment. HELD: BoD d/n breach duty of care to examine the decision and the request for demand.

Question 71

Smith v. Van Gorkom (Note: 102b7 enacted post-this case)

Answer 71

TransUnion BoD spent less than 2 hours approving leveraged buy-out CEO pushed through. No one read merger agreement & no one read amended merger agreement. Shareholders approved merger, but d/n cure b/c lack of full information (which is a breach of duty of candor) nullifies ratification. HELD: TransUnion directors not entitled to BJR b/c acted “grossly negligent” to approve a merger and subsequent steps to cure were still not informed. * When BJR is rebutted, entire fairness standard applies (fair procedure & price)

Question 72

Lovenheim v. Iroquois Brands

Answer 72

Lovenheim wanted the board to tell the shareholders they would study and look at the practice of making fois gras and then report back to shareholders. Iroquois Brands worked to exclude the proposal because it lack relevance. It is only a tiny part of sales and assets. Court sided with shareholders.

Question 73

Duty of Care

Answer 73

Not static. Diligence, competence, and prudence required of a director varies from industry to industry.

Question 74

Duty of Loyalty

Answer 74

Cannot be eliminated. Courts focus on (1) competing, (2) usurping corporate opportunity, and (3) interested director transactions.

Question 75

Standard for interested director/officer transactions

Answer 75

Entire Fairness

Question 76

Bayer v. Beran

Answer 76

Derivative suit alleges duty of loyalty breach re: Celanese radio advertising campaign featuring CEO’s wife. Wife’s involvement did result in a potential conflict of interest, so stockholders rebutted BJR. HELD: Campaign fair in process b/c BoD ratified the contract before wife hired and then renewed show, and fair in price b/c paying wife $500/show was typical for singers. * Not per se illegal to appoint relatives. * Here, BoD’s action cleans up the transaction of hiring CEO’s wife.

Question 77

Benihana Case

Answer 77

We had a director, Abdo, sitting on the board of Benihana, who was also an interested shareholder in the company that wanted to invest in Benihana.Transaction sought investor w/ convertible preferred stock sale to BFC Corp. Abdo was director in BFC and director in Benihana, Inc. w/ both roles known to Benihana BoD, who used outside negotiator and Abdo not present when Benihana considered BFC’s offer. B/c these facts existed, Benihana BoD transaction was entirely fair and binding on corporation. * B/c Ct found transaction procedure was fair, duty of loyalty claim also failed.

Question 78

What type of claim is a class action?

Answer 78

The hint is that it is a direct claim (i.e. Van Gorkom)

Question 79

§144: Safe Harbors for Interested Directors

Answer 79

Self-dealing transactions are valid if: 1. affirmative vote of majority of informed and disinterested directors (must be actual majority, not just majority present as in §141); OR 2. affirmative vote of majority of informed stockholders; OR 3. challenged transaction is entirely fair in price and procedure. * Applies only to legal validity of transaction such that transaction binds corp. * Even though transaction is valid under §144, may still breach duty of loyalty.

Question 80

Common Law Safe Harbor for Curing Interested Transactions

Answer 80

Approval by majority of informed disinterested shareholders and/or majority of informed disinterested directors. o If both disinterested votes fully informed ab initio, then BJR. o If only one disinterested vote, shifts entire fairness burden of proof to plaintiff from defendant.

Question 81

Duty of Candor

Answer 81

Officers & directors have duty to disclose to BoD/shareholders any material information where agent’s interest may conflict w/ corp.’s interest. * Material means info is relevant and of a magnitude to be important to directors in carrying out their fiduciary duty of care in decision-making.

Question 82

City of Fort Myers Gen. Emp. Pension Fund v. Haley

Answer 82

In merger b/w Towers and Willis (equal corps), Towers CEO Haley was to lead post-merger entity w/ 5x higher compensation package. Comp pkg not revealed to Towers BoD or shareholders. HELD: Haley breached duty of candor by failing to disclose his comp. package to directors and shareholders. Claim was allowed to proceed.

Question 83

Corporate Opportunity Claim (version of duty of loyalty)

Answer 83

Multi-Factor Balancing Test: (1) Corp is financially able to exploit opp. Look @ cash, revenues, credit worthiness for loan. (2) Opp is w/in corp’s biz. “Applied flexibly” and “broadly interpreted.” (3) Corp has interest or expectancy in opp. (4) If taking biz opp act would be contrary to his corp. fiduciary duties.

Question 84

Cleansing Corporate Opportunity Options

Answer 84

1. Does AoI allow director, officer, or controlling s/h to take personal opportunity w/o disclosure? 2. Did BoD cleanse transaction by (1) being properly informed of opp and (2) declining to take it? (this creates a safe harbor)

Question 85

Personal Touch Holding Corp. v. Glaubach

Answer 85

HELD: Glaubach violated corp. opp. doctrine by appropriating AAA bldg. for self instead of corp. even though corp. sought to buy previously.

Question 86

Good faith

Answer 86

(Subset of duty of loyalty) means all actions required by a true faithfulness, honesty of purpose, and devotion to best interests and welfare of corporation and shareholders.

Question 87

In re: Walt Disney

Answer 87

Shareholders sued for CEO’s no-fault firing which triggered golden parachute. HELD: BoD acted w/ due care in hiring CEO & approving comp contract w/ NFT and golden parachute. BoD acted in good faith by firing no-fault after General Counsel did careful review and found no grounds for substantive firing. o S/h also claimed CEO breached good faith by negotiating the golden parachute. Ct rejected – fiduciary duty d/n exist at time of negotiation.

Question 88

Caremark Claims (oversight subset of duty of loyalty)

Answer 88

P must show directors acted in bad faith or w/ scienter to derelict duty of operation oversight by either (1) utterly failing to implement reporting information system or controls or (2) failed to monitor or oversee a reporting system so established.

Question 89

Marchand v. Barnhill

Answer 89

(Listeria in ice cream) HELD: BoD breached Caremark duty b/c no system for compliance & monitoring. Nothing in s/h §220 request showed BoD tried to oversee food safety – operations briefing at mgmt. discretion is insufficient to meet Caremark duties.

Question 90

In re Boeing Derivative Litigation

Answer 90

Alleged breach of Caremark duties post-737MAX crashes. Procedural posture: MTD for failure to make demand, P argues demand futile b/c BoD is likely to have liability for claim which req’s Ct to examine merits. HELD: P sufficiently pleads facts that BoD is likely to have Caremark liability under both prongs (failure to implement system and failure to oversee est. system).

Question 91

In re: Citigroup Derivative Litigation

Answer 91

Alleged breach of Caremark duties in that BoD ignored news “red flags” about pending subprime lending crisis. HELD: This was simply a risky investment subject to BJR. Bad business decisions ≠ act in bad faith. No systemic failure to exercise oversight existed here.

Question 92

Corporate Waste Standard

Answer 92

BoD decision so irrational it could not be based on a valid assessment of corp’s best interests.

Question 93

Hint on 102(b)(7) Provisions

Answer 93

Likely means there is a Caremark or Corporate Waste claim.

Question 94

Standard for Controlling Shareholder Suits

Answer 94

Entire fairness standard only applies if shareholders can prove majority preferred itself over minority shareholders. Otherwise, BJR for ordinary decisions.

Question 95

Controlling Shareholder Safe Harbor from Duty of Care

Answer 95

Requires BOTH vote of disinterested BoD and disinterested shareholders

Question 96

Wholly-Owned Subsidiary

Answer 96

o Parent fully controls all stock of subsidiary. o Derivative claims cannot exist here b/c no minority shareholders in subsidiary. o Duties exist only to corporate creditors.

Question 97

Majority Controlled Subsidiary

Answer 97

o Parent owns >50%+1 of shares o Most business decisions are controlled by the majority controller, but not transactions which require a supermajority (like merger).

Question 98

Sinclair Oil Corp. v. Levien

Answer 98

Sinclair owns 97% of Sinven stock but minority shareholder in Sinven sues Sinclair Breach of Contract Between Sinclair's Wholly Owned Subsidiary (International Oil) and Sinven... HELD: Entire fairness b/c Sinclair on both sides of transaction. Sinclair failed to prove transaction was entirely fair on procedure and price – cannot show Sinven caused contract breach.

Question 99

Rebutting Business Judgment Rule in Caremark Claim

Answer 99

1. Showing bad faith a. Subjective bad faith: intention to cause a harm to the corporation, which is extremely difficult to prove. b. Intentional Dereliction of Duty: Conscious disregard of duty or obligations 2. OR a conflicted transaction

Question 100

Minority Controlled Subsidiary

Answer 100

1. Parent owns <50% +1 but has de facto control over corp. 2. Ct deploys fact-intensive scrutiny to see if minority controller dominates BoD and/or shareholder decisions.

Question 101

In Re Tesla Motors Stockholder Litigation

Answer 101

Derivative litigation challenging Tesla’s acquisition of Solar City. HELD: Musk is controlling shareholder of Tesla despite owning only 22.1% b/c he exercises control over corp’s biz affairs. --> Entire Fairness Standard must apply.

Question 102

Tornetta v. Musk

Answer 102

Derivative claim based on Musk as controlling shareholder over Musk’s compensation package. HELD: Entire fairness standard applies b/c Musk is conflicted and transaction did not apply safe harbor.