corporations

Question 1

Although shareholders of a corporation are generally not liable for the debts of a corporation, shareholders in a Virginia corporation, including a professional corporation, are

Answer 1

free to enter into agreements that alter the way in which a corporation is managed, including the relationship among shareholders and the corporation, even though the agreement is inconsistent with statutory provisions.

Question 2

a shareholders agreement regarding liability for unpaid taxes is enforceable provided it is set forth or referenced either

Answer 2

(i) in the articles or the corporate bylaws and approved by all persons who are shareholders at the time of the agreement, or
(ii) in a written agreement that is signed by all persons who are shareholders at the time of the agreement and that is made known to the corporation.

Question 3

The employees of a professional corporation are not shielded from

Answer 3

liability arising out of their own malpractice.

Question 4

The employees of a professional corporation are shielded from

Answer 4

vicarious liability for malpractice committed by other professionals in the professional corporation.

Question 5

a plaintiff in a malpratice action against a professional corporation could content that the court should

Answer 5

pierce the corporate veil and hold a shareholder liable for the corporations obligations

Question 6

peircing the corporate veil is usually warranted only in extraordinary circumstances and mere failure to

Answer 6

observe corporate formalities( shareholder meetings/keeping minutes) is not sufficient

Question 7

After a corporation has issued stock, a voluntary dissolution can occur when

Answer 7

the board of directors adopts a proposal for dissolution and two-thirds of the outstanding shares approves, or when all shareholders consent to the dissolution, even without approval of the board.

Question 8

A shareholder can seek the involuntary dissolution of a corporation if

Answer 8

the acts of the board of directors or those in control of the corporation are illegal, oppressive, or fraudulent.

Question 9

Upon termination, the property of the corporation passes automatically to

Answer 9

its directors as trustees in liquidation.

Question 10

As trustees in liquidation, the directors discharge the liabilities and obligations, and then

Answer 10

distribute the remainder of the corporation’s assets among its shareholders according to their respective rights and interests.

Question 11

While a member of a nonstock corporation is generally not entitled to a distribution, a member generally enjoys

Answer 11

the same rights as a shareholder of a stock corporation, such as the right to inspect the corporation’s books and records, and is subject to the same restrictions.

Question 12

A shareholder in a stock corporation has the right to

Answer 12

1) inspect and copy corporate documents, so long as
2) the shareholder sends a signed written request at least 10 business days in advance.

Question 13

For some corporate records, including minutes of the board of directors’ meetings and the list of shareholders of record, the shareholder must

Answer 13

1) have been a shareholder for at least six months or must be the record owner
2) or beneficial owner of at least five percent of the outstanding shares.

Question 14

For inspecting corporate records the shareholder must have

Answer 14

a proper purpose

Question 15

For inspecting corporate records the shareholders demand must

Answer 15

describe with reasonable particularity the purpose and the records being requested

Question 16

A proper purpose is one that

Answer 16

relates to the shareholder’s interest in the corporation.

Question 17

The law governing a nonstock corporation generally

Answer 17

parallels that of a stock corporation.

Question 18

As is the case with regard to the shareholders of a stock corporation, the members of a nonstock corporation may

Answer 18

remove a director with or without cause.

Question 19

To remove a director, unless the articles of incorporation provide otherwise,

Answer 19

a majority of the members must vote in favor of the removal of a director.

Question 20

As is the case with regard to a director of a stock corporation, a nonstock corporation may generally

Answer 20

indemnify a director

Question 21

indemnification of a director can be provided for in the corporations

Answer 21

articles of incorporation

Question 22

indemnification of a director can be for

Answer 22

any judgment awarded against the director for acting in his role as a director, as well as provide for advancement and reimbursement of expenses with respect to the liability.

Question 23

When the authorization for indemnification of a director (usually in the articles of incorporation) simply obligates the corporation to provide indemnification to the fullest extent permitted by law, the authorization is deemed to also require

Answer 23

the corporation to advance or reimburse reasonable expenses of any kind.

Question 24

director may seek a court order to compel the corporation to

Answer 24

indemnify the director in accord with the indemnification authorization.

Question 25

The only restriction on the corporation (relating to indemnification authorization) is that it cannot indemnify a director against liability for

Answer 25

(i) willful misconduct or (ii) a knowing violation of criminal law.

Question 26

Under Virginia law, a shareholder retains her right to vote if she pledges stock for collateral unless

Answer 26

she signs an agreement to the contrary.

Question 27

Often small corporations, restrict the ability of the shareholders to

Answer 27

transfer their shares

Question 28

where a shareholder offers shares as collateral, this can constitute

Answer 28

a potential transfer if the shareholder defaults on the obligation

Question 29

In Virginia, certain shareholders have the right to inspect and copy corporate documents, so long as

Answer 29

the shareholder sends a signed written request at least 10 business days in advance and has a proper purpose for doing so.

Question 30

The shareholder may only inspect and copy the records at

Answer 30

the corporation’s main office during business hours

Question 31

for some corporate records (e.g., minutes of the board of directors’ meetings, corporate accounting records, and the list of shareholders of record), the shareholder must have been

Answer 31

a shareholder for at least six months or must be the record owner or beneficial owner of at least five percent of the outstanding shares.

Question 32

If there is any problem obtaining the records, shareholder has the right to

Answer 32

go to court and obtain an injunction.

Question 33

Shareholders must be given written notice of an annual or special meeting

Answer 33

no less than 10 days and no more than 60 days before the meeting date.

Question 34

A shareholder may waive notice of a meeting either

Answer 34

in writing or by attending the meeting.

Question 35

a shareholder may attend a meeting to

Answer 35

object to the lack of notice or defective notice if the objection is made at the beginning of the meeting

Question 36

where a shareholder attends a meeting to object to lack of notice/defective notice, the attendance is

Answer 36

not a waiver of the improper notice

Question 37

shareholders of a corporation are generally not liable for

Answer 37

the debts of a corporation

Question 38

shareholders in a Virginia corporation, including a professional corporation, are free to enter into agreements that

Answer 38

alter the way in which a corporation is managed, including the relationship among shareholders and the corporation, even though the agreement is inconsistent with statutory provisions.

Question 39

The shareholder agreement must be set forth or referenced either

Answer 39

(i) in the articles or the corporate bylaws and approved by all persons who are shareholders at the time of the agreement, or
(ii) in a written agreement that is signed by all persons who are shareholders at the time of the agreement and that is made known to the corporation.

Question 40

A director owes a duty of

Answer 40

care to the corporation

Question 41

A director is not liable for a breach of this duty if

Answer 41

the director’s conduct was undertaken in good faith, which is a subjective standard

Question 42

Virginia’s statutory business judgment rule protects a director’s decision if

Answer 42

the decision was made with good faith business judgment of the best interests of the corporation.

Question 43

To overcome business judgment protection, the party challenging the director’s conduct bears the burden of persuasion, which generally requires a showing that

Answer 43

the director engaged in self-dealing or fraud or acted in bad faith.

Question 44

delaying a corporate action for a purely personal reason is

Answer 44

not protected by the business judgment rule, and will be deemed a breach of the directors duty of care to the corporation

Question 45

While the board of directors is responsible for managing the corporation’s business, the board of directors may generally act through

Answer 45

one or more committees, each of which must consist of at least two directors.

Question 46

A director is entitled to rely on

Answer 46

the performance of, as well as information, opinions, reports, and statements supplied by a committee of the board of which the director is not a member if the director believes, in good faith, the committee merits confidence.

Question 47

A director owes a duty of

Answer 47

loyalty to the corporation

Question 48

In Virginia, subject to the business judgment rule, a director may not

Answer 48

directly or indirectly take a personal advantage from a transaction with the corporation unless the transaction is, “open, fair, and honest,” and competent counsel represents the corporation.

Question 49

a director owes a duty of care to the corporation, but this duty is evaluated on a

Answer 49

a subjective standard and is subjected to the business judgment rule.

Question 50

A director can breach the duty of loyalty by

Answer 50

usurping a corporate opportunity unless the director first makes the corporation aware of it.

Question 51

A corporate opportunity is

Answer 51

a proposed activity that is reasonably incident to the corporation’s present or prospective business and in which the corporation has a capacity to engage.

Question 52

piercing the corporate veil is appropriate where

Answer 52

shareholders treat the corporation as their alter ego by ignoring corporate formalities, such as using corporate funds for personal debts; or when the corporation is undercapitalized; and in cases to prevent fraud.

Question 53

Failure to provide adequate capitalization at the time the corporation is formed can be a basis for

Answer 53

piercing the corporate veil

Question 54

When the corporate veil is pierced, only the shareholders who were

Answer 54

active in managing the corporation are held liable.

Question 55

contract claimants are less likely to pierce the corporate veil than

Answer 55

tort victims

Question 56

For both unfair benefit and usurping, the director’s actions can be approved, limiting or negating liability if

Answer 56

independent ratification occurs

Question 57

independent ratification requires

Answer 57

that a majority vote by shares held by independent shareholders votes to absolve the director of liability.

Question 58

In Virginia, in order for a shareholder to bring a derivative suit

Answer 58

the corporation itself would have to have been able to bring the suit against the director itself.

Question 59

claimant bringing the suit must also have standing, meaning

Answer 59

they must own at least one share of stock when the claim arose and during the entire litigation

Question 60

shareholder who brings the suit must

Answer 60

adequately and fairly represent the corporation’s own interest

Question 61

Prior to bringing a shareholder derivative suit, a shareholder must

Answer 61

first make written demand on the directors that they bring the suit, or 90 days has to have passed since making the demand on the directors; or the board expresses that irreparable harm will result if the shareholder waits the 90 days

Question 62

claimant shareholder must still allege that the directors

Answer 62

failed to adequately review the demand, and then a committee of two or more independent directors can investigate and move for dismissal if the directors think the suit is not in the corporation’s best interest.

Question 63

the termination of the corporations existence does not

Answer 63

terminate its corporate liabilities, nor does it create liability for the shareholders or directors for authorized business transactions of the corporation.

Question 64

Where there is a vacancy on the board of directors of a corporation

Answer 64

the board of directors may fill the vacancy

Question 65

For the board of directors to take an action at a meeting, there must be

Answer 65

quorum of the directors.

Question 66

if there is a qourum at a board of directors meeting, to take an action

Answer 66

a majority of the directors at the meeting must approve of the act

Question 67

the board of directors can fill a vacancy on the board regardless of

Answer 67

how the vacancy was created.

Question 68

generally the role of selecting directors falls on

Answer 68

the shareholders

Question 69

where there is a vacancy on the board of directors

Answer 69

the remaining directors as well as the shareholders may fill the vacancy.

Question 70

The quorum requirement is applied to determine whether there is

Answer 70

a sufficient number of directors present for the board to act

Question 71

. Once the quorum requirement is satisfied,

Answer 71

only a majority of the directors present is required to approve of the action.

Question 73

In Virginia, in any proceeding brought by or in the right of a corporation or brought by or on behalf of shareholders of the corporation, there is a statutory cap on director liability that limits a director’s liability for money damages to

Answer 73

the greater of $100,000, or the cash compensation received by the director during the 12-month period immediately preceding the conduct for which liability was imposed

Question 74

the corporation, in its articles of incorporations or bylaws, may reduce or eliminate director liability, but cannot

Answer 74

increase it

Question 75

neither cap is applicable with respect to

Answer 75

willful misconduct or a knowing violation of criminal law.

Question 76

A corporation’s name must contain the word

Answer 76

“corporation,” “company,” “incorporated,” “limited,” or an abbreviation thereof.

Question 77

an abbreviation “LLC”

Answer 77

is reserved for a limited liability company

Question 78

A person may become a member of a manager-managed LLC if

Answer 78

a majority of the managers of the LLC consent.

Question 79

A person may become a member of an LLC without

Answer 79

making a contribution, monetary or otherwise, to the LLC

Question 80

in a manager-managed LLC, it is the managers, and not the members of the LLC, who determine

Answer 80

whether a person may become a member of the LLC.

Question 81

The board of directors of a dissolved corporation must apply corporate assets to

Answer 81

discharge or reasonably provide for the payment of creditor claims before making any distributions to shareholders.

Question 82

Upon dissolution of a corporation, the board of directors is responsible for

Answer 82

winding up the corporation’s affairs

Question 83

winding up the corporation’s affairs includes:

Answer 83

paying known obligations that the corporation had incurred.

Question 84

A director who votes for or assents to an unlawful distribution in violation of the director’s duties of care or loyalty is

Answer 84

1) personally liable to the corporation and its creditors
2) for the amount of the distribution in excess of the lawful amount.

Question 85

regarding unlawful distributions, a director will not be personally liable for breach of duty if

Answer 85

the director complies with the proper procedures for disposing of creditor claims.

Question 86

A director may incur liability for illegal or improper action taken by the board at a meeting when the director is present, even though

Answer 86

the director does not vote in favor of the action.

Question 87

In order to avoid liability for illegal or improper action taken by the board at a meeting, when director is present, the director must

Answer 87

the director must object to the holding of the meeting or vote against the action or explicitly abstain from voting.

Question 88

Any creditor who did not receive notice of dissolution may

Answer 88

bring an action against a shareholder of the dissolved corporation.

Question 89

The creditor is entitled to the shareholder’s

Answer 89

pro rata share or the amount received in liquidation, whichever is less.

Question 90

shareholder’s total liability cannot exceed

Answer 90

the amount of assets distributed to the shareholder.

Question 91

improper distribution liability: director vs. shareholder:

Answer 91

1) each director personally liable for full amount of improper distribution
2) shareholders-personally liable for their pro rata share of unlawful distribution

Question 92

A director is entitled to contribution from

Answer 92

any other director who is also liable for the unlawful distribution.

Question 93

a director is entitled to recoupment from

Answer 93

the shareholders’ pro rata portion of the unlawful distribution when the shareholder accepts an unlawful distribution.

Question 94

a corporation is owned by

Answer 94

its shareholders (those holding equity securities

Question 95

generally, shareholders are not subject to unlimited liability for corporate acts, but instead are only at risk to the extent of

Answer 95

their investment

Question 96

limited liability of shareholders is subject to challenge primarily with respect to shareholders of closely held corporations under

Answer 96

the “piercing the corporate veil” doctrine.

Question 97

under the “piercing the corporate veil” doctrine

Answer 97

a corporation’s existence will be ignored, and the shareholders (as well as officers and directors) will be held personally liable

Question 98

As an agent of the corporation, a corporate officer or director does not incur liability to third parties merely for

Answer 98

the performance of duties to the corporation

Question 99

An officer or director can be liable to a third party when

Answer 99

1) the officer has acted in his personal capacity (e.g., guaranteed a corporate loan)
2) or has engaged in purposeful tortious behavior (e.g., fraud).

Question 100

the piercing-the-corporate-veil doctrine, is usually warranted

Answer 100

only under extraordinary circumstances

Question 101

Under the piercing-the-corporate-veil doctrine

Answer 101

a corporation’s existence will be ignored, and the shareholders of the corporation, in addition to the corporation itself, will be held personally liable.

Question 102

the piercing-the-corporate-veil doctrine is typically applied when

Answer 102

the shareholders have controlled or used the corporation to avoid a personal obligation, to commit fraud, crime, or injustice, or to gain an unfair advantage.

Question 103

Piercing the corporate veil is justified when

Answer 103

the unity of interest and ownership is such that it is hard to differentiate the separate identities of the corporation and the individual, and to adhere to that separateness would work an injustice

Question 104

because Victor commingled the corporation’s funds with his own funds as well as those for other business ventures he conducted with Mark, and the specific reason for incorporating the warehouse project was to avoid liability stemming from the leaking roof, which is the basis of the condominium owner’s lawsuit, the circuit court should

Answer 104

pierce the corporate veil and hold Victor and Mark, in addition to Prosperity, Inc. as seller of the condominium units, liable for damages caused by the leaking roof.

Question 105

when a quorum of directors is present, how many must vote for a resolution in order for it to pass?

Answer 105

a majority of those present must vote in favor for it to pass

Question 106

by statute what is required to establish a quorum?

Answer 106

a majority

Question 107

a promoter is generally personally liable for

Answer 107

acts on behalf of an unincorporated business even after the business is incorporated

Question 108

when would a promotor not be liable for acts on behalf of a unincorporated business after incorporation?

Answer 108

when there is a subsequent novation releasing the promoter from liability

Question 109

a promoter is also not personally liable for pre-incorporation acts where

Answer 109

a third party contracting with promoter knows that the business has not been incorporated

Question 110

While a corporation is not liable for pre-incorporation transaction entered into by a promoter, it will be liable if

Answer 110

the corporation accepts the benefits of the contract

Question 111

Although only the board may declare a distribution, once the board has authorized a distribution and set sufficient parameters, the board may

Answer 111

delegate to a committee the authority to fix the amount and terms of the distribution.

Question 112

a committee cannot

Answer 112

adopt, amend, or repeal the bylaws.

Question 113

Corporate bylaws can be amended or repealed by

Answer 113

the board of directors or the shareholders.

Question 114

A committee cannot

Answer 114

recommend actions that require shareholder approval.

Question 115

a committee may not

Answer 115

fill vacancies on the board

Question 116

A restriction on the transfer of stock can be enforceable against a transferee who takes the stock with

Answer 116

knowledge of the restriction

Question 117

Although placement of a notation regarding a transfer restriction on a stock certificate ensures that the transferee is deemed to have knowledge of the restriction, the failure to do so does not render the restriction

Answer 117

unenforceable against a transferee who has knowledge of the restriction by other means.

Question 118

Under the default rules, provided there is a quorum, the election of a director by the shareholders requires

Answer 118

a plurality of the votes cast

Question 119

The default quorum requirement for shareholder voting is

Answer 119

a majority of the votes eligible to vote

Question 120

default statutory rules do not require that all eligible votes be taken into account in determining the winner of a director election, provided

Answer 120

the quorum requirement is met; nor that the level needed to win be 2/3 of the votes

Question 121

When shareholders are granted cumulative voting rights in the articles of incorporation, each shareholder is entitled to

Answer 121

multiply the number of votes she is entitled to cast by the number directors for whom she is entitled to vote and cast the resulting product for a single candidate or distribute the product among two or more candidates.

Question 122

An LLC’s operating agreement determines the allocation of

Answer 122

profits and losses among the members of the LLC.

Question 123

an LLC operating agreement may provide that each member

Answer 123

shares equally in the profits of the LLC

Question 124

in the absence of an agreement as to the sharing of profits and losses, profits and losses are allocated according to

Answer 124

each member’s contributions to the LLC

Question 125

an LLC operating agreement may allocate profits on the same basis as

Answer 125

each member’s voting rights

Question 126

The laws governing a nonstock corporation organized under Virginia law parallel those of

Answer 126

a stock corporation

Question 127

Virginia law allows the number of directors of a corporation to be specified in

Answer 127

the articles of incorporation or bylaws

Question 128

A quorum must be present at a board of directors’ meeting in order for

Answer 128

the acts conducted at the meeting to be valid.

Question 129

The articles and bylaws may determine the number of directors required for a quorum; however, under Virginia law it cannot be

Answer 129

less than one-third of the board.

Question 130

If a quorum is present when a vote is taken, then the assent of

Answer 130

a majority of the directors present at that time is typically necessary for the board to approve an action.

Question 131

Nonstock corporations have _______ rather than shareholders

Answer 131

Nonstock corporations have members rather than shareholders

Question 132

a member is not entitled to

Answer 132

a distribution from the entity

Question 133

except for not being entitled to distributions, a member of a nonstock corporation enjoys

Answer 133

the same rights as a shareholder of a stock corporation and is subject to the same restrictions.

Question 134

a member may bring a

Answer 134

direct or derivative action against the nonstock corporation.

Question 135

A director owes a duty of loyalty to the corporation, which requires that the director

Answer 135

act in a manner that he reasonably believes is in the best interest of the corporation.

Question 136

A director who engages in a conflict-of-interest transaction

Answer 136

violates the duty of loyalty and makes the transaction voidable

Question 137

A director who engages in a conflict-of-interest transaction violates the duty of loyalty and makes the transaction voidable, unless

Answer 137

(1) the material facts were known and disclosed to the board, and the transaction approved by disinterested directors or
(2) the transaction was fair to the corporation.

Question 138

Virginia’s test of fairness to the corporation is whether

Answer 138

the transaction would have been approved by a disinterested board of directors at the time the transaction was entered into.

Question 139

A disinterested director is one who

Answer 139

at the time action is taken,
does not have financial interest in the matter
or a familial, financial, professional, employment or other relationship with a person who has a financial interest in the matter that would reasonably be expected to impair the objectivity of the director’s judgment.

Question 140

In Virginia, the sale or other transfer of a nonstock corporation’s assets in the usual and regular course of business

Answer 140

does not require approval by the members, unless otherwise provided in the articles of incorporation.

Question 141

Under the “piercing the corporate veil” doctrine, which is usually warranted only under extraordinary circumstances, a corporation’s existence will be

Answer 141

ignored, and the shareholders (as well as officers and directors) of the corporation will be held personally liable.

Question 142

piercing the corporate veil doctrine is typically applied when

Answer 142

the shareholders have controlled or used the corporation to evade a personal obligation, to perpetrate fraud or a crime, to commit an injustice, or to gain an unfair advantage

Question 143

Piercing the corporate veil is justified when

Answer 143

the unity of interest and ownership is such that the separate personalities of the corporation and the individuals no longer exist and to adhere to that separateness would work an injustice

Question 144

For shareholders to be liable in a piercing action,

Answer 144

the corporation itself must be found liable

Question 145

A corporation may not make a distribution if the corporation is

Answer 145

is insolvent, or the distribution would leave the corporation insolvent

Question 146

A corporation is considered insolvent if the payment of the distribution

Answer 146

1) prohibits the corporation from paying its debts as they become due in the usual course of business, or
2) if the liabilities of the corporation exceed its assets

Question 147

A director who votes for or assents to an unlawful distribution in violation of the director’s duties of care or loyalty is

Answer 147

personally liable to the corporation and its creditors for the amount of the distribution in excess of the lawful amount.

Question 148

A director liable for an unlawful distribution is entitled to contribution from

Answer 148

any other director who is also liable for unlawful distribution

Question 149

Under Virginia law, a gift, conveyance, assignment or transfer of real or personal property that is intended to defraud creditors

Answer 149

may be set aside

Question 150

a conveyance, assignment, or transfer of real or personal property not made for valuable consideration by an insolvent transferor (or one who is rendered insolvent by the transfer)

Answer 150

may be set aside by existing creditors.

Question 151

Intent to defraud need not be

Answer 151

proven

Question 152

A director may be removed by the shareholders

Answer 152

only at a meeting called for the purpose of removing the director.

Question 153

when a meeting is called by shareholders to remove a director, the meeting notice must

Answer 153

state that the purpose, or one of the purposes of the meeting, is removal of the director.

Question 154

The shareholders may remove a director with or without cause by

Answer 154

a vote of the holders of a majority of the voting power entitled to vote for the director, unless the corporation’s articles of incorporation provide otherwise.

Question 155

The power to authorize a distribution rests with

Answer 155

the board of directors, unless restricted by the articles of incorporation.

Question 156

A shareholder, may pursue a court order for the involuntary dissolution of a corporation if:

Answer 156

(i) the shareholders are deadlocked;
(ii) the directors are deadlocked in the management of the corporation’s affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered;
(iii) the acts of the directors are oppressive, illegal, or fraudulent; or
(iv) the corporate assets are being wasted.

Question 157

Upon termination, the property of the corporation passes to

Answer 157

the directors as trustees.

Question 158

After discharge of corporate liabilities, the directors must distribute the remaining assets among

Answer 158

the shareholders according to their respective rights and interests.

Question 159

In lieu of dissolution, the corporation or one or more shareholders may elect to

Answer 159

purchase all shares owned by the petitioning shareholder at the fair value of the shares.

Question 160

when electing to purchase dissolution petitioning shareholders shares, If the parties are unable to agree on a fair price for the shares or other purchase terms after 60 days of filing the election, the court, upon the petition of any party, may

Answer 160

determine the fair market value of the shares and set the terms on which the shares are to be purchased.

Question 161

A shareholder may bring a direct or a derivative action against the corporation in which

Answer 161

the shareholder owns stock

Question 162

Direct actions by a shareholder include actions to

Answer 162

enforce shareholder rights, such as an action to enforce the shareholder’s right to examine the books and records of the corporation

Question 163

In a derivative action, a shareholder is suing on behalf of

Answer 163

the corporation for a harm suffered by the corporation

Question 164

in a derivative suit, While the shareholder also may have suffered harm, recovery generally goes to

Answer 164

the corporation

Question 165

a shareholder may bring a derivative action to force a director to

Answer 165

disgorge a secret profit earned by the director on a transaction with the corporation.

Question 166

A close corporation is a special type of corporation with

Answer 166

only a few shareholders and a more relaxed style of governance in which shareholders often serve as both directors and officers of the corporation.

Question 167

Despite its more relaxed nature, a close corporation is still

Answer 167

considered a corporation and maintains the liability protections for its investors.

Question 168

investors in a corporation are typically liable only to the extent of their investment and are not subject to

Answer 168

unlimited liability

Question 169

The duty of loyalty requires a director to act in a manner that the director reasonably believes is

Answer 169

in the best interest of the corporation

Question 170

Typically, a director breaches the duty of loyalty by

Answer 170

placing his own interests before the interests of the corporation

Question 171

A director who engages in a business venture that competes with the corporation has breached

Answer 171

his duty of loyalty to the corporation

Question 172

Virginia’s business judgment rule protects a director’s decision if

Answer 172

the decision was made with “good faith business judgment of the best interests of the corporation.”

Question 173

Virginia’s business judgment rule protection from liability only applies to conduct undertaken

Answer 173

(1) as a director and (2) on behalf of the corporation

Question 174

A director who satisfies the business judgment rule standard is presumed to be

Answer 174

not liable for his conduct

Question 175

To overcome this presumption against liability under the business judgment rule, the party alleging that the director failed to adhere to this standard has the burden to show that

Answer 175

the director engaged in self-dealing or fraud or acted in bad faith.

Question 176

In any proceeding brought by a corporation or on behalf of the corporation’s shareholders, Virginia has a statutory cap on money damages that limits a director’s liability to

Answer 176

the greater of $100,000 or the cash compensation received by the director during the 12-month period immediately preceding the conduct for which liability was imposed.

Question 177

the corporation’s articles of incorporation may include a provision shielding its officers and directors from liability, unless

Answer 177

the officer or director engages in willful misconduct or a knowing violation of the criminal law or any federal or state securities law.