Corporations Flashcards
Dividends
The power to authorize dividends rests with the board of directors.
Valid Board Action
A valid board action requires a quorum to be present and a majority vote.
There is no rule that gives directors with positions within the company more voting power than directors who are non-employees.
Quorum: Absent modification by the articles of incorporation or bylaws, a majority of all directors in office constitutes a quorum. To be counted for quorum purposes, a director must be present at the time that the vote is taken, including appearances made using communications equipment that allows all persons participating in the meeting to hear and speak to one another.
Majority: Absent modification by the articles of incorporation or bylaws, the assent of majority of the directors present at the time the vote takes places is necessary for board approval.
Right of Inspection
A shareholder has a right to inspect and copy corporate records upon five days’ written notice.
A shareholder may generally inspect the main records of the corporation, such as the bylaws, articles, and minutes of shareholder meetings.
The share holder must demonstrate a proper purpose before inspecting certain records, such as financial statements, accounting records, and excerpts from minutes of board meetings. A proper purpose is one that relates to the shareholder’s interest in the corporation.
This inspection right is usually restricted to normal business hours at the corporation’s principal place of business.
Shareholder Direct Action
A shareholder may bring a direct action for breach of a fiduciary duty owed to the shareholder by a director or an officer against the corporation if the shareholder has been harmed directly. Any recovery goes to the shareholder and comes from the corporation, rather than the director personally.
Shareholder Dividend Rights
The power to authorize a dividend rests with the board of directors. Generally, a shareholder cannot compel the board of directors to authorize a dividend. However, a court may make an order to compel authorization of a dividend if a shareholder proves (1) funds are legally available for a dividend and (2) the directors acted in bad faith in their refusal to pay a dividend.
Shareholder Derivative Suit
A derivative suit is one brought by a shareholder on behalf of the corporation, alleging harm to the corporation. Any recovery generally goes to the corporation.
A shareholder has standing if they were a shareholder at the time of the harm, hold the shares throughout litigation, and fairly and adequately represent the interests of the corporation.
The shareholder is generally required to first make a written demand that the board of directors bring the suit for the corporation 90 days before bringing the suit themselves, unless such a demand would be futile.
Director’s Duty of Care
Directors have a duty to act with the care of an ordinary prudent person in a like position and similar circumstances and to make decisions in good faith. In deciding how to act, the director is required to use any additional knowledge or special skills that he possesses.
Business Judgment Rule
In the absence of fraud, illegality, or self-dealing, a court will not disturb the good-faith judgment of the directors or officers.
A director who breaches the duty of care will not be protected by the BJR. The exercise of managerial powers by a director is generally subject to the BJR.
Duty of Loyalty: Self-dealing
A director owes a corporation a duty of loyalty which includes the duty not to engage in a transaction in which the director would stand to personally benefit (i.e., self-dealing). A director who engages in self-dealing may nonetheless avoid liability if (1) the director provided full disclosure of all material facts and the transaction was approved by either a majority vote of disinterested directors or a majority vote of disinterested shareholders, or (2) the director can show the transaction was substantively and procedurally fair to the corporation.
General Partnership
A general partnership (“GP”) is defined as an association of two or more persons to carry on as co-owners a business for profit.
Courts generally look to the intent of parties to determine whether a GP exists. There is no requirement that the parties subjectively intend to form a partnership, only that they intend to run a business as co-owners. There are no formalities required to form a GP.
General Partner Liability
In a GP, all partners are jointly and severally liable for all obligations of the partnership, whether the obligations arise in contract or tort.
Partnership: Authority to Bind
In order to determine if the partnership is bound by the contract, the partner must have had the express, implied, or apparent authority to enter into the contract and bind the partnership.
Partnership: Actual Express Authority
Express authority is that expressly granted by the partnership, in the four corners of the partnership agreement, or a statement of authority filed with the state.
Partnership: Actual Implied Authority
Implied authority is authority that the partner reasonably believes she has as a result of the actions of the partnership.
Partnership: Apparent Authority
Apparent authority exists if the partnership holds a partner out as possessing certain authority or an act by the partner that was within the scope of the partnership business, inducing third parties to reasonably believe that authority exists.
