Corporations

Question 1

What are directors and what do they owe to a corporation?

Answer 1

(1) directors are fiduciaries of the corporation (2) they owe a duty of care and (3) a duty of loyalty

Question 2

What does the duty of care require?

Answer 2

directors must (1) act in good faith and (2) in the best interests of the corporation, (3) using the care that would be exercised by a person in a like position

Question 3

If a directors actions meet the duty of care, what happens in a proceeding against them?

Answer 3

the BJR protects them against lawsuits challenging their decisions

Question 4

Who may directors rely on when making their decisions?

Answer 4

reports of other directors, corporate officers, corporate EEs, and outside experts if the reports are within their competence

Question 5

What is the result if the ct pierces the corporate veil?

Answer 5

They may hold the shareholders of a corporation liable for the debts of the corporation

Question 6

What is the general rule when the court is asked to pierce the corporate veil?

Answer 6

generally, shareholders will not be personally liable for the obligations of the corporation

Question 7

When will the ct pierce the corporate veil?

Answer 7

If (1) corporate formalities have been ignored and injustice has resulted (2) the corporation was inadequately capitalized at the time of formation; or (3) the corporate form is being used to perpetuate a fraud

Question 8

What is a corporate “alter ego” and what does it give a court grounds to do?

Answer 8

It is when shareholders treat the corporation as their alter ego- such as taking corporate funds for personal use - leaving the corporation unable to pay its debts

This allows the court to pierce the corporate veil

Question 9

Fraud as a basis for piercing the corporate veil - what proof is required?

Answer 9

proof of a misstatement of fact

Question 10

Are distributions within a board’s discretion? what is required?

Answer 10

(1) yes, distributions are within a boards discretion;
(2) BD of directors must act as a group - no one director may speak for or bind the corporation

Question 11

What are the quorum and voting requirements for a BD decision?

Answer 11

(1) majority of the bd is a quorum unless the number is altered by the articles or bylaws
(2) a quorum must be present for a decision to be valid
(3) if quorum is present, resolutions will be deemed approved if approved by a majority of directors present

Question 12

Shareholders inspections rights (2 kinds)

Answer 12

Qualified or unqualified, depending on how they demand inspection and what documents they are demanding to inspect

Question 13

What documents does a SH have an unqualified right to view after demand?

Answer 13

(1) the incorporating documents,
(2) the bylaws,
(3) board resolutions on classification of shares,
(4) minutes of shareholders meetings from the past three years,
(5) communications sent by the corp to the shareholders from the past three years,
(6) a list of the names and businesses of the current directors and officers, and
(7) the corporation’s most recent annual report

Question 14

What documents does a SH have an qualified right to view after demand? Any additional requirements?

Answer 14

All other documents ; must state a proper purpose

Proper purpose = one that is reasonably related to the person’s interest as a shareholder, such as investigating a director’s misconduct or seeking support for a shareholder initiative.

Question 15

How many days notice must a SH give on demand to access documents?

Answer 15

at least 5

Question 16

What is a direct suit?

Answer 16

a shareholder is seeking to enforce their own claims against the corp, officers, directors, or majority shareholders

Question 17

what is a derivative suit?

Answer 17

a shareholder is seeking to assert the corp’s own claim and enforce the corp’s right because it is not doing so itself

*** directors owe fiduciary duties to the corporation, and the shareholder is arguing that they have breached

Question 18

Standing in a derivative suit

Answer 18

A shareholder must
(1) have been a SH at the time of the act or omission complained of
(2) the SH has to adequately and fairly represent the interests of the corporation

Question 19

How must SH make demand on the corp to sue derivatively?

Answer 19

(1) written demand to bd to take suitable action
(2) cannot sue until after 90 days unless bd respond with rejection OR irreparable injury will occur to Corp in 90 days if they wait

Question 20

what is the business judgement rule?

Answer 20

directors who meet the duty of care will not be liable for corporate decisions that in hindsight turn out to be poor or erroneous

Question 21

Duty of loyalty and conflicting interest transactions rules

Answer 21

(1) all directors owe corp a duty of loyalty
(2) if a director has a personal interest in a transaction in which her corporation is a party, a conflict of interest arises

Question 22

What constitutes a director’s personal interest in a transaction?

Answer 22

(1) D is a party to the transaction,
(2) D has a beneficial interest in the transaction such that their judgement would be impacted in a vote,
(3) D is a director, general partner, agent or EE of another entity that the corp is transacting business with and it would be the kind of thing that would go before the board

Question 23

When will a conflicting interest transaction be upheld?

Answer 23

When:
(1) it was approved by a majority of the disinterested directors after all material facts are disclosed to the board
(2) the transaction was approved by a majority of votes by disinterested shareholders after all material facts are disclosed to them; or
(3) the transaction, judged by circumstances; was fair to the corporation

Question 24

SH agreement rules

Answer 24

(1) sh may enter into written/signed agreements providing for the manner in which they will vote their shares.
(2) specifically enforced unless otherwise provided
(3) do not need to be filed with the corporation
(4) do not have to be subject to a time limit

Question 25

SH proxy agreement

Answer 25

(1) sh may vote shares in person or by proxy executed in writing
(2) Proxy is valid for 11 months unless otherwise provided

Question 26

Revocability of proxy agreement

Answer 26

(1) they are generally revocable
(2) irrevocable if: (a) form states so, (b) appointment is coupled with an interest (paid for/ agreed to pay for, pledgee, creditor, EE, or party to voting agreement)
(3) proxy may be revoked by (a) a writing, (b) sh voting himself, or (c) appointment of another proxy

Question 27

fundamental corporation change

Answer 27

(1) sale/lease of all or substantially all of a corps assets out of the usual and regular course of business
(2) “substantially all” if it leaves corp without significant continuing business assets

Question 28

What is needed for a fundamental corporation change to be valid?

Answer 28

(1) maj of board adopts resolution recommending the change
(2) notice to all shareholders at least 10 days in advance and not more than 60 days in advance describing the change and telling them when the vote will occur
(3) approval by a majority of all votes entitled to be cast; and
(4) change must be formalized in articles filed with the state

Question 29

Controlling SH duty

Answer 29

duty to refrain from using her control to obtain special advantage or cause the corporation to take action that unfairly prejudices the minority shareholders