Corporations

Question 1

unless articles of incorp or bylaws provide otherwise, notice of a special meeting of a corps board of directors must be given…

Answer 1

at least 2 days prior to the date of the meeting

must include info regarding the time, location, and date of the meeting but does not need to include info regarding the purpose of the meeting

Question 2

a director who attends a special meeting of the board of directors despite not receiving proper notice…

Answer 2

waives such notice unless the director objects to the holding of the meeting and thereafter does not vote at the meeting

Question 3

in order for action taken at a special meeting of directors to be proper, a ____ must be present at the meeting

Answer 3

quorum

quorum consists of a majority of that fixed number

*unless articles of incorp/bylaws provide otherwise

Question 4

directors generally are entitled to participate in special meetings over the phone, but such participation is only valid if…

Answer 4

all directors participating may simultaneously hear each other during the meeting

only directors who satisfy this requirements are deemed to be present at the meeting

Question 5

a corporation comes into existence on

Answer 5

the date the articles of incorporation are filed by the secretary of state’s office

Question 6

MBCA §2.04 - persons purporting to act as or on behalf of a corporation, knowing there was
no incorporation are jointly and severally liable for all liabilities created while so acting

Answer 6

an erroneous but in good faith belief that incorporation has happened does not constitute knowledge under the section

Question 7

Generally, co-owners of a for-profit business that has not been properly incorporated are treated as

Answer 7

partners in a partnership and are jointly and severally responsible for all business obligations

Question 8

defective incorporation - de facto corporation doctrine

Answer 8

courts recognize corp limited liability when there was

(1) a colorable, good-faith attempt to incorporate and

(2) actual use of the corp form, such as by carrying on the business as a corp or contracting in the corporate name

Question 9

defective incorporation - corporation by estoppel doctrine

Answer 9

• if a third party treats an org as though it were a corp, then that third party may be estopped from denying the org’s corp existence, if the denial would result in unjust harm to the principals
• if an org holds itself out as a corp (even tho its not), that org will be estopped from denying its own corp existence to avoid an obligation or to obtain an unfair benefit

Question 10

limited liability company (LLC)

Answer 10

if the LLC becomes indebted, obligated, or otherwise liable to
an outside party, no member or manager becomes liable on that debt, obligation, or liability
solely by reason of acting as a member or manager.

gives members flexibility in developing rules for decision making and control

Question 11

fiduciary relationship

Answer 11

relationship in which members owe one another the duty of utmost trust and loyalty

ordinarily direct competition by members would be precldued as a viol of duty of loyalty unless the LLC agreement provides otherwise

Question 12

trustee duty of loyalty

Answer 12

to account to the company and to hold as trustee for the company any benefit derived by the member in the conduct of the company’s activities

Question 13

under most LLC statutes, members of an LLC can agree to

Answer 13

restrict or limit the duty of loyalty, provided the opt-out is specified in the operating agreement

Question 14

Uniform Limited Liability Company Act - opt-outs of duty of loyalty

Answer 14

If not manifestly unreasonable, the operating agreement may restrict
or eliminate the duty to refrain from competing with the company in the conduct of the company’s business before the dissolution of the company

In addition, so long as it is not
manifestly unreasonable the operating agreement may also identify specific types or categories of activities that do not violate the duty of loyalty

Question 15

LLC protections do not apply when

Answer 15

1) proper procedures for dissolution and winding up have not been followed, and

2) a court deicdes to pierce the LLCs veil

Question 16

proper dissolution and winding up of LLC

Answer 16

dissolution requires consent of all the members

winding up requires LLC to provide notice of the dissolution to creditors so that they can make claims against the dissolving entity + steps to do so

Question 17

if dissolution/winding up procedures are not followed and if the LLC’s assets have been liquidated and distributed to the members

Answer 17

then a creditor’s claim against the LLC may be enforced against each
of the LLC members to the extent of the member’s proportionate share of the claim or to the extent of the assets of the LLC distributed to the member in liquidation, whichever is less.

a member’s total liability for creditor claims may not exceed the total value of assets distributed to the member in dissolution

Question 18

A derivative action in a member-managed LLC may be brought only if

Answer 18

(1) a demand is made on the other member to bring an action and the member fails to do so, or

(2) such demand would be futile

Question 19

Piercing the veil in the LLC context

Answer 19

prevents members from hiding behind the veil of limited liability in situations where they have improperly used the LLC form

analyzing whether members have treated the LLC as a separate entity or whether it has instead become the “alter ego” of the members

Each member for whom the veil is pierced becomes subject to joint and several liability to the creditor bringing the claim

siphoned corporate funds, intermingling corp and personal funds

Question 20

Duties of controlling shareholders

Answer 20

• Generally, courts have examined business dealings between a controlling shareholder (such as a parent corporation) and the controlled corporation using a fairness test.
• But when the transaction does not involve self dealing then the business judgment standard applies.

Question 21

Shareholder right to inspect board minutes and accounting records

Answer 21

right to inspect minutes of board meetings and accounting records for a proper purpose.

proper purpose = a purpose reasonably related to a person’s interest as a shareholder, such as a desire to determine whether improper transactions have occurred

must offer credible evidence that there was mismanagement or other improper conduct

Under the MBCA, the shareholder’s right to inspect corporate documents relevant to the alleged bribery is subject to certain limitations.

Question 22

Launching derivative claims

Answer 22

plaintiff-shareholder seeks to bring on behalf of the corporation a claim that vindicates corporate rights, usually based on violation of fiduciary duties

1) shareholder must post a bond to cover costs

2) shareholder must make a demand

3) plaintiff- shareholder must be a contemporaneous owner

Question 23

Dismissal of shareholder derivative claims

Answer 23

Under the MBCA, the board can seek dismissal of the shareholder’s derivative action if a majority of the board’s qualified directors—those directors who do not have a material interest in the derivative action—determine in good faith, after conducting a reasonable inquiry upon which its conclusions are based, that continuance would be contrary to the corporation’s best interests.

Question 24

direct action

Answer 24

shareholder makes a claim in her own name against the corp or against a director/officer of the corp for a wrong that was done directly to her

Question 25

Director liability

Answer 25

A director is liable to the corp for the director’s decisions or failures to take action that were not in good faith

cant viol legal norms even if benefits the corp

good faith standard requires that directors, among other things, not approve (or condone) wrongful or illegal activity

Question 26

Director’s duty of good faith and fair dealing

Answer 26

The directors have the burden to show that the transaction as a whole was fair in terms of “fair price” and “fair dealing.”

This means courts will inquire into
(1) whether the transaction price was comparable to what might have been obtained in an arm’s-length transaction, given the consideration received by the corporation, and

(2) whether the process followed by the directors in reaching their decision was appropriate.

Question 27

Director’s duty of care

Answer 27

care that a person in a like position would reasonably believe appropriate under similar circumstances in becoming informed in connection with their decision-making function

faulty decision making process, transaction was wasteful (no reasonable person would pay those prices)

Question 28

director’s duty of loyalty

Answer 28

a director must act in good faith and with reasonable belief that what he does is in the corporation’s best interest.

BJR does not apply if there’s a duty of loyalty issue

Question 29

duty of loyalty issue w/ directors

Answer 29

1) director is on both sides of the transaction - director has a material finanical interest in a k as well as knowledge of that interest yet still approves the k

2) competes w/ the corp

3) corporate opportunity - a corp officer may not usurp a corp opportunity

Question 30

MBCA safe harbors for claim of director breach of loyalty

Answer 30

1) approval by disinterested (qualifid) directors,

2) approval by disinterested (qualified) shareholders, or

3) if the transaction is judged to be fair to the corp at the time it was entered into

qualified = without conflicting interest

Question 31

MBCA - director’s conflicting interest transactions

Answer 31

one effected by the corporation respecting which the director had knowledge and a material financial interest

material financial interest = finanical interest in a transaction that would reasonably be expected to impair the objectivity of the director’s judgment when authorizing the
transaction

Question 32

director’s self-dealing transaction is not when

Answer 32

modern corporate law permits such transactions—with the consequence that the business judgment rule applies if, after full disclosure of all relevant facts, qualified directors authorized the transaction.

If, however, the self-dealing transaction is not shown to have been properly authorized, the business judgment rule does not apply and the transaction must be shown to have been fair to the corporation

Question 33

Business Judgment Rule

Answer 33

• a board of directors enjoys a presumption of sound business judgment that, in making a business decision, directors act in good faith, on an informed basis, and in the honest belief that the action taken is in the best interests of the corporation.
• does not apply upon a showing of illegality or self dealing transaction

Question 34

Internal affairs of the corporation, such as the conduct of shareholder meetings and election of directors, are subject to the

Answer 34

corporate law of the state of incorporation

Question 35

Under the MBCA shareholders may amend corp’s bylaws unless

Answer 35

(1) the corporation’s articles reserve that power exclusively to the shareholders or

(2) the shareholders in amending, repealing, or adopting a bylaw expressly provide that the board of directors may not amend, repeal, or reinstate that bylaw

Question 36

a record date determines

Answer 36

who is entitled to vote at a particular shareholder meeting, namely those persons who were registered as shareholders of record on that date

Question 37

voting by proxy

Answer 37

a shareholder may vote by proxy. can appt a proxy in writing by signing an appt form or making a verifiable electronic transmission.

revocable and any actin inconsistent w/ the grant of a proxy works as a revocation of that proxy

Question 38

proxy may be made irrevocable only if

Answer 38

the proxy form explicitly says so and the proxy is coupled w/ an interest

Question 39

shares that are reacquired by a corporation are considered

Answer 39

authorized but not outstanding.

some juris refer to them as treasury shares

in counting shareholder’s votes, each outstanding share is entitled to one vote on each matter vote on at a shareholder meeting

Question 40

fairness test applies to parent-subsidiary dealings only where

Answer 40

parent cuaes subsidiary to act in such a way that the parent recieves something from the subsidary to the exclsuion of an detriment to minority shareholders

Question 41

under business judgment standard, it is sufficent to offer a rational business judgment standard for

Answer 41

no divdend policy

Question 42

corporate opportunity doctrine

Answer 42

fill in

Question 43

MBCA gives courts discretion to order judicial dissolution of a corp if

Answer 43

a shareholder can demonstrate that the majority (or controlling) shareholder is acting in a manner that’s oppressive

courts look at whether the conduct of majority shareholders defeats the reasonable expectations that the majority knew or should’ve known were held by minority shareholders (freezing out, refusal to inspect books)

Question 44

A corporate merger is

Answer 44

a business combination in which two corps are combined into one surviving corp, with the effect that any corp merged into the survivor ceases, the shares of that corporation are converted into shares of the surviving corporation, and the articles of incorporation of the surviving corporation become effective for the resulting entity

Question 45

Under the MBCA, the plan of merger must first be adopted by a

Answer 45

majority of the corp’s board of directors and then submitted to the corp’ shareholders for their approval.

then receive the vote of at least a majority of the votes entitled to be cast on the plan.

Question 46

under the MBCA, a sahreholder who dissents from certain fundamental corp transactins, including a merger, is entitled to

Answer 46

demand payment in cash for her shares through negotitation or judicial appraisal

Question 47

§ 8.01 of the Model Business Corporation Act

Answer 47

except as provided in shareholders’ agreement, and subject to any limitation in the articles of incorp, all corp powers shall be exercised by the board of directors of the corporation.

make ks and incur liabilites