Corporations Flashcards
Rule 10b-5 action—must meet each of the following requirements
The plaintiff purchased or sold the security
Use of interstate commerce
The defendant’s fraudulent/deceptive conduct—untrue statements of material fact,
failure to prevent misleading statements, or insider trading
Materiality—a reasonable investor would find the fact important in deciding whether
to purchase or sell a security
Scienter—the defendant must make the statement intentionally or recklessly
The plaintiff’s justifiable reliance on the defendant’s fraudulent conduct
oHarm to the plaintiff
Elements of a 16(b) action
Publicly traded Cs—must have securities traded on a national securities exchange or
have assets of more than $10 million and more than 500 SHs
Corporate insiders—Ds, Os, or SHs with more than 10% of stock
Short-swing profits—a corporate insider both bought and sold C’s stock during any
six-month period
SEC report of change in stock ownership
What notice is requires for a shareholder meeting?
voting SHs must be notified of time/date/place in a timely manner no less than 10
days and no more than 60 days before the meeting; SH may waive notice either in writing
or by attending the meeting
How is the business judgment rule overcome?
D did not act in good faith; D was not
informed to the extent he reasonably believed was necessary; D had material
interests in challenged conduct and was not objective; D failed to devote attention
to C’s affairs; D failed to timely investigate matters of material concern; or D
received financial benefits to which he was not entitled
When is the Corp required to indemnify a Director?
for any reasonable expense incurred in the successful
defense of a proceeding against the D
When is the Corp prohibited from indemnifying a Director?
When the liability stems from the receipt of an improper personal benefit
When may the Corp indemnify a Director?
in an unsuccessful defense if D acted in good faith with a reasonable
belief that the conduct was in C’s b
When does a corporation begin its existence?
When the articles are filed by the SoS.
Oppression doctrine
doctrine of SH oppression protects minority from oppressive
majority control; statutory provisions regarding involuntary dissolution are interpreted to
protect the reasonable expectations of SHs
Corporation by estoppel does what?
a person who deals with an entity as if it were a corporation is estopped from denying its existence and is thereby prevented from seeking the personal liability of the business owner. This doctrine is limited to contractual agreements.
A controlling shareholder, such as a parent corporation, generally does not owe fiduciary duties to the corporation or other shareholders. When may they be scrutinized?
decisions by a majority shareholder or control group may be reviewable by a court for good faith and fair dealing toward the minority shareholders under the court’s inherent equity power. Business dealings between a controlling shareholder and the controlled corporation that do not involve self-dealing are analyzed using the business judgment standard
What is the effect of a parent corporation causing its subsidiary to participate in a business transaction for the benefit of the parent?
If a parent corporation causes its subsidiary to participate in a business transaction that prefers the parent at the expense of the subsidiary, it can involve self-dealing and a breach of loyalty.
A parent corporation that engages in a conflict-of-interest transaction with its own corporation, also known as “self-dealing,” has violated the duty of loyalty unless the transaction is protected under the safe-harbor rule. What are the three safe harbor provisions?
(i) disclosure of all material facts to, and approval by a majority of, the board of directors without a conflicting interest; (ii) disclosure of all material facts to, and approval by a majority of, the votes entitled to be cast by the shareholders without a conflicting interest; and (iii) fairness of the transaction to the corporation at the time of commencement.
What is the fairness test in a self dealing transaction?
The fairness test looks at the substance and procedure of the transaction. The main concern under the fairness test is whether the benefit is comparable to what might have been obtained in an arm’s length transaction. Procedural fairness is generally not at issue unless there has been a change in control.
Under the “interest or expectancy” test, the key is whether the corporation…
has an existing interest or an expectancy arising from an existing right in the opportunity. An expectancy can also exist when the corporation is actively seeking a similar opportunity.
