Corporations Flashcards
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
what duty of care do directors and officers owe in a corporation?
must use the care a person in a like position would reasonably believe appropriate under similar circumstances
if special skills, must use them
may rely on officers/other employees; outside experts; board committee
what duty of loyalty do directors and officers owe a corporation?
cannot receive unfair benefits to the detriment of the corporation unless they effectively disclose and obtain ratification of the benefits
define self-dealing transactiion
when the director or officer prevents money from coming into the corporation
what is a corporate opportunity?
violation of duty of loyalty; when the director or officer prevents money from coming into coproration
what are ways that an officer or director can avoid liability for an otherwise self dealing transaction?
- approval by disinterested board members
- approval by disinterested shareholders
- court concludes transaction was fair
what meetings are companies required to have for shareholders?
annual meting at which shareholders elect directors and conduct other shareholder business
what is a special meeting?
meeting that may be called to vote on fundamental corporate changes
may be called by some percentage of the board, by president or some number of officers or directors, or by a specified group of the shareholders
two examples of fundamental changes requiring special meetings
mergers; dissolutions
what constitutes adequate notice to shareholders of a special meeting?
- no fewer than 10 days, but no more than 60 days
- the notice must give time, date, location, purpose of meeting
- anyone who attends the meeting or participates in meeting waives notice requirement
how is it determined which shareholders are eligible to vote?
director fixes a record date no more than 70 days before meeting; only shareholders who actually hold shares on that date are entitled to come to meeting even if they subsequently sold their shares
if they don’t want to hold a meeting, how can a decision be made by shareholders?
unanimous written consent
requirements for voting proxy for shareholders
- in writing
- signed by shareholder
- sent to secretary of corporation
- authorization by shareholder to vote the shares; and
- valid for no more than 11 months unless otherwise specified
what is a distribution?
when a corporation removes profit from corporation and gives it to shareholders
who has the power to authorize a dividend?
the board of directors
when can a board NOT declare a dividend?
- corporation is insolvent; or
- declaring dividend would make corporation insolvent
what consequence for directors who vote to authorize an unlawful dividend?
if in violation of their fiduciary duties, they are personally liable, jointly and severally, to the corporation in the amount in excess of the lawful amount they could have authorized
how to rebut business judgment rule?
fraud, illegality, or carelessness
four elements of a section 16(b) cause of action
- only publicly traded corporations that have securities traded on nat exchange or assets more than $10 mil and more than 500 SHs
- only corporate insiders (directors, officers, SHs with more than 10% of a class of stock) subject
- short swing profits - both bought and sold stock during 6 month period
- SEC report of change in stock ownership
when does corp engage in ultra vires action?
when stated narrow business purpose in articles but subsequently engages in activity outside it
how does a court decide whether to pierce the corporate veil and hold SHs liable?
very fact intensive, depends on totality of circumstances to see if corporation being used as facade for dominant SH’s personal dealings
look at e.g.: undercap; disregard of corp formalities; using corporate assets as own assets; siphoning of funds; self dealing; domination over corp; fraudulent dealings with creditor; using form to avoid statutory requirements
when does a controlling shareholder owe a fiduciary duty to other shareholders?
if controlling SH is
1. selling that interest to outsider
2. seeking to eliminate other SHs
3. receiving distribution denied to other SHs
duty to disclose info that reas person would consider important in deciding how to vote; duty of fair dealing in buying minority SH interest
breach if nondisclosure causes loss to minority SH
who has standing to bring derivative suit (on corp’s behalf)?
- must have been SH at time of harm
- must be SH at time action filed
- must continue to be SH during litigation
when can a shareholder pursue involuntary dissolution?
- corporation’s assets are being misapplied/wasted;
- directors are acting illegally, oppressively, or fraudulently;
- SHs are unable to break director’s deadlock causing irreparable injury; or
- SHs are deadlocked in voting power and fail to elect successor directors
procedural requirements for merger
- board for each corp must approve
- SHs of each corp must usually approve merger
- required documents must be filed w/ the state
