Corporations

Question 1

business judgment rule

Answer 1

in the absence of fraud, illegality, or self dealing, a court will not disturb the good faith judgment of the directors or officers

Question 2

what duty of care do directors and officers owe in a corporation?

Answer 2

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

Question 3

what duty of loyalty do directors and officers owe a corporation?

Answer 3

cannot receive unfair benefits to the detriment of the corporation unless they effectively disclose and obtain ratification of the benefits

Question 4

define self-dealing transactiion

Answer 4

when the director or officer prevents money from coming into the corporation

Question 5

what is a corporate opportunity?

Answer 5

violation of duty of loyalty; when the director or officer prevents money from coming into coproration

Question 6

what are ways that an officer or director can avoid liability for an otherwise self dealing transaction?

Answer 6

1. approval by disinterested board members
2. approval by disinterested shareholders
3. court concludes transaction was fair

Question 7

what meetings are companies required to have for shareholders?

Answer 7

annual meting at which shareholders elect directors and conduct other shareholder business

Question 8

what is a special meeting?

Answer 8

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

Question 9

two examples of fundamental changes requiring special meetings

Answer 9

mergers; dissolutions

Question 10

what constitutes adequate notice to shareholders of a special meeting?

Answer 10

1. no fewer than 10 days, but no more than 60 days
2. the notice must give time, date, location, purpose of meeting
3. anyone who attends the meeting or participates in meeting waives notice requirement

Question 11

how is it determined which shareholders are eligible to vote?

Answer 11

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

Question 12

if they don’t want to hold a meeting, how can a decision be made by shareholders?

Answer 12

unanimous written consent

Question 13

requirements for voting proxy for shareholders

Answer 13

1. in writing
2. signed by shareholder
3. sent to secretary of corporation
4. authorization by shareholder to vote the shares; and
5. valid for no more than 11 months unless otherwise specified

Question 14

what is a distribution?

Answer 14

when a corporation removes profit from corporation and gives it to shareholders

Question 15

who has the power to authorize a dividend?

Answer 15

the board of directors

Question 16

when can a board NOT declare a dividend?

Answer 16

1. corporation is insolvent; or
2. declaring dividend would make corporation insolvent

Question 17

what consequence for directors who vote to authorize an unlawful dividend?

Answer 17

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

Question 18

how to rebut business judgment rule?

Answer 18

fraud, illegality, or carelessness

Question 19

four elements of a section 16(b) cause of action

Answer 19

1. only publicly traded corporations that have securities traded on nat exchange or assets more than $10 mil and more than 500 SHs
2. only corporate insiders (directors, officers, SHs with more than 10% of a class of stock) subject
3. short swing profits - both bought and sold stock during 6 month period
4. SEC report of change in stock ownership

Question 20

when does corp engage in ultra vires action?

Answer 20

when stated narrow business purpose in articles but subsequently engages in activity outside it

Question 21

how does a court decide whether to pierce the corporate veil and hold SHs liable?

Answer 21

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

Question 22

when does a controlling shareholder owe a fiduciary duty to other shareholders?

Answer 22

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

Question 23

who has standing to bring derivative suit (on corp’s behalf)?

Answer 23

1. must have been SH at time of harm
2. must be SH at time action filed
3. must continue to be SH during litigation

Question 24

when can a shareholder pursue involuntary dissolution?

Answer 24

1. corporation’s assets are being misapplied/wasted;
2. directors are acting illegally, oppressively, or fraudulently;
3. SHs are unable to break director’s deadlock causing irreparable injury; or
4. SHs are deadlocked in voting power and fail to elect successor directors

Question 25

procedural requirements for merger

Answer 25

1. board for each corp must approve
2. SHs of each corp must usually approve merger
3. required documents must be filed w/ the state