Corporations Flashcards
On January 1, 2023, Abel and Baker formed a general partnership in State, which has codified the UPA (1997) without modifications. In their written partnership agreement, they agree that Abel will contribute $75,000 in start-up capital, and Baker will contribute $25,000 in start-up capital. In addition, Baker will contribute the labor (“sweat equity”) to the business. Abel and Baker agree that the profits will be distributed on a 50/50 basis (that is, each partner will be entitled to half the profits upon distribution). However the partnership agreement does not address how losses are charged.
How are losses charged to the partners? A. Abel is charged 75% of the losses; Baker is charged 25% of the losses. B. Abel is charged 50% of the losses; Baker is charged 50% of the losses. C. Abel is charged with 100% of the losses. D. If there is a dispute as to how losses are properly charged, the trier of fact will consider parole evidence to determine how losses must be charged.
Abel owns 90% of the stock of Parent Corp, and Parent owns 90% of the stock of Subsidiary Corp. Parent causes Sub to pay a distribution to all its shareholders, but the distribution left Sub unable to timely service its debts. Abel then causes Parent to use its dividend from Sub to satisfy Parent’s lease obligations on a condo that Abel uses as his residence. Judgment-creditors of Parent now seek to pierce the corporate veil, to access Abel’s personal assets to satisfy their judgments.
Which theory would best support the creditors’ effort to pierce the veil?
A. Alter ego doctrine
B. Enterprise liability doctrine
C. Undercapitalization doctrine
D. None of the following is applicable to pierce the veil on these facts.
A= correct answer bc going after personal assets
Last month, the Board of Directors of XYZ Corporation determined that it would not pay an annual dividend to shareholders this year. In the business judgment of the Board members, those corporate profits would be better used to fund an expansion plan so that XYZ would not have to take on debt for that expansion. The expansion plan is risky, but if it is successful, it will prove to be highly profitable. A minority shareholder plans to sue for an injunction to stop the Board from proceeding with the expansion plan because he believes that the Board members are breaching their fiduciary duties of loyalty and care in approving the plan. In addition, he plans to sue XYZ for its refusal to pay the annual dividend.
How is the injunction action best described?
A. It is a derivative action because the monetary relief will go to the corporation.
B. It is a derivative action because the relief is intended to benefit the corporation.
C. It is a direct action because it supports the suit on a dividend, which is a direct action.
D. It is a direct action because it addresses a personal right of the shareholder.
B= correct answer
Derivative bc wrong to be doing to the corporation
B then is the best answer
Direct actions do not require demand (giving the corporation the right to step in and prosecute)
In the shareholder agreement is not the promise of a baseline price of the share but there is a right to dividends in the shareholder agreement therefore the shareholder has a right to bring a direct action against the corporation
If the question was about the dividend then it would be a personal right of the shareholder b/c more likely than not a part of the shareholder agreement
In a derivative action brought against certain board directors by a group of minority shareholders, the group pleads facts in support of its claims that the defendant-members of the Board violated their duties of good faith and loyalty in connection with a recent Board act. The trial court determines the group met its burden under Delaware’s BJR.
What is the evidentiary burden at this point?
A. The group must establish that the transaction was entirely unfair to the corporation.
B. The defendants must establish that the transaction was entirely fair to the corporation.
C. The defendants must establish that the directors acted on an informed basis, in good faith, and in the corporation’s best interests.
D. None of the above.
B= correct answer the burden has shifted and this is now the heavier burden the defendants much est.
Applying Delaware law, which is the most likely business opportunity of Flags, Inc., a medium-size flag-making business in the Midwest with no immediate plans to expand out of the region.
A. Opportunity to acquire FlagsRUs, Inc., a local competitor, through a heavily leveraged transaction.
B. Opportunity to acquire American Threads, a Midwest manufacturer of patriotic, flag-themed tshirts.
C. Opportunity to acquire the company from which Flag, Inc. buys its flag-making supplies.
D. Opportunity to acquire FlagsNOW!, a flag-making business in the Pacific Northwest.
C= correct answer
Horizontal operations in a company, part a b c eventually final product, here this would be acquiring one more part of the horizontal process, this will be a natural compliment to the already present business plan
