Corporations 31-38 Flashcards
What does the Duty of Loyalty forbid a Director/Officer from doing?
A Director is forbidden from:
Entering into conflicting interest transactions;
Usurping a corporate opportunity;
Competing with the corporation; OR
Trading on inside information.
Priority: HIGH
When is a conflicting interest transaction NOT a breach of loyalty?
When a director shows that:
It was approved by a majority of disinterested directorsafter full disclosure of all material facts;
It was approved by a majority of disinterested shareholders after full disclosure of all material facts; OR
The transaction as a whole was fair to the corporation at the time it was entered into.
Priority: HIGH
When does a conflict of interest arise?
When the Director or a family member either:
Is a party to the transaction;
Has a beneficial interest in the transaction or is so closely linked to it that the director’s judgment may be affected; OR
Is involved with another entity that is conducting business with the corporation and that transaction would normally be brought before the Board because of its importance.
Priority: HIGH
What is a corporate opportunity?
Any opportunity that the corporation has an interest/expectancy in;
OR
Any opportunity that’s in the corporation’s line of business.
Priority: HIGH
When may a Director/Officer pursue a
corporate opportunity?
If he:
First presents it to the corporation’s Board of Directors; AND
The Board decides NOT to pursue the opportunity.
*It is not a defense to show that the corporation would not have been able to take the opportunity.
Priority: HIGH
Direct Action
vs.
Derivative Action
Direct Action: Involves an injury or breach of duty owed to the shareholder of a corporation. Damages are awarded directly to the shareholder.
Derivative Action: A shareholder is suing to enforce the corporation’s claim, NOT his own personal claim. Damages awarded will be paid to the corporation.
Priority: Medium
What are the requirements to commence a Derivative Suit?
The plaintiff-shareholder must:
Be a shareholder at the time of the act/omission OR became a shareholder by operation of law from such a shareholder;
Be a shareholder through entry of judgment;
Fairly and adequately represent the interests of the corporation; AND
Make a written demand upon the corporation to take suitable action (suit can’t commence until 90 days after).
Priority: Medium
What is needed for a Fundamental Change to be approved?
It must be approved by a majority of the total votesentitled to be cast for the corporation, NOT just the majority of votes present at the meeting.
*A corp. MUST hold a special meeting when a fundamental change is proposed, with notice mailed to all shareholders.
Priority: Medium
