Corporations

Question 1

Interested Directors

Answer 1

Director has a CONFLICT OF INTEREST because the director or a family member stands to benefit from the corporate transaction either as:

(1) a buyer from or
(2) a seller to the corporation

then a conflict arises between the directors

(1) fiduciary duty and
(2) the directors self interest

which immediately renders the good faith presumption under the business judgment rule inapplicable

Question 2

Transaction is not voidable because of conflict of interest and a challenge may be defeated by proving:

Answer 2

2-F’s:

1. Contract or transaction was Fair and reasonable to the corporation when it was approved by the board of directors, or;
2. There was Full disclosure of the directors interest in the transaction and either:

a. It was approved by the board of directors by the vote of disinterested directors or
b. It was submitted to a vote of disinterested shareholders for approval

Question 3

Shareholder Preemptive Rights

Answer 3

Shareholder rights of first refusal to purchase stock sold by the corporation in order to preserve a shareholders percentage of voting or dividend rights

Question 4

Shareholders are not entitled to preemptive rights if the corporation issues stock for:

Answer 4

AT&T CO:

Shares issued to Attract to keep corporate employees

Shares issued within the first Two years after filing the first cert. of incorporation

Treasury shares, shares previously owned by a shareholder but were purchased back by the corporation

Cash was not used to buy the shares, rather used to purchase real or personal property for the corporation

Shares issued to effect an Organic change such as a merger or a consolidation

Question 5

Piercing the Corporate Veil

Answer 5

A legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.

Question 6

Courts will pierce the corporate veil to impose personal liability on shareholders if it finds:

Answer 6

1. The shareholder completely dominated the corporation by using it to further his own personal goals, AND;
2. This dominance was used to commit constructive fraud against a corporate creditor

Question 7

Courts will pierce the corporate veil: TWIST

Answer 7

Ten largest shareholders of a NY corporation are personally held liable for unpaid wages, provided the unpaid employee follows the proper procedure:

1. Within 180 days from terminating employment, give written notice to each shareholder the employee intends to hold personally liable
2. Then sue the NY corp.
3. When the corporate judgment is returned by the sheriff unsatisfied, then sue the shareholders within 90 days

Strict criminal liability is imposed on corporate officers who failed to maintain Workers compensation insurance, AND a corporate employee was injured on the job

Illegal conduct committed by a corporate employee

Sales taxes or income taxes not paid by the corporation or the LLC official responsible for corporate finances

A corporate official who affirmatively participated in Tortious conduct becomes personally liable to the injured plaintiff