Corporations Flashcards
Business Judgment Rule
The business judgment rule is a presumption that director’s decision may not be challenged if (1) the director acted in good faith, (2) with the care that an ordinarily prudent person would exercise in a like position, and (3) in a manner the director reasonably believed to be in the best interest of the corporation.
Business Judgment - Personal Interests
A transaction cannot be set aside merely because a director had a personal interest in the transaction IF (1) the director disclosed the material facts of the transaction to disinterested members of the board or shareholders, who approved the transactions, OR (2) the transaction is fair to the corporation.
Eliminating Director’s Liability
- A corporation’s articles of incorporation may limit or eliminate a director’s personal liability for money damages to shareholders or the corporation for actions taken. However, liability cannot be eliminated to the extent that the director (1) received a benefit to which she was not entitled; (2) intentionally inflicted harm on the corporation or its shareholders; (3) approved unlawful distributions; OR (4) intentionally committed crime.
Corp. President’s Authority
A corporate president is an agent of the corporation and has whatever power the corporation grants her. As a general rule, unless specifically excluded by the corporation, a president will have the power to enter into ordinary contracts involving the day to day operation of the corporation.
Corp. President’s Authority - Extraordinary Transactions
A corporate president can have power to enter into extraordinary transactions if authorized by the board of directors. However, the board cannot give the president power that the board itself does not have.
Board Power (granting authority to pres)
Look first to the articles. Generally, the board can delegate power to president if (1) the meeting and vote was proper. If articles are silent, then a vote by the majority of directors is effective. However, for a fundamental corporate change, it requires shareholder approval.
Fundamental Corporate Change (procedure)
The basic procedure for adopting a fundamental corporate change is as follows: (1) majority of board of directors adopts a resolution, (2) notice is sent to all shareholders, (3) change is approved by shareholders, then the (4) change is formalized in articles.
Fundamental Corp. Change - Shareholder Remedies
Shareholders who dissent from the fundamental corporate change can force the corporation to purchase their shares at a fair price. To use the appraisal remedy, the shareholders must (1) file an objection to the transfer before or at the shareholders’ meeting at which the vote is taken; (2) not vote in favor of the plan, (3) and send the corporation a written demand for the fair value of their shares.
Shareholder - Inspection
Shareholders generally have a right to inspect their corps’ books and records for a proper purpose. A proper purpose is a purpose related to their status as shareholders.
Shareholder - Derivative v. Direct
Shareholders may bring two types of suits with regard to the corporations in which they own stock: derivative actions and direct actions. A derivative action seeks to vindicate wrongs done to the corporation , and direct actions seeks to enforce duties that a corporation owes to the shareholder. Before bringing a derivative action, a shareholder must first make a demand on the board of directors to act on the corporation’s behalf, although this requirement is dispensed with in many states if the request would be futile (e.g. where majority of the board is accused of wrong doing). There is no similar demand for direct actions.
Shareholder - Dividends
As a general rule, although we talk of a dividend as one of the rights of being a shareholder, a shareholder has no right to receive a dividend until it is declared by the board of directors. The decision whether to declare a dividend is left to the sound discretion of the board. If the directors decide in good faith not to declare a dividend the court will not disturb that decision. The shareholder seeking the dividend has the burden of proving bad faith.
