CORPORATIONS

Question 1

What is statute of limitations for an action against a director improperly declaring a distribution

Answer 1

two years

Question 2

Directors who voted or assented to distribution generally are jointly and severally liable for:

Answer 2

The amount by which distribution exceeds permissible amount

Question 3

From whom may a director found liable for impermissible distribution seek funds to defray her portion?

Answer 3

1) He may seek contribution from all other directors found liable; and
2) He may seek recoupment from SHs, in proportion to distribution amounts they received.

Question 4

What is the limit on director liability for any one transaction, occurrence, or course of conduct in a derivative proceeding or class action?

Answer 4

Director liability damages may not exceed lesserof:

(i) monetary limit specified in articles or bylaws; or
(ii) greaterof $100,000; or amount of cash compensation she received from the corporation in the preceding 12 months

** Provided that the director has not engaged in willful misconduct or knowing violation of criminal or securities laws.

Question 5

What are examples of “significant transactions” in corporate law?

Answer 5

1) merger
2) share exchange
3) corporate guarantee for greater than 5% of corporate net worth
4) corporate dissolution, and
5) disposition of greater than 5% corporate assets

Question 6

Who is an “interested shareholder”?

Answer 6

One who beneficially owns more than 10% of outstanding voting shares.

Question 7

A significant transaction with or for an interested SH generally must be approved by:

Answer 7

two-thirds disinterested SHs.

Question 8

What is a subscription agreement?

Answer 8

An offer to buy stock at certain price

Question 9

A subscription agreement(offer to buy stock at certain price) is typically accepted by:

Answer 9

board resolution; no enforceable K until then

Question 10

what is shareholder’s personal action

Answer 10

action where:

1) shareholder asserts her own interest against corporation
2) seeks personal recovery
3) no fiduciary duty to share the recovery

Question 11

what is a derivative suit

Answer 11

suit brought by SH to enforce a corporate cause of action where corporation has not sued to protect its own rights

recovery almost always runs to corporation rather than plaintiff-shareholder personally

SH need not have suffered personal harm - suit on behalf corp.

Question 12

To have standing to bring derivative action, a SH must:

Answer 12

(i) have been a SH at time of act or omission complained of;
(ii) have become a SH through operation of law from one who was SH at time of alleged wrong; or
(iii) have become a SH before public disclosure and without knowledge of alleged wrong

-Also, SH must fairly and adequately represent interests of corporation

Question 13

what right to SH have to compel a distribution

Answer 13

None. Decision to declaredividends is within directors’ business judgment, subject to solvency limitations

Question 14

Directors who declared illegal dividend:

Answer 14

1) individually liable to corporation and its creditors for amount of unlawfulportion of dividend

2) entitled to contributions from:
certain directors; and
SHs proportional to amount illegal dividend they received

Question 15

Is shareholder consent required for a sale of asserts

Answer 15

SH consent is required for a sale, lease, or exchange of all or substantially all assets

(i) if such transaction not made in usual or regular course of business

Question 16

What is default duration of a Virginia limited liability company (“LLC”)?

Answer 16

Perpetual

Unless articles of organization provide otherwise.

Question 17

what are examples of indirect ways SHs may exert control

Answer 17

1) Electing directors
2) removing directors without cause
3) amending bylaws
4) approving fundamental corporate changes
5) suing derivatively
6) voting on matters submitted by board to SHs

Question 18

Companies listed on a national exchange may not enter into a SH agreement to:

Answer 18

Eliminate board of directors

Only those in nonpublic corporations may enter into agreements to run corporation in any manner they desire

Question 19

notice of a shareholders’ meeting must set forth:

Answer 19

Place, date, and time of meeting

A meeting’s purpose must only be specified for a special meeting

Question 20

Shareholders of record generally entitled to notice of:

Answer 20

shareholder meetings

Question 21

A waiver of notice effective whenever anyone entitled to notice of a meeting:

Answer 21

1) signs written waiver, before or after meeting and delivers to corporation’s secretary
2) attends meeting
i. unless he objects at beginning of meeting bc meeting not lawfully called or convened
ii. or objects when matter presented, arguing the matter outside notice given

Question 22

notice of SH meeting not waived when:

Answer 22

notice mailing sent to shareholder returned as “undeliverable.”

Question 23

board (and committee) action may be taken without a meeting if:

Answer 23

all members of board (or committee) sign written consent before or after action taken

Question 24

informal action in a close corporation may be binding if:

Answer 24

1) it had “knowledge and acquiescence of all of its shareholders;” or
2) if consent signed by all officers, directors, and shareholders

Question 25

what is a director’s duty of care

Answer 25

director must discharge her duties in good faith in accordance with best interests of corporation

Directors do not insure success of every decision made

Question 26

In discharging her duties a director entitled to rely on information, opinions, reports from:

Answer 26

(i) corporate officers or employees whom director reasonably believes reliable and competent;
(ii) legal counsel, accountants, other competent professionals; or
(iii) a committee of board of which director not a member, if reasonably believes reliable

Question 27

A director may not divert a business opportunity in which her corporation may reasonably be interested without first:

Answer 27

1) giving corporation chance to take opportunity for itself,
2) or unless corporation releases opportunity to her

Question 28

What are the characteristics of an LLC

Answer 28

1) SH have limited liability enjoyed by corporate SHs

2) and flow-through tax treatment enjoyed by partnerships

Question 29

Ownership interest (management interest) in an LLC may not be transferred without:

Answer 29

consent ofa majority of other members

Question 30

A member of an LLC may assign:

Answer 30

1) her interest in the LLC (i.e. right to receive profits and losses)
2) without consent of other members