Corporations

Question 1

Shareholders – inspection of records

Answer 1

A SH with a proper purpose (one that relates to SH’s interest) has the right to inspect and copy corporate records upon five days’ written notice

Question 2

Shareholder suits

Answer 2

1. Direct action – action to enforce SH rights for breach of fiduciary duty by director or officer, or an action based on grounds unrelated to SH’s status
2. Derivative action – SH sues on behalf of C for harm suffered by C
   - Standing – contemporaneous ownership rule
   - Written demand upon board must be made unless it would be futile
   - Dismissal by board – only if a majority of qualified directors decide in good faith after reasonable inquiry that the action is not in the C’s best interest

Question 3

Duty of care

Answer 3

Director has a duty to act with the care that a person in a like position would reasonably believe appropriate under similar circumstances
- Required to use any additional knowledge or special skills he possesses when deciding how to act

Question 4

Business judgment rule

Answer 4

A rebuttable presumption that director reasonably believed his actions were in the best interest of C; does not apply when director engages in conflict-of-interest transaction

To overcome BJR, must be show that

• Director did not act in good faith;
• Director was not informed to the extent he reasonably believed was necessary;
• Director had material interests in challenged conduct and was not objective

Question 5

Duty of loyalty

Answer 5

Requires director to act in a manner that he reasonably believes is in the best interest of C

Question 6

Self-dealing (conflict-of-interest transaction)

Answer 6

A director who engages in a conflict-of-interest transaction with his own C violates the duty of loyalty unless the transaction is protected under the safe-harbor rules
- Type of transaction = one that would normally require approval of board and is of such financial significance to D that it would reasonably be expected to influence D’s vote

Question 7

Safe harbors (for self-dealing)

Answer 7

• Disclosure of all material facts and majority approval by board or SHs without a conflicting interest;
• Fairness of the transaction to C at the time of commencement

Question 8

Limited liability company

Answer 8

Enjoys the pass-through tax advantage of a partnership and the limited liability of a corporation

• Created by filing articles of organization with the state
• May also adopt an operating agreement to govern business

Question 9

Transfer of membership – LLC

Answer 9

Transferee only acquires the transferor’s right to share in the LLC’s profits and losses, not a right to participate int he LLC’s management

Question 10

Termination of membership – LLC

Answer 10

Does not automatically trigger a dissolution of the LLC; LLC may elect to liquidate the fat value of that person’s interest

Question 11

Dissociation of LLC

Answer 11

• Member can withdraw at any time for any reason without written notice
• Withdrawal does not automatically trigger dissolution and winding up

Question 12

Dissolution of LLC

Answer 12

• Member may seek involuntary dissolution if a controlling member acts in a way that is oppressive and directly harmful to the member seeking the order
• Winding up – must (i) discharge the LLC’s debts, obligations, or other Ls; (ii) settle and close the LLC’s activities, and marshal and distribute the LLC’s assets; may perform acts necessary or appropriate to the winding up