Corporations

Question 1

Business judgement rule

Answer 1

absence of fraud, illegality, or self-dealing, courts will not disturb good faith business decisions.

(protects most business decision)

Question 2

Duty of care

Answer 2

directors & officers must use the care a person in a like-position would reasonably believe appropriate under similar circumstances

• obliged to use their special care and skills
• may rely on expertise of
  (1) other officers/employees;
  (2) outside investors (lawyers/banks); or
  (3) committee of board of directors

Question 3

Duty of loyalty

Answer 3

directors and officers cannot receive unfair benefits to the detriment of corp unless they effectively disclose and obtain ratification of those benefits.

• self-dealing:
• corporate opportunities: prevents money from coming in

Question 4

Defense to duty of loyalty

Answer 4

1. obtain approval from disinterested members of board
2. obtain approval from disinterested shareholders
3. persuade a court that transaction was fair to the corp

Question 5

shareholder voting

Answer 5

• annual meeting
  
  • -elect directors
• special meeting
  
  • fundamental corporate changes (merger)
  • adequate notice of 10-60 days w/ Date, Time, Purpose. Attendees waive defects w/ notice.
  • record date: no more than 70 days prior
  • shareholders who held stock on record date can attend
  • may be conducted without meeting w/ unanimous written consent

Question 6

Proxy for shareholders

Answer 6

• in writing
• signed by shareholder
• send to secretary or corp
• authorize the proxy to vote
• valid for max of 11 months

Question 7

Distributions bo B of Directors

Answer 7

• remove profit from corp and gives to shareholders
• power to auth ONLY by board
• cannot declare if insolvent or will make corp insolvent
• liability: director who vote for unlawful dividends are PERSONALLY liable for overage
• director will not be liable for an unlawful distribution if the director relied in good faith on financial statements.