Corporations

Question 1

Ultra Vires Acts

Answer 1

Activities beyond the scope of the stated business purposes are said to be ultra vires. Ultra vires acts generally are enforceable, and the nature can be raised only in three situations: (1) a shareholder seeking to enjoin the corporation, (2) the corporation may sue an officer for damages for approving the act, or (3) the state may bring dissolution.

Question 2

Corporation by Estoppel

Answer 2

Persons who have dealt with the entity as if it were a corporation will be estopped from denying the corporation’s existence.

Question 3

Restrictions on Transfer of Stock

Answer 3

A third-party purchased is bound by the provisions of an agreement restricting transfer of stock if (i) restriction is clear on the certificate, or (ii) third party had knowledge of the restriction at time of purchase.

Question 4

Distributions

Answer 4

The decision whether or not to declare distributions generally is solely within the director’s discretion. A distribution is not permitted if either (1) the corporation would not be able to pay its debts as they become due or (2) the corporation’s total assets would be less than the sum of its total liabilities.

A director who votes for a distribution that violates the rules is personally liable to the corporation unless the business judgment rule applies.

Question 5

Director Duty of Loyalty

Answer 5

A director has a conflict of interest if the director knows that she or a related person (i) is a party to a transaction, (ii) has a beneficial interest in a transaction that influences the director, (iii) or is a director or agent of the other organization in the transaction.