Corporations Abridged

Question 1

promoter

Answer 1

person acting on behalf of a corp that is not yet formed

Question 2

business judgment rule elements

Answer 2

Presumption that a director’s decision may not be challenged if the director:
1. acted in good faith
2. with the reasonable belief that her actions were in the best interests of the corp
3. with the care a person would exercise in a like position

these are ALSO the duty of loyalty and the duty of care
1 and 2 are duty of loyalty
3 is duty of care

Question 3

A transaction cannot be set aside merely bc a director had a personal interest in the transaction if:

Answer 3

THIS IS THE TEST TO APPLY FOR DUTY OF LOYALTY ISSUES
1. the director disclosed all of the material facts to other disinterested members of the board or SH and they aproved the transaction OR
2. the transaction was fair to the corp

Question 4

what law or rules govern the authority of a corp’s president?

Answer 4

Agency law.
The president of a corp is an agent of the corporation. The corp is the principal.
A corp president will have whatever power (actual authority) that the corp grants him.

Question 5

Articles of incorp CANNOT limit directors’ personal liability for money damages to the corp or to SH bc of actions taken or failure to act if the directors:

(the directors will be held personally liable)

Answer 5

1. received financial benefits to which he/she is not entitled (usually self-dealing)
2. intentionally inflicted harm on the corp or SH
3. approved unlawful distributions, or
4. intentionally committed a crime

If the director didn’t do one of these four things, he/she can avoid personal liability through the articles of incorp.

Question 6

what is the process to approve a fundamental corporate change?

Answer 6

1.board action adopting a resolution of the change
2. written notice to the SH of the proposal AND
2. the plan is then approved by the SH by a majority of shares entitled to vote

Question 7

what can a SH do if they dissent/vote against a fundamental corporate change?

Answer 7

appraisal remedy

Question 8

what types of fundamental corp changes have a right of appraisal

Answer 8

1. merging or consolidating
2. transferring substantially all assets
3. stock acquired in a share exchange (one company acquies all of the stock of another)
4. converting to another form of business

Question 9

steps a SH has to take to get appraisal rights

Answer 9

1. file an objection to the proposed change before or at the SH meeting where the vote is taken
2. not vote in favor of the plan
3. send the corp a written demand for the fair value of their shares

Question 10

implied adoption of a promoter’s contract

Answer 10

someone in authority accepts the benefits of the K with knowledge of the material facts of the K

Question 11

requirements for a SH derivative action

Answer 11

1. P must own stock at the time the claim arose or got stock by operation of law from someone who did own stock at the right time
2. P must fairly and adequately represent the corp’s interest
3. P must make a written demand on the corp that it take suitable action

Question 12

when is a SH derivative suit appropriate

Answer 12

An action that seeks to vindicate wrongs done to the corp
SH is enforcing the corp’s claim
- SH believes the corp has been wronged and the directors have done nothing about it
- breach of duty owed to the corp
- ask: could the corp have brought this suit

Question 13

when is a SH direct suit appropriate?

Answer 13

Seeks to reinforce duties that a corp owes to the SH
- usually a breach of fid duty owned to the SH by officer or director

Question 14

SH sues the BoD for breaching the duty of care or loyalty -> derivative or direct?

Answer 14

Always derivative. Directors and officers owe the duties of care and loyalty to the corp.

Question 15

SH sues the BoD for issuing new stock without honoring her preemptive rights- derivative or direct?

Answer 15

Direct. SH is hurt not the corp.

Question 16

duties the directors/officers owe to the corp

basis of derivative suits

Answer 16

• duty of care
• duty of loyalty

Question 17

how many votes are needed to elect directors when the bylaws and article are silent

Answer 17

plurality of the votes cast/directors who get the most votes win

Question 18

what is a quorum for SH meetings when the articles and bylaws are silent

Answer 18

majority of the outsanding shares entitled to vote

100 shares outstanding (issued but not reacquired by the corp)- 51 needed to reach quorum

Question 19

what justification do SH need to inspect corp records

Answer 19

SH have a right to inspect corp records for propert purpose related to the SH’s status as a SH