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Corporations + Agency + Partnerships + Trusts Flashcards

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1
Q

Business Judgment Rule (2)

A

Rebuttable presumption that in the absence of fraud, illegality, or self-dealing, courts will not disturb good-faith decisions, and directors and officers are shielded from liability. Those with special skills must use them

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2
Q

Reliance defense: director/officer duty of care (3)

A

Entitled to rely on (a) expertise of officers/other employees (b) outside experts (c) committees of the board

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3
Q

Fiduciary duty of care standard

A

Act with the car that a person in a like position would reasonably believe appropriate under similar circumstances

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4
Q

Duty of loyalty definition

A

Directors and officers may not receive an unfair benefit to the detriment of the corporation without effective disclosure or ratification

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5
Q

Self-dealing transactions can be upheld if any of these are met: (3)

A

(a) disclosed and ratified by a majority of disinterested directors (b) “ “ disinterested shareholders (c) can demonstrate the transaction was fair

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6
Q

Process for approving of a fundamental change of a corporation?

A

(1) Board adopts a resolution proposing the change (2) Special meeting is called by board, officer, shareholders (3) Notice of a special meeting is sent to shareholders (4) a majority of shares entitled to votes approves

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7
Q

Special meeting requirements

A

(1) Notice sent to shareholders (10 days > 60 days; date time location purpose) (2) record date is set < 70 days before meeting (3) quorum at start of meeting (4) necessary vote

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8
Q

Shareholder voting proxy requirements (5)

A

In writing; signed by shareholder; sent to secretary; authorizes to vote; valid for 11 months max

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9
Q

Self-dealing transaction definition

A

Officer/director receives compensation directly from the corporation

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10
Q

Usurpation of corporate opportunity definition

A

Officer/director prevents from business coming into the corporation

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11
Q

In which circumstances does a shareholder meeting not need to occur?

A

Unanimous written consent by shareholders

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12
Q

Who can make a distribution, and liable for unlawful distribution?

A

Board of directors only; liable personally, joint and severally

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13
Q

Do shareholders have the right to distributions?

A

NO

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14
Q

When can a distribution NOT be made? (2)

A

The corporation is insolvent; the distribution would make the corporation insolvent

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14
Q

When can a distribution NOT be made? (2)

A

The corporation is insolvent; the distribution would make the corporation insolvent

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15
Q

Who owns an LLC?

A

Members (not shareholders)

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16
Q

How is an LLC taxed?

A

Like a partnership; aka, you tax the members directly, not its profits, and you tax the entity only once

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17
Q

Limitations on number of shareholders/members: S corp v. LLC?

A

S corp has a limit; LLC does not.

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17
Q

Limitations on number of shareholders/members: S corp v. LLC?

A

S corp has a limit; LLC does not.

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18
Q

Exceptions to promoters’ personal liability for pre-incorporation agreements (2)

A

(a) novation (b) adoption of K by corporation

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18
Q

Exceptions to promoters’ personal liability for pre-incorporation agreements (2)

A

(a) novation (b) adoption of K by corporation

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19
Q

Articles of incorporation requirements (6)

A

Name; agent; names/addresses of incorporators; duration; purpose; authorized shares

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20
Q

Ultra vires

A

If a corp. acts outside of its stated purpose, its acts are unenforceable by the shareholders, state, or the corp. (but NOT third parties)

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21
Q

When does incorporation begin

A

When Secretary of State accepts the fee and files the articles

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22
De facto corporation requirements
(a) organizers made a good faith effort (b) had no knowledge that they did not comply
23
Veil piercing
Shareholders are not generally liable for actions of the corporation, unless it would be fair and reasonable to do so under the totality of the circumstances
23
Quorum
a majority of outstanding shares must be represented at the start of the meeting
24
Necessary vote
Votes cast in favor exceed votes cast against
25
Corporation by estoppel
If a third party has treated an entity like it is a corporation, they're estopped from later seeking personal liability against the officer/director
26
Veil piercing factors (5)
fraud; use of corporate assets as own assets; disregard of corporate formalities; undercapitalization at the time of formation; siphoning funds
27
Remedies for breach of duty of loyalty: Self-dealing
Rescind the transaction; damages from interested director/officer
28
Derivative lawsuit requirements
(a) (Standing) shareholder has contemporaneous ownership throughout each stage of the litigation (b) fairly represents the interest of the corporation (c) demands the board to bring a lawsuit first (unless futile)
29
Derivative lawsuit definition
A shareholder sues on behalf of the corporation for alleged unlawful acts done to the corporation. Recovery goes to the corporation.
30
Controlling shareholders' duty
Fiduciary duty to not misuse your power in a way that disadvantages minority shareholders
31
Who gets paid first with bankruptcy proceedings OR dissolution?
Secured creditors; unsecured creditors; preferred shareholders; common shareholders
32
When can a shareholder sue when they haven't been issued a dividend?
(a) Breach of fiduciary duties of care + loyalty, aka, when a board acts in bad faith and abuses its discretion (b) there were funds available for the dividend
33
Does adoption relieve a promoter of liability?
NO, only novation will do that.
34
Implied adoption
When a corporation accepts the benefits of a pre-incorporation contract, there has been an implied adoption of the K by the corporation
35
Partnership Duty of Care
A partner owes a duty of care to (a) the partnership and (b) to other partners to refrain from engaging in negligent, reckless, or unlawful conduct
36
Agency relationship is created when: (4)
(i) a principal manifests assent to an agent; (ii) the agent acts on the principal’s behalf; (iii) the agent’s actions are subject to the principal’s control; and (iv) the agent manifests assent or otherwise consents.
37
Ratification occurs when: (3)
(a) A principal approves a prior act done by their agent (b) principal knows the material facts of the prior act (c) timely
38
3 components of an agency relationship
Assent; Benefit; Control.
39
Is consideration required for an agency relationship?
No
40
Who can be a principal?
Anyone with legal capacity
41
What differentiates an employee from an independent contractor?
For employee/agent, the principal has the right to control the agent's physical conduct of work.
42
When is there actual implied authority?
Principal conveys authority for an agent to take whatever steps are necessary to achieve principal's objectives
43
When is there apparent authority?
Principal makes a third party reasonably believe that a principal consents for the agent to act on their behalf
44
When is there ratification? (2)
Principal has knowledge of the material terms of a K; principal accepts the contract's benefits
45
When can an agent be liable under a contract?
When the principal is partially disclosed or undisclosed
46
When is a principal NOT liable for a contract?
Undisclosed to the third party
47
Liability of general partnership
Partnership itself may be liable; all partners are personally and jointly, severally liable for the debts and liabilities of the partnership
48
When is a general partnership formed? (4)
Partners share profits; partners INTEND to co-own and share profits; partners AGREE to co-own and share profits; share CONTROL
49
General partnership definition
Association of two or more persons to carry on a for-profit business as co-owners
50
Express actual authority
Principal expressly gives agent authority to do the specific act in question
51
Implied actual authority
Agent has a reasonable understanding that they are authorized to take whatever actions are necessary to achieve the principal's objectives
52
Apparent authority
Principal causes a third party to reasonably believe the agency has the authority to act
53
When will a principal be vicariously liable for their agent's intentional tort? (3)
During work hours; motivated to act for the principal's benefit; act was within assigned duties
54
When will a principal be DIRECTLY liable to third parties for the acts of their agent? (3)
(a) ratification (b) negligent hiring/supervising (c) delegates a non-delegable duty to agent
55
When will a court presume co-ownership for the purposes of partnership formation? (2)
Sharing of profits; sharing control
56
Is an incoming partner personally liable for partnership's liabilities that occurred before the partner joined?
No, but they may lose their capital contribution
57
Can a limited partner enter in a K on behalf of a partnership?
NO. If they do so they will be treated as a general partner
58
How can you add a general partner?
All existing partners must consent (or as otherwise specified)
59
Trustee's fiduciary duties owed to beneficiaries
Duty of care; invest; diversify; make property productive; impartial towards beneficiaries; loyalty
60
Trust Formation Elements (4)
Intent; identified property to go in the trust; purpose; ascertainable beneficiaries (class is fine)
61
Charitable trust elements (3)
Charitable purpose; indefinite/non-specific beneficiaries; charity follows the trust terms
62
Cy Pres - Charitable Trusts
Court can modify charitable trust if (a) trust became impracticable/impossible (charity no longer exists), (b) trust had a general intent (didn't name one specific charity)

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