Corporations and Limited Liability Companies Flashcards
What is the Business Judgment Rule?
The BJR is the presumption that a director’s decision may not be challenged if (i) the director acted in good faith, (ii) with the care that an ordinarily prudent person would exercise in a like position, and (iii) in a manner the director reasonably believed to be in the best interest of the organization.
Can a transaction be set aside because a director has a personal interest in it?
No, so long as (i) the director disclosed the material facts of the transaction to disinterested members of the board or shareholders, who approved the transaction, or (ii) the transaction was fair to the corporation.
Can directors be protected by an exculpatory provision in the Articles of Incorporation?
Yes, except to the extent that the director received a benefit to which they were not entitled, intentionally inflicted harm on the corporation or its shareholders, approved unlawful distributions, or intentionally committed a crime.
Which controls when there is a conflict between the Articles of Incorporation and the bylaws?
The articles control.
When and how are proxies revocable?
Proxies are generally revocable unless they (i) say they are irrevocable AND (ii) are coupled with an interest. Proxies may be revoked by (i) a subsequent instrument or (ii) by the shareholder of record showing up to vote in person.
What law is a corporate president’s authority governed by?
A corporate president’s authority is governed by agency law.
When can a board meeting take place?
If the governing articles are silent, a board meeting may take place whenever there is a quorum consisting of the majority of directors. Resolutions may be passed by a vote of the majority of the quorum.
Who must authorize a fundamental change?
There must be both board and shareholder approval for a fundamental change to be authorized. The change is authorized only if (i) the directors first pass a resolution to implement the change, and (ii) the change is then approved by the shareholders.
What remedy do shareholders who dissent from a fundamental corporate change have?
Shareholders who dissent from a fundamental corporate change may force the corporation to purchase their shares at a fair price. To use the appraisal remedy, the shareholders must (i) file an objection to the transfer before or at the shareholders’ meeting at which the vote is taken; (ii) not vote in favor of the plan, and (iii) send the corporation a written demand for fair value of their shares. The shareholder must also deposit their shares with the corporation as directed. If the corporation does not want to pay what the shareholders demanded, the corporation must file a suit to have the court determine fair value.
What is a promoter?
A promoter is a person who procures commitments for capital and instrumentalities on behalf of a corporation that will be formed in the future. As a general rule, promoters are personally liable on all contracts they enter into on behalf of the corporation to be formed even after the corporation is formed and even after the corporation also becomes liable on the contract by adopting it. However, a promoter will not be liable on a preincorporation contract if the agreement expressly states that the promoter is not to be bound. In such cases, the “contract” becomes an offer to the corporation.
Does signing “on behalf of” the future corporation free a promoter from liability?
No. Under agency law, such a signature would release the agent from liability. However, a promoter cannot act as an agent because there is no existing principal.
How can a corporation become liable on a promoter’s contract?
- Express adoption, which requires official express action to adopt the contract with knowledge of the material facts, such as a resolution from the board of directors
- Implied adoption, requires someone in authority to accept the benefits of the contract with knowledge of the material facts
When can a shareholder bring a derivative class action?
- Must have been shareholder at time of act or omission complained of or must have become a shareholder through operation of law
- Must fairly and adequately represent interests of corporation and must make written demand on the corporation that it take suitable action
