Corporations & LLC

Question 1

Corporations/LLCS

Answer 1

BOD- Board of Directors

SH- shareholders

RMBVA- Revised Model Business Corporation Act

RULLCA - Revised Uniform Limited Liability Company Act

Question 2

SH Personal Liability

Answer 2

generally, SH are not personally liab but a court may pierce the corporate veil to impose personal liability.

Question 3

Piercing the corporate veil

Answer 3

courts may disregard the corporate form and individual shareholder personally liable for actions taken on behalf of the corp when:

• corp acting as alter ego of SH (utilizing corp for personal reasons)
• failur to follow corporate formalities
• corp is inadequately capatalized; OR
• to prevent fraud

** Courts are more likely to pierce in tort action than a contract dispute.

Question 4

Piercing the veil for LLCs

Answer 4

• corp acting as alter ego to member or manager
• inadequate capital at inception
• or fraud

Question 5

SH/Member Liability for Torts

Answer 5

even if court does not pierce the veil, still personally liable for own torts.

Question 6

Proxy Voting

Answer 6

In order to grant proxy holder ability to vote:

• must be a signed appointment form or electonic transmission.

only valid for 11 months

Question 7

Proxy Agreements

Answer 7

freely revocable by SH even if proxy states irrevocable.

** exception: not revocable if proxy is couupled an an interest or a legal right and states it’s irrevocable.

Question 8

Duty of Care/ Business Judgment Rule in CL

Answer 8

Directors owe a duty of care.

must discharge their dutties:

• in good faith
• with the reasonable belief that they are acting in the best interest of the corp; AND
• with the care a person in a like position would reasonably believe appropriate under like circumstances.

** if the 3 part test above is met, Director is not liable.

Question 9

Duty of Loyalty

Answer 9

directors must act in the best interests of the corp and w/o personal conflict.

Forbids director from:

• entering into conflicting interest transactions
• usuriping a corp opportunity
• competing with the corporation or
• trading on inside info.

Question 10

Duty of Loyalty- Conflicting Interest Transactions

Answer 10

Conflicting Interest Transactions are a breach of duty of loyalty unless:

• approved by a majority of disinterested irectors after full discloure of all relevant material facts
• approved by a majority of disinterested SH
• or the transaction as a whole was fair to the corp at the time it was entered into.

**BJR does not apply/protect direcotrs financially interested in a transaction who engaged in fraud or illegality.

Question 11

Duty of Loyalty- When does a conflict occur

Answer 11

When a director/officer or family member is:

• a party to transaction
• has a beneficial interest in transaction (or closely aligned)
• OR is involved with another entity that is conducting business with the corp. and that transaction should have been brought before BOD.

Question 12

Duty of Loyalty- Usurping a Corp Opportuniyy

Answer 12

is a breach unless:

• first presented to the corp’s BOD AND
• BOD decides not to pursue the opportunity.

**showing corp not in a financial position to take the opportunity is not a defense.

Question 13

Direct Action in Corp & LLC

Answer 13

Occurs when there is a breach of a duty by a SH to the corp. This breach cannot be solely the result of an injury to corp.

simarily, a member of an LLC may bring an action against a member, manager, or LLC for reasoning above.

Damages go to SH or member.

Question 14

Derivative Action

Answer 14

When a SH is suing to enforce the corps claim; RMBCA requires the SH to:

• own corp stock at the time the claim arose
• be a SG through entry of judgment
• fairly and adequately represent the corps interes AND
• make a written demand to the corp to take suitable action.

Question 15

When can a derivative suit be commencecd

Answer 15

90 days after the demand unless the corp rejects the demand or will suffer irreparable harm if forced to wait.

Question 16

When can a derivative suit for an LLC be brought

Answer 16

within a reasonable time after the demand and the demand requirement may be waived if futile.

Question 17

Damage award for derivative suit for corp/llc

Answer 17

paid directly to corp but SH/manager can recover reasonable cost of litigation.

Question 18

Dissenter’s Appraise Rights

Answer 18

A dissenting SH is entitled to appraisal rights (obtaining payment for fair market value of his shares) for any of the below fundamental changes:

• SH has right to vote on merger plan
• SH of the subsidiary ina short form merger
• SH shares are being acwuired in a share exchange
• SH has right to vore on the distribution of all or substantially all assets.
• if an amendment of the Articles of Incorporation materially and adversely effect the SH rights.

** appraisal rights are not avail to SG of public traded companies.

Question 19

SH can for the corp to purchase his shares how:

Answer 19

• gives notice to corp or intent to asser appraisal right
• notice was given before the vote
• the fnudamental change is effuctuated and
• the SH did not vote in favor of the change.