Corps Flashcards
What is the “mere instrumentality test” theory of piercing the corporate veil?
In this test, a member would have to show that
(i) the members dominated the entity in such a way that the LLC had no will of its own,
(ii) the members used that domination to commit a fraud or wrong, and
(iii) the control and wrongful action proximately caused the injury.
What is the “unity of interest and ownership test”?
Under the “unity of interest and ownership” test, a petitioner must demonstrate that there was such a unity of interest and ownership between the entity and the members that, in fact, the LLC did not have an existence independent of the members and that failure to pierce the veil through to the members would be unjust or inequitable.
What are members of a member-managed LLC required to do when they agree to voluntarily dissolve the entity?
The entity must wind up its affairs and liquidate its business.
Only after the entity’s debts and obligations to creditors have been paid may the members receive a portion of the liquidated value of the LLC. Those responsible for winding up can be liable for improper distributions.
Can a shareholder bring a direct or derivative action against the corp in which the shareholder owns stock?
Yes.
Direct Action
In a direct action, the shareholder is vindicating his own rights and is not required to make a demand on the board of directors before proceeding with the litigation.
Derivative Action
a shareholder brings suit on behalf of the corporation and is typically based on a breach of fiduciary duties by the board of directors. To bring a derivative action, the shareholder must have standing and must make a written demand upon the board of directors.
When does a shareholder have standing?
To have standing, the shareholder must have been a shareholder at the time of the wrong and at the time the action was filed, and continue to be a shareholder throughout the litigation.
The shareholder is required to make a written demand upon the board of directors unless the demand would be futile. Not all jurisdictions recognize the futility exception, however. In states that do not recognize the futility exception, demand must be made upon the board in all cases.
