Corps Flashcards
Pierce the corp veil
The court will pierce the corporate veil and hold SH liable by analyzing the totality of the circumstances:
(1) SH dominates the corp – the corp is not being treated like a separate entity
(2) Corp was undercapitalized at the time of incorporation
(3) fraud or illegality (Siphoning corporate funds or stripping assets)
(4) Disregard of corporate formalities (not holding annual meetings or holding votes)
(5) Use of corporate assets as a SH’s own assets
(6) Self-dealing with the corporation
When pierced, the corp entity is disregarded to hold those involved in active management liable
Shareholder suits
A SH may bring suits against the corp –
- Directly (to protect a personal interest after a duty breach), or
- Derivative (in Corp’s behalf, when it has a cause of action but fails to bring the suit). Derivative suits require a written demand + 90day wait time under previously rejected or irreparable harm
Self-Dealing
Engaging in transaction with the corporation that benefits the director or a close family member. Safe Harbor Rules: transaction can be protected if…
- The interested director discloses all material facts to the board of directors or SHs and receives approval by a majority of disinterested board of directors/ SH; or if
- The transaction is fair to the corporation substantively and procedurally.
Remedies: Transaction can be enjoined or rescinded and the corporation can seek damages from
the interested director.
Business Judgment Rule
A rebuttable presumption that a director reasonably believed his actions were in the best interest of the corporation/he acted in good faith. Presumption may not be challenged if the director
(1) acted in good faith
(2) with the care that a reasonable person would exercise in a like position, and
(3) in a manner the director reasonably believed to be in the best interest of the corp.
Limit liability
Liability cannot be eliminated to the extent that the director (1) received a benefit to which he is not entitled,
(2) intentionally inflicted harm on the corp or its shareholders,
(3) approved unlawful distributions, or
(4) intentionally committed a crime
De facto corp
when an entity
(1) could have been legally incorporated under law,
(2) made a good faith effort to comply with incorporation formalities, and
(3) acted like a corp,
it may still be treated like a corp and subject to liability
breach of duty of loyalty
when the director knows that they are
(1) a party to the transaction,
(2) has an interest that would influence their decision, or
(3) has a link to the other side
ultra vires acts
occurs when the corp is limited in scope and acts beyond the scope of the statement of purpose > can be liable, and SH can bring suit to enjoin actions
Director duties
must discharge her duties in good faith and with reasonable belief that her actions are in the best interest of the corporation (duty of loyalty) and must also use the care that a person in like position would reasonably believe appropriate under the circumstances
indemnification of directors
- no indemnification to directors held liable to the corp and who received an improper benefit
- mandatory indemnification to director who was successful in defending a proceeding
- permissive indemnification to directed who was not successful if they acted in good faith and believed it was in the best interest of the corp
fundamental corp change requires
(1) board action adopting a resolution of fundamental change,
(2) the board submits the proposal to shareholders with notice, and
(3) shareholders vote
may need to deliver doc to sec of state
right of appraisal
before the SH vote, the SH must filed a written notice of objection and intent to demand payment, SH must abstain from voting or vote against the change. if approved, the SH can then make a written demand to be bought out
