Corps Tested Topics

Question 1

Who owns the Corp?

Answer 1

SHs

Question 2

How much liability to SHs have?

Answer 2

only liable for extent of their investment

Question 3

When is Piercing the Corp Veil Applied?

Answer 3

Applied when the SHs have controlled or used the corp to avoid a personal obligation, commit fraud, crime or injustice or to gain an unfair advantage

Question 4

Piercing the corp veil is justified when

Answer 4

the unity of interest and ownership is such that it is hard to differentiate the seperate identities of the corp and the individual and to adhere to that seperateness would work an injustice

Question 5

What is the result of piercing corp veil

Answer 5

Corp’s existence will be ignored and the SHs (as well as officer’s and director’s) will be held personally liable

Question 6

Procedure for Piercing Corp Veil

Answer 6

SH Ds must be added to lawsuit. To do so, P must seek leave of court to file an amended complaint adding Ds

Question 7

Director’s Degree of Liability to 3rd Parties

Answer 7

As an agent of the corp, a corp officer or director does not incur liability to third parties merely for the performance of duties to the corp

Question 8

Before making any distributions to SHs, directors of a dissolved corp must

Answer 8

apply corp assets to discharge or reasonably provide for the payment of creditor claims b4 making any distributions to SHs

Question 9

How is a Director Removed?

Answer 9

removed by SH at a meeting specially called for that purpose and removal need not be for cause

Question 10

How many SH votes are needed to remove director?

Answer 10

majority

Question 11

A director who votes for or assents to an unlawful distribution in violation of director’s duty of care or loyalty is

Answer 11

liable to the corp and its directors for the amount of the distribution in excess of the lawful amount

Question 12

A director will not be personally liable for breach of duty if the director

Answer 12

complies w the proper procedures for disposing of creditor claims

Question 13

A director may incur liability for illegal or improper action taken by the board at a meeting if

Answer 13

director is present, even tho director does not vote in favor of the action

Question 14

To prevent liability for a voted on unlawful distribution, director must

Answer 14

object to holding the meeting, vote against the action or explicitly abstain from voting

Question 15

Director’s Entitlement to Indemnification from other director for unlawful distribution

Answer 15

A director is entitled to contribution from any other director who is also liable for the unlawful distribution

Question 17

When a SH accepts an unlawful distribution, director is entitled to

Answer 17

recoupment from the SH’s pro rata portion of the unlawful distribution

Question 18

Circuit Court may dissolve a privately held corp if

Answer 18

the P SHs can prove that the controlling SHs are engaging in oppressive conduct

Question 19

Any action by the Board of Directors must be approved by

Answer 19

a majority of Directors in a vote taken when a quorum is present

VA Non stock corps act

Question 20

What is a fundamental corp Change?

Answer 20

Sale of all or substantially all of corp’s assets

Question 21

Fundamental corp change must be approved by

Answer 21

All Shareholders

Question 22

Is Purchasing Assets of Another Corporation a Fundamental Corp Change? If so, Must SHs have to approve?

Answer 22

No, therefore, no requirement of SH approval

Question 23

What is a Director’s Conflicts of Interest?

Answer 23

Transaction w the Corp where a director has an interest that precludes him from being a disinterested director

Question 24

A conflict of interest is permitted if it is either

Answer 24

1) approved by disinterested directors of members after disclosure of MATERIAL FACTS; or

2) It is fair to Corp

Question 25

Business Judgment Rule

Answer 25

Protects decisions made on behalf of the Corp

Question 26

In VA, BJR is a __ ___ standard

Answer 26

good faith standard–good faith belief that decisions were in best interest of the corp

Question 27

A director who satisfies this standard is presumed to be

Answer 27

not liable for his conduct

Question 28

To overcome this presumption, party alleging director failed to adhere to this standard has burden to

Answer 28

show director engaged in self-dealing, fraud or acted in bad faith

Question 29

Not good faith Exs

Answer 29

Misappropriating corp’s funds, assets, etc

Question 30

Duty of Care

Answer 30

Director’s/officer’s duty to make decisions that pursue the corp’s interests w reasonable diligence and prudence

Question 31

Per Duty of Care, Director/Officer must not engage in

Answer 31

gross negligence on behalf of corp

Question 32

Duty of Loyalty

Answer 32

Includes, among other things, duty not to engage in self-interested transactions, duty not to misappropriate, or usurp a corp opportunity

Question 33

Duty of Loyalty: Court will ask

Answer 33

Did opportunity belong to the corp and must be offered to the corp before director takes it for herself?

Question 34

Duty of Loyalty: When asking those questions, ct will consider

Answer 34

similarity of opportunity to the business of the corp and how director learned of opportunity

Question 35

Can you Cap Liability of Directors in VA?

Answer 35

Yes, Va code allows corps to cap liability of officers and directors in articles of incorporation

Question 36

Capping: Caps do not apply to ___

Answer 36

WILLFUL MISCONDUCT (EX. misappropriation of assets)

Question 37

Director’s fiduciary duties of care and loyalty are owed to

Answer 37

The corp not SHs

VA DOES NOT RECOGNIZE AN EXCEPTION FOR CLOSELY HELD CORPS

Question 38

Claims for breach of fid duties should be brought by

Answer 38

the Corporation as a derivative action on behalf of corp

NOT BY SHs

Question 39

A SH may bring a ___ or ___ action against corp if they ___

Answer 39

direct or derivative action if they own stock

Question 40

Direct action

Answer 40

actions to enforce Sh rights, such as an action to enforce right to examine books and records of corp….direct harm to SH themselves

Question 41

Derivative Action

Answer 41

Sh is suing on behalf of the corp for harm suffered by the corp

Question 42

Derivative action: recovery generally goes to

Answer 42

the corp

Question 43

To perfect right to sue in SH derivative suit, P must have

Answer 43

1) standing and make a demand

Question 44

Standing

Answer 44

SH must have owned stock at time of alleged wrongdoing and he or she must fairly and adequately represent interests of the corp

Question 45

Filing demand

Answer 45

Sh must make written demand on the corp prior to bringing suit

Question 46

After making demand, SH must

Answer 46

wait until demand is rejected or until 90 days pass, unless he or she can show irreparable injury to the corp

Question 47

SH may file suit after rejected demand only if SH alleges

Answer 47

demand was not properly rejected by a disinterested decision maker

Question 48

Who can fill vacanacy on Board of Directors and how is it done?

Answer 48

Board of directors may fill vacancy at a meeting of a quorum directors approved by a majority

Question 49

Fundamental corporate Change

Answer 49

Sale of substantially all assets outside the regular course of business

Question 50

Fundamental corp change must be approved by

Answer 50

members of the non stock corp

Question 51

Director Liability Cap

Answer 51

$100k cap … but corp, in its articles, may reduce or eliminate director liability but cannot increase it

Question 52

Cap is not applicable w respect to __ conduct by director

Answer 52

willful misconduct or knowing violation of criminal law

Question 53

Corporations name must contain the word

Answer 53

“corporation” “company” “incorporated or “limited”

NOT LLC

Question 54

Under Va nonstock corp act and Property owners’ association act, a member may inspect minutes of Board of Directors’ meetings and obtain a list of members, so long as

Answer 54

member acts w a proper purpose and gives requisite notice

Question 55

Upon Dissolution of closely held corp, Board of Directors is required to

Answer 55

pay creditors’ claims before distributing assets to the SHs