Corps Tested Topics Flashcards
Who owns the Corp?
SHs
How much liability to SHs have?
only liable for extent of their investment
Examples of SH conduct where it is appropriate to Pierce the Corp Veil ?
SHs control/use the corp to avoid a personal obligation, commit fraud, crime/injustice or to gain an unfair advantage
Piercing the corp veil is justified when
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
What is the result of piercing corp veil
Corp’s existence will be ignored and the SHs (as well as officer’s and director’s) will be held personally liable
Procedure for Piercing Corp Veil
SH Ds must be added to lawsuit. To do so, P must seek leave of court to file an amended complaint adding Ds
Director’s Degree of Liability to 3rd Parties
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
Before making any distributions to SHs, directors of a dissolved corp must
apply corp assets to discharge or reasonably provide for the payment of creditor claims b4 making any distributions to SHs
How is a Director Removed?
removed by SH at a meeting specially called for that purpose and removal need not be for cause
How many SH votes are needed to remove director?
majority
A director who votes for or assents to an unlawful distribution in violation of director’s duty of care or loyalty is
liable to the corp and its directors for the amount of the distribution in excess of the lawful amount
A director will not be personally liable for breach of duty if the director
complies w the proper procedures for disposing of creditor claims
A director may incur liability for illegal or improper action taken by the board at a meeting if
director is present, even tho director does not vote in favor of the action
To prevent liability for a voted on unlawful distribution, director must
object to holding the meeting, vote against the action or explicitly abstain from voting
Director’s Entitlement to Indemnification from other director for unlawful distribution
A director is entitled to contribution from any other director who is also liable for the unlawful distribution
When a SH accepts an unlawful distribution, director is entitled to
recoupment from the SH’s pro rata portion of the unlawful distribution
Circuit Court may dissolve a privately held corp if
the P SHs can prove that the controlling SHs are engaging in oppressive conduct
Any action by the Board of Directors must be approved by
a majority of Directors in a vote taken when a quorum is present
VA Non stock corps act
What is a fundamental corp Change?
Sale of all or substantially all of corp’s assets
Fundamental corp change must be approved by
All Shareholders
Is Purchasing Assets of Another Corporation a Fundamental Corp Change? If so, Must SHs have to approve?
No, therefore, no requirement of SH approval
What is a Director’s Conflicts of Interest?
Transaction w the Corp where a director has an interest that precludes him from being a disinterested director
A conflict of interest is permitted if it is either
1) approved by disinterested directors of members after disclosure of MATERIAL FACTS; or
2) It is fair to Corp
Business Judgment Rule
Protects decisions made on behalf of the Corp
In VA, BJR is a __ ___ standard
good faith standard–good faith belief that decisions were in best interest of the corp
A director who satisfies this standard is presumed to be
not liable for his conduct
To overcome good faith presumption, party alleging director failed to adhere to this standard has burden to show director engaged in
self-dealing, fraud or acted in bad faith
Not good faith Exs
Misappropriating corp’s funds, assets, etc
Duty of Care
Director’s/officer’s duty to make decisions that pursue the corp’s interests w reasonable diligence and prudence
Per Duty of Care, Director/Officer must not engage in
gross negligence on behalf of corp
Duty of Loyalty
Includes, among other things, duty not to engage in self-interested transactions, duty not to misappropriate, or usurp a corp opportunity
Duty of Loyalty: Court will ask
Did opportunity belong to the corp and must be offered to the corp before director takes it for herself?
Duty of Loyalty: When determining whether Director usurped corp opportunity, ct will consider
1) how similar the opportunity is to the business the corp engages in and
2) how director learned of opportunity
Can you Cap Liability of Directors in VA?
Yes, Va code allows corps to cap liability of officers and directors in articles of incorporation
Capping: Caps do not apply to ___
WILLFUL MISCONDUCT (EX. misappropriation of assets)
Director’s fiduciary duties of care and loyalty are owed to
The corp not SHs
VA DOES NOT RECOGNIZE AN EXCEPTION FOR CLOSELY HELD CORPS
Claims for breach of fid duties should be brought by
the Corporation as a derivative action on behalf of corp
NOT BY SHs
A SH may bring a ___ or ___ action against corp but only if they ___
direct or derivative action if they own stock
Direct action
actions to enforce Sh rights, such as an action to enforce right to examine books and records of corp….direct harm to SH themselves
Derivative Action
Sh is suing on behalf of the corp for harm suffered by the corp
Derivative action: recovery generally goes to
the corp
To perfect right to sue in SH derivative suit, P must have
1) standing and make a demand
Standing
SH must have owned stock at time of alleged wrongdoing and he or she must fairly and adequately represent interests of the corp
Filing demand
Sh must make written demand on the corp prior to bringing suit
After making demand, SH must
wait until demand is rejected or until 90 days pass, unless he or she can show irreparable injury to the corp
SH may file suit after rejected demand only if SH alleges
demand was not properly rejected by a disinterested decision maker
Who can fill vacanacy on Board of Directors and how is it done?
Board of directors may fill vacancy at a meeting of a quorum directors approved by a majority
Fundamental corporate Change
Sale of substantially all assets outside the regular course of business
Fundamental corp change must be approved by
members of the non stock corp
Director Liability Cap
$100k cap … but corp, in its articles, may reduce or eliminate director liability but cannot increase it
Cap is not applicable w respect to __ conduct by director
willful misconduct or knowing violation of criminal law
Corporations name must contain the word
“corporation” “company” “incorporated or “limited”
NOT LLC
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
member acts w a proper purpose and gives requisite notice
Upon Dissolution of closely held corp, Board of Directors is required to
pay creditors’ claims before distributing assets to the SHs
