Derivative Suit

Question 1

Shareholders may bring a derivative suit when _____

Answer 1

directors/senior officers breach their fiduciary duties to the corporation

Question 2

T/F:

When a derivative suit is brought, shareholders are vindicating their individual rights

Answer 2

False,

Shareholders may bring a derivative action to vindicate the corporation’s rights, not individual rights.

Question 3

Who can bring a derivative suit?

Answer 3

Shareholders

Question 4

MBCA 7.41 provides that:
A shareholder may not commence or maintain a derivative proceeding unless the shareholder (i) was a shareholder of the corporation ______ of the act or omission complained of or became a shareholder through transfer by operation of law from one who was a shareholder at that time and (ii) fairly and adequately represents the interests of the _____ in enforcing the right of the _____

Answer 4

at the time of

corporation

corporation

Question 5

In a derivative suit, the corporation is both the named __ and ____

Answer 5

plaintiff and defendant

Question 6

In a derivative suit, the defendants are the ____

Answer 6

directors

Question 7

T/F:

Creditors have standing to bring derivative suits

Answer 7

False

Question 8

What are the two lawsuits within a derivative suit?

1. Action to ____ a corporation to ____
2. Action alleging __ and to recover ___ for the corporation

Answer 8

1. compel, act

2. injury, damages

Question 9

Who gets the benefit of an ACR in a derivative suit?

Answer 9

In any derivative proceeding, no shareholder shall be entitled to obtain or have access to any communication within the scope of the corporation’s attorney-client privilege that could not be obtained by or would not be accessible to a party in an action other than on behalf of the corporation.

Question 10

Direct actions are also known as ______

Answer 10

Class action lawsuits

Question 11

Direct actions can be asserted by ___than all injured ____

Answer 11

fewer

shareholders

Question 12

Direct actions are asserted to:

E.E.R.C.C.

Answer 12

1. Enforce shareholder right to inspect corporate books and records
2. Enforce a shareholders’ agreement
3. Recover a dividend already declared, or something else of value actually due to shareholder
4. Compel declaration of dividends
5. Compel individual dissolution

Question 13

A Derivaite and direct lawsuit can be assert to challenge the issuance of ____

Answer 13

new stock

Question 14

The 2 grounds that a derivaitve AND direct lawsuit will be based on are:

Answer 14

1. Corporation received inadequate compensation (Derivative – because corporation is allegedly harmed)
2. Issuance undermined shareholders’ control rights by diluting their stock (Direct – shareholder personally injured)

Question 15

Who receives damages in derivative lawsuit?

Answer 15

Corporation, since it is injured party

Question 16

MBCA § 7.42 Demand - No shareholder may commence a derivative proceeding until

(i) a ____ demand has been made upon the corporation to take suitable action and
(ii) ___days have expired from the date of _____of the demand was made unless the shareholder has earlier been notified that the demand has been ______ by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the 90-day period.

Answer 16

written

90

delivery

rejected

Question 17

T/F:

Corporations are required to respond to demands

Answer 17

False

Question 18

The purpose of the demand requirement is to ensure that ___ ___ are exhausted

Answer 18

alternative remedies

Question 19

Directors are always _____ when they voite for their own ____

Answer 19

self-interested

compensation