Directors and Duties

Question 1

What duties does a corporation have to its SH?

Answer 1

Duty of Care
Duty of Loyalty
Duty of Good Faith

Question 2

Directors duty of care

Answer 2

Vested with the duty to manage the corp. to the best of their ability. This requires them to discharge their duties:

i. in good faith
ii. with the care of an ordinarily prudent person in a like position
iii. in a manner believed to be in the best interest of the corp.

Question 3

Duty of Loyalty

Answer 3

Director not permitted to profit at the expense of the corporation. (no self-dealing, usurping of corporate opportunities, no inside trading, etc)

Question 4

Series of factors court considers when piercing the corporate veil

Answer 4

1. Failure to follow corporate formalities
2. Commingling of funds or assets
3. Undercapitalization
4. One corp. treating the assets of another as its own

Question 5

Business Judgment Rule

Answer 5

A court will not second-guess the decisions of a BOD or its officers unless there is a showing of illegality or fraud. (Leslie v Lorillard)

Question 6

“Corporate Opportunity” Doctrine

Answer 6

Under this theory a director is obligated to refrain from gaining personal advantage to the detriment of his company as a consequence of information derived through his corporate position.

Question 7

Unocal Duties

Answer 7

Occurs when Board takes defensive measures 1) Bd must determine threat
2) Must act reasonably in response to the threat
(Ct will look to whether action was coercive or preclusive)
Coercive: Force a SH to act in a particular way or face a loss of value for his shares
Preclusive: An act that effectively prevents a SH from exercising his rights

Question 8

Entire Fairness Standard

Answer 8

Burden shifts to Director to show transaction was inherently, intrinsically fair

Question 9

The Board can delegate substantial management functions to a COMMITTEE, but a committee cannot:

Answer 9

1) Amend Bylaws
2) Declare dividends
3) Recommend a fundamental corp. change to the SH