Lex Bar Rules

Question 1

Officers of a corporation have a fiduciary duty of loyalty, which requires that they not

Answer 1

engage in outside business activities to the detriment of the corporation.

Question 2

The fiduciary duty of loyalty is owed to

Answer 2

the corporation itself, and not to individual shareholders.

Question 3

In Virginia, there is no exception where a duty of loyalty is owed to

Answer 3

shareholders in a small, closely held corporation.

Question 4

In suits alleging a director or officer violated their duty of care to the company, courts will apply

Answer 4

the business judgment rule.

Question 5

Under the business judgment rule, a court will uphold the decisions of a director as long as they are made:

Answer 5

(i) in good faith;
(ii) with the care that a reasonably prudent person would use; and
(iii) with the reasonable belief that the director is acting in the best interests of the corporation.

Question 6

To rebut the business judgment rule, a shareholder-plaintiff has the burden of proving that

Answer 6

directors, in reaching the challenged decision, breached a fiduciary duty.

Question 7

Virginia corporations may limit the liability of officers and directors in their

Answer 7

articles of incorporation.

Question 8

Any limits to liability included in a corporation’s articles of incorporation do not apply to

Answer 8

knowing and willful misconduct.