Liability

Question 1

Derivative Action

Answer 1

-is a lawsuit in which a shareholder sues on behalf of the corporation for a harm suffered by the corporation

–may be brought to hold the directors and officers of the corp personally liable for losses resulting from an ultra vires act or to enforce a cause of action on behalf of the corpn when the corp has failed to do so

Question 2

standing to bring derivative action

Answer 2

• only shareholders who were shareholders of the corp at the time the act or omission complained of occurred have standing to bring a derivative action.
• Shareholders who became shareholders by operation of law, but not by purchase, also have standing.
• to have standing, the shareholder must fairly and adequately represent the interest of the corporation.

Question 3

Required for derivative action

Answer 3

• the shareholder must make a written demand upon the board of directors to take action.
• demand must be filed with the corp
• After filed with the corp, there is a 90-day waiting period during which a shareholder may not file the derivative suit.
• waiting period is terminated if the corporation rejects the demand sooner than 90 days, or if delay would cause irreparable injury to the corporation.

Question 4

Indemnification

Answer 4

-law allows directors to be reimbursed for defending a suit as a director

Question 5

Mandatory Indemnification

Answer 5

-corp is required to indemnify a director in a completely successful defense (on all issues)

Question 6

Prohibited indemnification

Answer 6

-corp prohibited from indemnifying against liab when the director received an improper financial benefit

Question 7

permissive indemnification

Answer 7

-corp may indemnify director when director acted in good faith with a reasonable belief that conduct was in the corp’s best interest