MEE_Corporations Flashcards
Business Judgment Rule (BJR)
Director’s (D) decision may not be challenged if D:
(1) acted in good faith
(2) w/ care than an ordinarily prudent person would exercise in a like position
(3) in a manner reasonably believed to be in best interest of corp
Director personal interest in transaction
A transaction cannot be set aside merely b/ a D had personal interest in transaction if (i) D disclosed material facts of transaction to disinterested members of board or SH, who approved transaction, or (ii) transaction was fair to corp
D Protected by Exculpatory Provision
Liability cannot be eliminated to extent that D:
(1) received a benefit to which he was not entitled
(2) intentionally inflicted harm on corp or SH
(3) approved unlawful distributions
(4) intentionally committed a crime
Vote Required - Artivles vs Bylaws
Vote required at a meeting can be set in articles or bylaws. When conflicting, articles control
Only outstanding shares may be voted
shares that were issued a and outstanding but repurchased are not outstanding and cannot be voted = treasury shares
Only SH of record on record date may vote. exception - proxy
Fundamental corporate change
implemented only if (2) D first pass resolution to implement the plan & (2) plan approved by SH
ex. sale of all corp. assets outside scope of ordinary business
Appraisal remedy
SH who dissent from fundamental corp. change can force corp to purchase their shares at fair price
SH must (1) file objection to transfer before or at SH meeting at which vote is taken, (2) not vote in favor of plan, (3) send corp written demand for fair value of shares
Promoter Liability
Promoter is a person who procures commitments for capital & instrumentalities on behalf of corp to be formed.
Generally, promoters personally liable on Ks they enter into on behalf of corp to be formed. continues even after corp is formed & even if corp also becomes liable on K by adopting it
Exception: Promotor not liable on preimcorp K if agmt btw parties expressly indicates that promoter is not to be bound
Generally, corp not liable on K entered into by promoter. can become liable if it adopts, expressly or impliedly
Derivative Action - who can submit?
SH must have been SH at time of act or omission complained of or become SH through operation of law (inheritance)
Derivative Action - procedure
Derivative Action seeks to vindicate wrongs done to corp
SH must fairly and adequately represent interests of corp & must make written demand that it take suitable action
direct action seeks to enforce duties that corp owes to SH - SH need not make demand for
Duty of Care - Director
Directors generally are vested w/ power to manage business & affairs of corp.
may act on this power by majority vote at meeting at which quorum of directors are present
If D uses BER, then court will not second-guess their decision
Directors owe duty: (BER)
(1) to act in good faith
(2) w/ care that ordinarily prudent person in like position would exercise under similar circ
(3) in manner D believes in best interest of corp
Duty of Loyalty - Director
prohibits D from profiting at expense of corp
Transaction okay If all material facts disclosed & it is fair & approved by majority of SH
Vote by Proxy
allows another to vote share; generally revocable
Written proxy coupled w/ interest (sale of shares) irrevocable if it says so
How are directors elected?
Unless articles or bylaws provide otherwise, directors elected by plurality of votes - those receiving most votes win - even if not majority
SH inspection of books
SH generally have right to inspect corps books & records for proper purpose
proper purpose = related to SH status
requires 5 days written notice stating reason - can bring attorney, acct or agent to facilitate inspection
Can SH compel Dividend
Generally, SH have no right to receive a dividend until declared by bd
if bd decides in good faith not to declare dividend, cts will not disturb decision
SH has burden of proving bad faith
