Pg 29 Flashcards
Personal loans from companies to directors and officers is forbidden, but corporations can do what?
Advance litigation costs if they are incurred in connection with company service
What are the things that can only be approved by a unanimous vote of the shareholders in order to ratify them?
– waste
– gifts
– fraud
– ultra vires acts
Can creditors sue individual directors?
Not usually. Usually they can just sue the corporation, unless the director did something like:
– withdrew assets from an insolvent corporation
– used corporate funds to pay off company loans that the director personally guaranteed
– pocketed proceeds of the sale of corporate assets
– left the corporation insolvent
– used assets of the corporation for his own benefit
What is self-dealing?
When a director or an officer takes advantage of his position and acts for his own personal interests. This results in a breach of the fiduciary relationship between the corporation and the officer or director.
What is the remedy for self-dealing?
- disgorgement of profits from the self-dealing - and recovery of lost profits that the corporation would have made if the fiduciary hadn’t self-dealt
Self-dealing always involves what?
Misuse of corporate assets by a director or an officer.
What is an example of self-dealing?
Using corporate employees to do personal tasks like having maintenance guys come to your house and do yardwork.
What is the key to figuring out self-dealing?
If the benefit runs directly to the director or officer, self-dealing is likely present.
Is it OK to use corporate assets to benefit the corporation and incidentally benefit an officer?
Yes, so if the bonus structure gives more money to an officer for profits over a certain amount, that is OK. But if the benefit goes directly to an officer without first benefitting a corporation, that is not
What is misappropriation of corporate opportunities/corporate opportunity doctrine?
This is a disloyal diversion of business. This happens when directors or officers use their position for their own benefit to the exclusion or detriment of the corporation.
What is the result if you breach the corporate opportunity doctrine?
Disgorgement of all profits
What are the elements of the corporate opportunity doctrine?
- business opportunity that benefits the corporation
– corporation is financially able to undertake the opportunity
– corporation has interest or expectancy in the opportunity
– opportunity is within the corporation’s line of business
What is involved in the element of corporate opportunity doctrine that requires that the corporation has an interest or expectancy in the opportunity?
The corporation must have an existing interest in the property or an expectancy growing out of an existing right. The focus is on whether the opportunity is essential to the corporation’s business or existence. There is an interest or expectancy if the opportunity would further establish a business policy of the corporation that is either a formalized plan for the future or standard operating procedures. I.e.: corporation has an interest with a regular customer when its officer contacted the customer to give services.
What is the difference between having a formalized plan and standard operating procedures with regard to the element of corporate opportunity doctrine that requires that the corporation have an interest expectancy in the opportunity?
- formalized plan: detailed plan developed by the CEO and approved by the board
– standard operating procedures: informal or formal thing that everyone that works for the corporation knows is how the corporation always does things
If whenever a corporation finds a supplier that is good, it always buys a 20% ownership stake in the supplier to ensure continued access, and over 15 years, the corporation has done this six times, that would be an example of what?
The corporation standard operating procedures which would mean that anyone that interferes with this would be breaching the corporate opportunity doctrine.
