Quiz

Question 1

Directors are ___________ of the corporation. If a director breaches the duty __ ____, he may be ___________ _______ to the corporation for any losses that result.

Answer 1

fiduciaries
of care
personally liable

Question 2

Directors owe a duty of care to the corporation to discharge their duties:
1) in _____ _______;
2) with the reasonable belief that they are acting in the ____ ____________ of the corporation;
AND
3) with the care that a person in a ____ _________ would reasonably believe appropriate under like circumstances.

Answer 2

good faith
best interests
like position

Question 3

In making decisions, Directors must be reasonably __________.

They may rely on the reasonable advice of _____________ if 1) the reliance was reasonable and 2) the advisor or committee was ____________

Answer 3

informed
advisors
qualified

Question 4

A shareholder may bring a direct action when there is a breach of a duty owed to a shareholder of a corporation. The injury cannot be solely the result of an injury suffered by the corporation. Damages in a direct action are awarded to the shareholder

Question 5

In an LLC, a member may bring a direct action against a member, manager, or the LLC on showing that the injury is not solely the result of an injury to the LLC

Question 6

A ___________ action occurs when a shareholder sues to enforce the corporation’s claim.

Answer 6

derivative

Question 7

Under the Revised _______ Business Code Act, in order to bring a derivative action, the shareholder must:
1) own stock at the time the claim ______ (or became a shareholder by __________ __ ___ from a shareholder who owned stock at the time the claim arose);
2) continue to be a shareholder through entry of judgment;
3) ______ and adequately represent the corporation’s interests; and
4) make a __________ demand to the corporation to take suitable action.

Answer 7

Model
arose
operation of law
fairly
written

Question 8

A derivative suit cannot be commenced until __ days after the ________, unless the corporation either a) _______ the demand, or b) will suffer ____________ harm if forced to _____.

Answer 8

90
demand
rejects
irreperable
wait

Question 9

For an LLC, the elements of bringing a derivative action are the same except:
1) the action may be commenced within a ___________ time after the demand; and
2) the demand requirement may be waived if ______.

Answer 9

reasonable
futile

Question 10

In derivative actions, the damages are paid to the corporation or LLC, but the shareholder/member recovers reasonable costs of ___________.

Answer 10

litigation

Question 11

A derivative action must be dismissed on a motion by the corporation if:
1) a majority of the Board of Director’s __________ directions have,
2) determined in _____ _______,
3) after conducting a reasonable _______; that
4) the action is not in the best interests of the corporation.

Answer 11

qualified
good faith
inquiry

Question 12

Shareholders are generally not personally liable for corporation liabilities and
obligations.

Question 13

Courts may disregard the corporate form and hold an individual shareholder (or director/officer) personally liable for actions taken on behalf of the corporation when:
a) the corporation is acting as the alter ego of the shareholder;
b) there is a failure to follow corporate formalities;
c) the corporation is inadequately capitalized at its inception; OR
d) to prevent _______.

Answer 13

fraud

Question 14

Courts generally apply the same factors to pierce the veil of an LLC to hold members or _________ liable.

But failure to follow ____________ is NOT a ground to pierce the LLC veil.

Answer 14

managers
formalities

Question 15

Shareholders and LLC members are _______ liable for their own torts.

Answer 15

always

Question 16

Directors must act in the ____ ___________ of the corporation and without ___________ conflict.

Answer 16

best interests
personal

Question 17

The Duty of Loyalty prevents a director from:
1) entering into conflicting _________ transactions;
2) __________ a corporate opportunity;
3) __________ with the corporation; or
4) _______ on inside information.

Answer 17

interest
usurping
competing
trading

Question 18

Any conflicting interest transaction is a breach of the duty of loyalty unless:
1) approved by a majority of disinterested directors after full disclosure of all relevant material facts;
2) approved by a majority of disinterested shareholders; OR
3) the transaction as a whole was fair to the corporation at the time it was entered into,
including a price comparable to an arm’s length transaction and fair negotiations).

Question 19

The Business Judgment Rule does NOT protect directors who are financially interested in a transaction or who are engaged in fraud.

Question 20

A conflict occurs when a director/officer or family member:
1) is a party to the transaction;
2) has a beneficial interest in the transaction or is so closely linked to it that that director’s judgment may reasonably be affected; or
3) is involved with another entity that is conducting business with the corporation and that transaction would normally be brought before the Board of Directors.

Question 21

Only registered shareholders on the _______ ____ are entitled to vote at the shareholders meeting, even if a shareholder sells the shares between the record date and the meeting, unless a proxy is given to the buyer. The record date cannot be more than __ days prior to the shareholder meeting.

Answer 21

record date
70

Question 22

A ______ grants the holder the ability to vote shares as he or she deems appropriate if the proxy is signed on either:
1) an ____________ form, or
b) electronic _____________.

Proxy grants are valid for no more than __ months.

Answer 22

proxy
appointment
transmission
11

Question 23

Proxy agreements are freely revocable by the shareholder unless 1) it states that it is ____________, AND 2) it is coupled with an _______ or a _____ right.

Answer 23

irrevocable
interest
legal

Question 24

A promoter is ___________ liable when he purports to act as or on behalf of a corporation, AND knows that __ corporation was formed.

Answer 24

personally
no

Question 25

A promoter is not liable if a) there is __________ of the contract, or b) the contract explicitly ________ that the promoter has no personal liability.

Answer 25

novation
provides

Question 26

A corporation is not liable on a contract made by a promoter unless the corporation expressly or impliedly ______ the contract _____ incorporation.

Answer 26

adopts
after

Question 27

A corporation can expressly adopt a pre-formation contract by Board of Director action
or reference in the corporation’s formation documents. It can be deemed to impliedly
adopt a pre-formation contract where the corporation 1) knows or has reason to know
the material terms of the contracts; AND 2) accepts some benefit of the contract.

Question 28

After formation, promoters remain personally liable on a pre-formation contract even after the corporation expressly or impliedly _______ the contract.

Answer 28

adopts

Question 29

Officers have actual authority to act consistently with their duties as outlined in the _______, OR as provided by the Board of Directors.

Answer 29

bylaws

Question 30

Officers may also bind the corporation when:
1) a third party reasonably believes the person/entity has __________; AND
2) the belief is the result of the corporation’s actions that _____ ___ the officer as having authority.

Answer 30

authority
hold out

Question 31

Members of Member-Managed LLCs owe the duty of care and duty of loyalty to both the company and ______ __________.

Answer 31

other members

Question 32

A Member’s duty of care requires he or she act:
1) with the care that a person in a ____ __________ would reasonably exercise under the circumstances; and
2) with a ____________ _______ to be acting in the best interest of the company.

Answer 32

like position
reasonable belief

Question 33

A Member’s duty of loyalty requires that he or she:
1) account for any ________, profit, or benefit derived from the LLC’s business/property;
2) refrain from having an ________ interest when dealing with the LLC (unless the transaction is fair); and
3) refrain from competing with the LLC before dissolution.

Member may authorize an act or transaction that is otherwise a breach of these duties after full ___________

Answer 33

adverse
property
disclosure

Question 34

In __________-Managed LLCs, the managers owe fiduciary duties but the members do not.

Answer 34

Manager

Question 35

Under the ______, the LLC Operating Agreement may, so long as it is not __________ unreasonable,
1) restrict or eliminate the duty of loyalty;
2) set forth activities that do not violate the duty of loyalty;
3) ______ the duty of care (but it cannot authorize intentional misconduct or a knowing violation of law);
4) alter or eliminate any other fiduciary duty; and
5) set forth standards to _________ the duty of good faith and fair dealing.

Answer 35

RULLCA
manifestly
alter
measure