Rules

Question 1

What is required for the safe harbor for self-dealing?

Answer 1

1. Majority vote of the informed and disinterested directors
2. Majority vote of the informed and disinterested shareholders

OR

3. Entire fairness (fair price and fair process)

Question 2

How can you tell if an LLC is member-managed or manager-managed?

Answer 2

The default arrangement is member-managed, unless the operating agreement or certificate of organization provide otherwise.

Question 3

What is the effect of a withdrawal of an LLC member?

Answer 3

Dissociation does not cause dissolution.

Does not discharge his interest. He is entitled to receive distributions.

Question 4

How does an LLC dissolve?

Answer 4

1. Consent of all members
2. Passage of 90 days without members
3. Court order

Or

4. Dissolution-causing event in the operating agreement.

Question 5

Can a shareholder-approved bylaw amend or repeal existing bylaw provisions?

Answer 5

Yes, regardless of whether the bylaw was initially approved by the shareholders or the board of directors.

Question 6

When can a shareholder bring a direct action?

Answer 6

When he is asserting his own rights as a shareholder.

Not required to make a demand to the board.

Question 7

What is a derivative action?

Answer 7

Shareholder brings suit on behalf of the corporation, typically for a breach of fiduciary duty.

Question 8

What are the requirements for a derivative action?

Answer 8

1. Standing and
2. Written demand on the board (unless futile)

Question 9

When does a shareholder have standing?

Answer 9

Shareholder was a shareholder

1. at the time of the wrong
2. At the time of the action and
3. Continues to be a shareholder throughout the litigation.

Question 10

What is a board of director’s role?

Answer 10

To manage and direct the corporation’s business and affairs

Question 11

What is required for a board’s act at a meeting to be valid?

Answer 11

A quorum of directors must be present at the meeting

And

The measure was passed by a vote of a majority of the present directors.

Quorum = majority of the directors

Question 12

What is a self-dealing transaction?

Answer 12

Transaction between the director and corporation

1, that would normally require the approval of the board

And 2. Is of such financial and material significance to the director that it would reasonably be expected to influence that director’s vote on the transaction

Question 13

When does a shareholder have the right to copy and inspect corporate records?

Answer 13

1. During normal business hours
2. Upon 5 days written notice

And

3. Stating a proper purpose

Question 14

What is a proper purpose to inspect corporate records?

Answer 14

One that relates to a shareholder’s interest in the corporation.

Shareholder has burden to show (1) credible evidence of improper conduct and (2) that the document sought is essential

Question 15

When can a board dismiss a derivative claim?

Answer 15

1. A majority of the board’s disinterested directors
2. determine in good faith
3. After reasonable inquiry
4. That maintaining the action is not in the corporation’s best interest

Question 16

What are the fiduciary duties a director owes to a corporation?

Answer 16

1. Duty of care and
2. Duty of loyalty

Question 17

What is the duty of good faith?

Answer 17

Directors are required to act in good faith in discharging their fiduciary duties

Question 18

Can a lack of food faith overcome the BJR?

Answer 18

Yes

Question 19

When does a corporation come into existence?

Answer 19

When the articles of incorporation are filed, unless a later date is specified in the articles.

Question 20

When are members of a not-yet-formed corporation personally liable for contracts entered into between the corporation and a third party?

Answer 20

Under the MBCA, when a person has knowledge that the Corp has not been formed and participates anyway.

Question 21

Does the “de facto corporation doctrine” apply in an MBCA jurisdiction?

Answer 21

No

Question 22

How can someone escape personal liability for a corporation’s contracts when the Corp was defective?

Answer 22

1. De facto corporation
2. Corporation by estoppel

Question 23

What is a de facto corporation?

Answer 23

The owner must

1. Make a good-faith effort to comply with incorporation requirements and
2. Operate the corporation without knowing the requirements were not met

Question 24

What is corporation by estoppel?

Answer 24

A person dealing with an entity in a contract as if it were a corporation is estoppel from denying its existence and seeking personal liability