Tested topics

Question 1

Virginia Non-Stock Corporations Act

Answer 1

Any action by Board of Directors must be approved by a majority of the Directors in a vote taken when a quorum is present

Question 2

Conflicts of Interest

Answer 2

Transactions w the corporation where a director has an interest that precludes him from being a disinterested director

Question 3

Permissible conflicts

Answer 3

1) conflict is approved by disinterested directors or members after disclosure of material facts; or

2) it is fair to the corp

Question 4

Business Judgment Rule

Answer 4

For BJR protection, decision must be on behalf of the corp

if not, BJR is inapplicable

Question 5

In Va, BJR is a ___ standard

Answer 5

good faith standard–good faith belief that decisions were in best interest of the corp

Question 6

Not good faith

Answer 6

Misappropriating corp’s funds, assets, etc not good faith belief they are in best interest of corp

Question 7

BJR protection from liability only applies to conduct undertaken

Answer 7

1) as a director and

2) on behalf of corp

Question 8

To overcome good faith presumption, the party alleging that the director failed to adhere to this standard has the burden to

Answer 8

show director engaged in self-dealing, fraud or acted in bad faith

Question 9

Duty of Care

Answer 9

Directors/officers duty to make decisions that pursue the corp;s interests w reasonable diligence and prudence

…Not engage in grossly negligent conduct on behalf of the corp

Question 10

Duty of Loyalty

Answer 10

Includes, among other things, duty not engage in self-interested transactions, duty not to misappropriate, or usurp corp opportunity

Question 11

When determining whether opportunity belonged to the corporation and thus must be offered to the corporation before director takes for herself, ct will consider

Answer 11

The similarity of the opportunity to the business of the corp and how the director learned of the opportunity

Question 12

Capping Liability of Directors

Answer 12

VA code allows corps to cap liability of officers and directors in articles of incorporation

Question 13

Caps do not apply to

Answer 13

willful misconduct…ex misappropriation of assets

Question 14

Director’s fiduciary duties of care and loyalty are owed to

Answer 14

the corp , not shareholders

VA does not recognize an exception for closely held corps

Question 15

Claims for breach should be brought by the

Answer 15

corporation or as a derivative action on behalf of the corp…NOT SH’s INDIVIDUALLY

Question 16

Who fills vacancies on Board of directors of corp

Answer 16

the board of directors

Question 17

For the board of directors to take an action at a meeting, there must be

Answer 17

quorum of the directors.

Question 18

How many directors must approve of act if there is a quorum?

Answer 18

majority of directors

Question 19

The sale of substantially all assets outside the regular course of business is a ___ and must be approved by ____

Answer 19

fundamental corporate change and must be approved by members of the non stock corp

Question 20

Director Liability Cap

Answer 20

In VA, in any proceeding brought by or in the right of a corp or brought by or on behalf of shareholders, there is a statutory cap on director liability that limits a director’s liability for money damages to greater of $100,000

Question 21

Can corp reduce or eliminate director liability?

Answer 21

yes, corp, in its articles, can reduce/eliminate cap but cannot increase it

Question 22

Neither cap is aplicable w respect to

Answer 22

willful misconduct or knowing violation of criminal law

Question 23

A corporation’s name must contain the word

Answer 23

“corporation,” “company,” “incorporated,” “limited,” or an abbreviation thereof.

LLC is not included in this

Question 24

Direct/Derivative Action

Answer 24

a SH may brign a direct or derivative action against the corp in which the SH owns stock

Question 25

To perfect right to Sue in SH derivative suit, P must have

Answer 25

1) standing and

2) make demand

Question 26

Standing

Answer 26

SH must have owned stock at time of alleged wrongdoing and he or she must fairly and adequately represent the interests of the corp

Question 27

Filing Demand

Answer 27

SH must make written demand on the corp prior to bringing the suit

Question 28

After making demand, SH must wait until

Answer 28

demand is rejected or until 90 days pass, unless he or she can show irreparable injury to the corp

Question 29

SH may only file the suit if

Answer 29

he or she alleges that the demand was not properly rejected by a disinterested decision maker

Question 30

Direct Action includes

Answer 30

actions to enforce SH rights, such as an action to enforce the SH’s right to examine the books and records of the corp

Question 31

Derivative action

Answer 31

SH sues on behalf of corp for harm suffered by corp

Question 32

In a derivative action, recovery generally goes to

Answer 32

corp

Question 33

Close Corporation

Answer 33

Type of corp w only a few SHs and more relaxed style of governance where SHs often serve as both directors and officers of the corp

Question 34

Does close corp have liability protections for investors?

Answer 34

Yes

Question 35

Investors in a corp are typically only liable to the extent of

Answer 35

their investment and are not subject to unlimited liability

Question 36

Piercing Corp Veil

Answer 36

Generally, SHs are not personally liable for debts of the corp

Where, however, SHs have controlled or used the corp to evade a personal obligation or perpetrate fraud or crime, to commit an injustice or to gain an unfair advantage, ct may pierce corp veil and hold SHs liable for the debts of the corp

Question 37

Piercing corp veil is justified when

Answer 37

the unity of interest is such that the seperate personalities of the corp and the individual no longer exist and to adhere to that seperatenes would work an injustice

Question 38

Inspecting Minutes

Answer 38

a member may inspect minutes of BD’s meetings and obtain a list of the members, so long as member acts w a proper purpose and gives the requisite notice

Question 39

Upon Dissolution of a closely held corp

Answer 39

the board of directors is required to pay creditors’ claims before distributing assets to the SHs

Question 40

Removing Director

Answer 40

members of a nonstock corp may remove a director with or without cause at a meeting specially called for that purpose