VA Business Orgs

Question 1

What is a promoter’s fiduciary duty to a corporation in Virginia?

Answer 1

A promoter stands in a fiduciary relationship with the corporation and its investors and can be liable for failing to disclose a commission on a pre-incorporation transaction

Question 2

When is a promoter personally liable for pre-incorporation transactions?

Answer 2

A promoter is personally liable for pre-incorporation transactions unless a subsequent novation releases the promoter from liability. An express adoption of the contract by the corporation or use of the benefits from the contract is not sufficient to relieve the promoter of liability.

Question 3

What must be included in the Articles of Incorporation in Virginia?

Answer 3

The Articles of Incorporation must include the corporation’s name, the location of its principal office in Virginia, and the number of shares the corporation is authorized to issue

Question 4

What are the corporate powers that can be enumerated in the Articles of Incorporation

Answer 4

The Articles of Incorporation can enumerate powers such as suing or being sued, making and amending bylaws, purchasing and transferring property, contracting, lending money, electing and appointing officers, establishing pension plans, insuring, and paying compensation

Question 5

What is a statutory agent in Virginia?

Answer 5

A statutory agent is a resident of Virginia who is either a director or officer of the corporation, a member of the Virginia State Bar, or a foreign or domestic corporation, LLC, or registered LLP that is not the corporation itself. The agent must specify a natural person for service of process

Question 6

What is required for a corporation to amend its Articles of Incorporation if it has issued stock?

Answer 6

The corporation must follow a three-step process: the board of directors adopts the amendment, the board submits the amendment to the shareholders for approval, and the shareholders approve the amendment by more than two-thirds of all votes entitled to be cast

Question 7

What is a de jure corporation?

Answer 7

A de jure corporation is created when all statutory requirements for incorporation have been satisfied, making the corporation itself liable for its activities and contracts, not the associated persons

Question 8

Does Virginia recognize de facto corporations?

Answer 8

No, Virginia does not recognize de facto corporations. A business entity is either a de jure corporation or not a corporation at all

Question 9

What is a professional corporation in Virginia?

Answer 9

A professional corporation is limited to rendering a professional service, and its shareholders must be members of the applicable profession. It does not shield an employee from liability for their own malpractice but may protect against vicarious liability for others’ malpractice

Question 10

What is the doctrine of corporation by estoppel in Virginia?

Answer 10

It prevents a business entity that holds itself out as a corporation from avoiding liability by claiming it is not a corporation. Similarly, a person dealing with the entity as a corporation cannot deny its existence to seek personal liability of the business owner

Question 11

What is required for a corporation to hold an organizational meeting in Virginia?

Answer 11

After filing the Articles of Incorporation, an organizational meeting is held to appoint officers, adopt bylaws, and approve contracts. If incorporators hold the meeting, they also elect the board of directors.

Question 12

What are the two broad types of securities a corporation can issue in Virginia?

Answer 12

Equity securities (e.g., shares of stock) which carry ownership and control interests, and debt securities (e.g., bonds), which do not have ownership interests but convey rights to creditors.

Question 13

What are common shares in a Virginia corporation?

Answer 13

Common shares are the default type of stock issued by a corporation if no specific conditions are set forth in the Articles of Incorporation

Question 14

What are preferred shares in a Virginia corporation?

Answer 14

Preferred shares can have special conditions such as special voting rights, redemption or conversion options, and distribution preferences, as allowed by the Articles of Incorporation

Question 15

What is the liability of a corporation for pre-incorporation transactions in Virginia?

Answer 15

Generally, a corporation is not liable for pre-incorporation transactions entered into by a promoter. However, it can be liable if it adopts the contract by accepting its benefits or giving express or implied acceptance.

Question 16

What is the process for a corporation to issue shares in Virginia?

Answer 16

The issuance must be authorized by the board of directors unless the Articles of Incorporation reserve this power to the shareholders. Issued shares are considered outstanding until reacquired, redeemed, converted, or canceled.

Question 17

What is a fractional share and its rights in Virginia

Answer 17

A fractional share represents a portion of a full share and carries all the rights of a full shareholder. A scrip representing a fractional share does not confer shareholder rights unless specified

Question 18

What is the role of bylaws in a Virginia corporation?

Answer 18

Bylaws are internal rules guiding the corporation’s management and policies. They must be consistent with the Articles of Incorporation, and in case of conflict, the Articles control

Question 19

How can bylaws be amended in a Virginia corporation?

Answer 19

The board of directors or shareholders can amend or repeal bylaws unless the Articles reserve this power exclusively to the shareholders or restrict the board from amending certain bylaws

Question 20

partnership

Answer 20

A partnership is an association of two or more persons to carry on a for-profit business as co-owners. The only requirement is an agreement to conduct a for-profit business as co-owners, which may be implied from their conduct. A partner is jointly and severally liable for all partnership obligations.

Question 21

Piercing the Corporate Veil

Answer 21

Under the piercing-the-corporate-veil doctrine, which is usually warranted only under extraordinary circumstances, a corporation’s existence will be ignored, and the shareholders of the corporation, in addition to the corporation itself, will be held personally liable. This doctrine is typically applied when the shareholders have controlled or used the corporation to avoid a personal obligation, to commit fraud, crime, or injustice, or to gain an unfair advantage. Piercing the corporate veil is justified when the unity of interest and ownership is such that it is hard to differentiate the separate identities of the corporation and the individual, and to adhere to that separateness would work an injustice.

Question 22

Director Duties - Business Judgement Rule

Answer 22

A director owes a duty of care to the corporation. A director is not liable for a breach of this duty if the director’s conduct was undertaken in good faith, which is a subjective standard. In addition, Virginia’s statutory business judgment rule protects a director’s decision if the decision was made with good faith business judgment of the best interests of the corporation. To overcome this protection, the party challenging the director’s conduct bears the burden of persuasion, which generally requires a showing that the director engaged in self-dealing or fraud or acted in bad faith.

Question 23

Director Duty of Loyalty

Answer 23

A director owes a duty of loyalty to the corporation. In Virginia, subject to the business judgment rule, a director may not directly or indirectly take a personal advantage from a transaction with the corporation unless the transaction is, “open, fair, and honest,” and competent counsel represents the corporation.
A director can breach this duty by usurping a corporate opportunity unless the director first makes the corporation aware of it. A corporate opportunity is a proposed activity that is reasonably incident to the corporation’s present or prospective business and in which the corporation has a capacity to engage

Question 24

Shareholder Rights

Answer 24

In Virginia, certain shareholders have the right to inspect and copy corporate documents, so long as the shareholder sends a signed written request at least 10 business days in advance and has a proper purpose for doing so. A proper purpose is defined as one that relates to the shareholder’s interest in the company. The shareholder may only inspect and copy the records at the corporation’s main office during business hours. In addition, for some corporate records (e.g., minutes of the board of directors’ meetings, corporate accounting records, and the list of shareholders of record), the shareholder must have been a shareholder for at least six months or must be the record owner or beneficial owner of at least five percent of the outstanding shares.

Question 25

Duty of Loyalty

Answer 25

Officers of a corporation have a fiduciary duty of loyalty, which requires that they not engage
in outside business activities to the detriment of the corporation. The fiduciary duty of loyalty
is owed to the corporation itself and not to individual shareholders. In Virginia, there is no
exception to this rule for small, closely held corporations.

Question 26

Duty of Care/Business Judgement Rule

Answer 26

In suits alleging a director or officer violated their duty of care to the company, courts will apply
the business judgment rule. Under this standard, a court will uphold the decisions of a director
as long as they are made (1) in good faith, (2) with the care that a reasonably prudent person
would use, and (3) with the reasonable belief that the director is acting in the best interests of
the corporation. To rebut the business judgment rule, a shareholder-plaintiff has the burden of
proving that directors, in reaching the challenged decision, breached a fiduciary duty.

Question 27

Indemnification

Answer 27

When an employer is found liable for his employee’s torts under the doctrine of respondeat
superior, the employer will have a claim for indemnification against the employee.