Corporations & LLCs

Question 1

Limitation on Director’s Liability

Answer 1

the article of incorporation can eliminate or limit directors’ personal liability for money damages to the shareholders or corp for actions taken, or failure to take action. However, no provision can limit or eliminate liability for: (1) the amount of a financial benefit received by a director to which he was not entitled, (2) an intentionally inflicted harm on the corp or its shareholders, (3) unlawful corp distributions, or (4) intentional violation of criminal law.

Question 2

Duty of Care/Business judgment rule

Answer 2

directors have duty to manage the corp to the best of their abilities; they are not insurers of corp success. The business judgment rule is a presumption that a director’s decision may not be challenged if the director acted:

(1) in good faith,
(2) w/ the care that an ordinarily prudent person would exercise in a like position, and
(3) in a manner the director reasonably believed to be in the best interest of the corp

Question 3

Standards for upholding conflicting interest transaction (in violation of duty of loyalty)

Answer 3

a conflicting interest transaction will not be enjoined or give rise to an award of damages due to the directors’ interest in the transaction if:

(1) majority of directors (w/o a conflicting interest) approved the transaction after all material facts had been disclosed or
(2) transaction approved by majority of votes entitled to be case by shareholders w/o conflicting interest after all material facts disclosed or
(3) the transaction was fair to the corp.

Question 4

Shareholders’ right to inspect

Answer 4

Under MBCA, shareholders have right to inspect corps books, papers, accounting records, shareholder records, etc.
to exercise this right, shareholder must give 5 days written notice of his request, stating a proper purpose
unqualified right: shareholder may inspect the following regardless of purpose: articles and bylaws, board resolutions regarding share classifications, minutes of shareholder meetings from past 3 years, communications sent by corp to shareholders, list of names and addresses of directors and officers, and copy of most recent annual report

Question 5

Dismissal of derivative suit

Answer 5

if majority of directors who don’t have a personal interest in the controversy found in good faith after a reasonable inquiry that the suit is not in the corps best interests, the suit may be dismissed