BA III

Question 1

Statutory Dissolution

Answer 1

A court order directing the corp to sell off all of its assets, distribute the cash to the shareholders, and then stop doing business.

Question 2

Alaska Plastics, Inc. v Case

Answer 2

Majority Rule for Statutory Dissolution - need to show oppression or fraud for involuntary dissolution.

Failure to give notice of SH meetings can be fraud.

Question 3

Minority Rule for Statutory Dissolution - Meiselman v. Meiselman

Answer 3

Minority rule - NC rule - does not need to show fraud or oppression, only need to show that dissolution is reasonably necessary for the protection of the rights and interests of the complaining shareholder.

Rights and interests include reasonable expectations (which could include participation in or employment with the company) that are embodied in understandings, express or implied, among participants.

Question 4

Haley v Talcott

Answer 4

For statutory dissolution, even if the Co. is an LLC and Corp law doesn’t apply, courts may look to Corp law for guidance.

Question 5

Stuparich v. Harbor Furniture Mfg., Inc.

Answer 5

CA Code 1800 - If a shareholder owns at least 1/3rd of the assets being frozen out then that SH can force dissolution if:

1. Dissolution necessary for protecting SH’s interests but only if 35 or less SH’s are in Corp.
2. Majority has acting persistently unfairly.

Question 6

Internal Affairs Doctrine

Answer 6

The law of the State of incorporation will govern matters between a corporation and its owners and directors.

Question 7

de facto Merger

Answer 7

a corporate transaction so fundamentally changes the nature of the business that there is a de facto merger. Statutory appraisal rights would be triggered under a de facto merger.

Question 8

Ways a Corp can be required to buy out a shareholder’s shares at Fair Market Value

Answer 8

1. Articles of Incorporation, By-Laws or Buy/Sell Agreement.
2. Involuntary Dissolution
3. Significant change is corporate structure, such as merger, de facto merger, consolidation, etc.
4. Breach of fiduciary duty btw. directors and SH’s and the Corp or other SH’s.

Question 9

Premium Price

Answer 9

The premium is the added amount an investor is willing to pay for the privilege of directly influencing the corporation’s affairs (control premium).

A controlling stockholder is free to sell, and a purchaser is free to buy, a controlling interest at a premium price without extending a tender offer to all shareholders. (Zetlin v Hanson Holding) (Absent bad faith such as looting of corp assets or conversion of a corporate opportunity).

Question 10

Ways a Corp can be req’d to buy out a shareholder’s shares at Fair Market Value

Answer 10

1. Buy/Sell agreement or provision in the the Articles of Incorporation or By-Laws
2. SH may petition for involuntary dissolution of the corp
3. Significant change in corp’s structure that would trigger appraisal rights
4. as an equitable remedy for a breach of fiduciary duties btw. directors and shareholders

Question 11

Resignation from or Dissolution of an LLC

Answer 11

Court can decree dissolution of LLC whenever it is not reasonably practicable to carry on business in conformity w/ the LLC agreement.

Any resigning member is entitled to receive:

1. that which he is entitled to under the LLC agreement
2. if not provided for in the agreement, then his fair value of his LLC interest.

Prereq’s for judicial dissolution:

1. 2 50% stockholders
2. Engaged in joint venture (no passive investor)
3. Deadlock

NOTE: when not equitable, a Member will not be forced to use the exit mechanism outlined in the LLC agreement

Question 12

Right of First Refusal

Answer 12

Frandsen Rule
An agreement that gives a SH the right of first refusal does not convey the right to control the sale of assets or the liquidation of the company.

A merger does not trigger the right of first refusal.

Question 13

Transfer of Control

Answer 13

New York (Essex Rule) - sale of a controlling interest in a corp may include immediate transfer of control. (Can’t have naked sale)

Delaware Rule: any director or BOD may be removed with or w/out cause by the majority then entitled to vote on directors. However, unless specified otherwise in the AOI, in the case of a Board that is classified (staggering terms/elections), removal must be for cause.

Question 14

Tooley Derivative Test

Answer 14

NY - Modern Test

1. Who suffered the alleged harm, the Corp or the suing SH individually?
2. Who would receive the benefit of any recovery or other remedy? The corp or the SH individually?

Question 15

Derivative Claims - Bonds

Answer 15

A statute requiring a bond by the plaintiff in a derivative claim was upheld. Policy reason: to discourage frivolous lawsuits. Downside, prevents the “little person” from suing. (Cohen)

Eisenberg - a cause of action that is determined to be direct rather than derivative cannot be dismissed for failure to post bond.

Question 16

General Demand Rule

Answer 16

Most states require that you go to the BOD and make a demand before you file a derivative suit. If you don’t, you will be procedurally estopped from brining your claim.

Grimes - if Plaintiff makes a demand on the corp, he is conceding that the demand is required and cannot later argue that the demand is excused.

Question 17

Special Committees (New York)

Answer 17

court will give deference to the special litigation committee unless the committee is not independent, doesn’t use a good faith basis, or doesn’t investigate sufficiently.

Question 18

Special Committees (Delaware)

Answer 18

1. Court must ask if the committee acted:
   -independently
   -in good faith
   -with reasonable investigation
   Burden of proof is on the corp.
2. Court must make an independent inquiry asa to whether the suit should be dismissed.

Question 19

Ford Motor Case

Answer 19

Purpose of Corp:

1. to make profit for SH’s
2. BJR decisions will not be questioned (expansion, price point, etc.)
3. Corp must pay dividends if they are available

Question 20

Corp Giving

Answer 20

Must be a corporate benefit, even if tenuous
Amount must be reasonable
Needs to be some business purpose. The stronger the purpose the better.
Main 2 reasons for corp giving:
1. Good for society and indirectly helping itself
2. Good for Marketing

NJ Gift giving statute: gift should be less than 1% of capital and surplus and directed to an institution owning no more than 10% of company stock.

Question 21

Appraisal Rights

Answer 21

To determine if there are appraisal rights:

1. do you have a vote (if not vote, no appraisal rights.)
2. what is structure of the transaction?
3. under State law, are there any exceptions?

Question 22

Statutory Merger

Answer 22

1. Terms of the merger are spelled out in the Merger agreement
   - Drafted by the parties
   - Describes the treatment of the SH of each Corp
2. Vote by BOD and Shareholders Required
3. SH of each corp who voted against the merger would be entitled to demand they be paid in cash for the value of their shares (Appraisal Rights) determined by agreement or a judicial proceeding.

Question 23

Practical Merger

Answer 23

Shares Acquisition - Sale by the SH’s of the company being acquired for cash or shares of the acquirer. Once the acquirer gains sufficient control (90% typically), it uses a Short Form Merger to merge the co’s. No voting req’d and no Appraisal rights.
OR
Assets Acquisition

Question 24

De Facto Merger

Answer 24

A purchase of assets or some similar transaction where two corps come together to form one company, but without specifically following the state law req’s for a statutory merger.

Question 25

De Facto Non Merger

Answer 25

.

Question 26

Cheff Rule

Answer 26

Generally, directors can purchase corp shares with corp money if they have a proper business purpose for doing so. However, they cannot do so to perpetuate their positions in office. May have a conflict of interest.
If the actions of the BOD were motivated by a sincere belief that the buying out of the dissident SH was necessary to maintain what the board believed to be a proper business practice, then the board will not be held liable for that decision.
1. For inside directors, the conflict is direct. therefore, they have the burden to justify that the purchase was in the Corp interest.
2. Outside directors the conflict is less and they are only called upon to justify their action were in good faith and with reasonable investigation.

Question 27

Williams Act

Answer 27

Regulates tender offers and makes them more difficult.

1. single or group acquires 5% or more of a Corp must register with SEC.
2. Anyone making a tender offer must file an expansive and elaborate set of disclosure docs w/ the SEC
3. Any acquirer who raises her price during the term of a tender offer must raise the price for those already tendered.
4. Any acquirer must hold the tender offer open for 20 business days and anyone who tenders may withdraw tendered stock during the first 15 days.