Corporations

Question 1

Duty of Care- Business Judgment Rule

Answer 1

There is a presumption that in making a business decision, the directors acted as a reasonably prudent person would, in good faith, and in the honest belief that the actions they were taking was in the best interest of the company

Question 2

Duty of Loyalty

Answer 2

A duty of loyalty issue arises if a director is on both sides of a transaction, competes with his corporation, or usurps a corporate opportunity

Question 3

Duty of Loyalty Safe Harbors

Answer 3

The MBCA includes three safe harbor that may protect a director who breaches his duty of loyalty. 1. Approval by disinterested directors, approval by disinterested shareholders, or the transaction is judged to be fair at the time it was entered into

Question 4

Voting

Answer 4

In order for a resolution to pass there needs to be a quorum present, and a majority of the votes cast must be in the favor of the resolution. Only outstanding shares may be voted.

Question 5

Who Votes?

Answer 5

The record owner on the record date determines who is entitled to vote.

Question 6

Voting by Proxy

Answer 6

A shareholder can vote by proxy by signing an appointment form or making an electronic transmission.

Question 7

Direct Suit

Answer 7

A direct suit is appropriate when the wrong done amounts to a. breach of duty owed to an individual shareholder personally

Question 8

Derivative Suit

Answer 8

A derivative suit is appropriate when the injury is caused to the corporation and the shareholder is trying to enforce the corporation’s rights. In some states, before bringing such an action, the shareholder must first make a demand to the board of directors to act on the corporations behalf.

Question 9

Piercing the Corporate Veil

Answer 9

Generally, shareholders are not personally liable for acts that arise from the corporation’s actions. In some instances though, courts will hold a shareholder personally liable and pierce the corporate veil.

Question 10

Shareholders Right to Inspect Books

Answer 10

A shareholder has a right to inspect corporate books and records as long as the demand is made in good faith for a proper purpose

Question 11

Exculpatory Clause

Answer 11

The articles of incorporation may limit or eliminate director’s personal liability for money damages for actions taken, except to the extent the director received a benefit to which he was not entitled, intentionally inflicted harm, approved unlawful distributions, or intentionally committed a crime.

Question 12

Conflicting Bylaws and Articles of Incorporation

Answer 12

When the articles and bylaws conflict, the articles control.

Question 13

Proxy Revocation

Answer 13

Proxies are generally revocable unless they say they are irrevocable and are coupled with an interest. Revocation may occur by a subsequent instrument or by the shareholder showing up in person to vote.

Question 14

Promoter

Answer 14

A promoter is a person who procures commitments for capital on behalf of a corporation that has yet to be formed. As a general rule, promoters are personally liable on all such contracts, even after the corporation is formed, unless a provision explicitly says they won’t be liable.

Question 15

Corporation Liability - Promoter

Answer 15

A corporation is generally not liable for contracts entered into by a promoter, unless they adopt the contract.

Question 16

Quorum

Answer 16

If the articles and bylaws are silent, a quorum requires the presence of the majority of the outstanding shares entitled to vote.

Question 17

Controlling Shareholder

Answer 17

While generally shareholders are free to act on their own behalf, a controlling shareholder must refrain from using his control to obtain a special advantage or prejudice the minority shareholders.