Corporations

Question 1

When can a corporation issue dividends

Answer 1

When the company is not insolvent, it will not become insolvent as a result of the dividend and the board approves them.

Question 2

What is required for a board action to be valid?

Answer 2

They must have a quorum, which is a majority unless the bylaws say differently.

Question 3

How many board members must vote for something to pass?

Answer 3

A majority of those present, it must be a quorum.

Question 4

What is the right to inspect?

Answer 4

A shareholder has the right to inspect the major documents, nut they must have a proper purpose. Must give written notice and at least five days ahead.

Question 5

What is a proper purpose for a shareholder?

Answer 5

A purpose related to the shareholder’s interest in the corporation

Question 6

What is required to compel a dividend ?

Answer 6

Avalible funds and Bad faith by the BOD

Question 7

How does shareholder direct action work?

Answer 7

A shareholder may sue the board or an officer for breach of fiduciary duty. They get the recovery.

Question 8

What is a derivative suit?

Answer 8

The shareholder sues a third party on behalf of the corporation.

Question 9

What are the requirements for a derivative lawsuit?

Answer 9

1. Shareholder must have been a shareholder when the injury occurred
2. Must give notice to the boar unless it would be futile (90 days)

Question 10

What is the Business Judgement Rule?

Answer 10

Provides directors imunity where they were acting in good faith.

Question 11

What is a De Jure Corporation?

Answer 11

When everything is properly executed you have a De Jure Corporation

Question 12

What is a De Facto Corporation?

Answer 12

When the parties attempt to exicute a corporation but fail for some reason, they may form a De Facto Corporation if they were acting in good faith and were unaware of the failure

Question 13

What is Corporation by Estoppel?

Answer 13

Corporation by Estoppel says that if parties are dealing with an entity as a Corporation, they are estopped from claiming it is not one.

Question 14

What is required for a General Partnership?

Answer 14

A GP is formed when two or more people operate a business as co-owners. It does not require formal agreement.

Question 15

What is Partnership Indemnification>

Answer 15

Where a partner incurs liability in the service of the partnership, the partnership is liable for indeminifcation.

Question 16

When can you piece the corporate viel?

Answer 16

There is no hard rule, courts look at the totality of the circumstances and may consider:

1. undercapitalization
2. Disregard formalities
3. intermingling of assets
4. self-dealing
5. fraud

Question 17

What is the Deep Rock doctrine?

Answer 17

Where piercing the corporate veil is appropriate, loans made by shareholders may be subordinated to other loans.

Question 18

What is special about a controlling shareholder?

Answer 18

A controlling shareholder owes a fiduciary duty to all other shareholders not to wield power in a way to disadvantage them.

Question 19

What is the director’s duty of care?

Answer 19

A director owes a duty of care to act in good faith as a reasonable prudent director.

Question 20

What are the rules on shareholder proxies?

Answer 20

It must be in writing and sent to the corporation or its agent. Presumed to be 11 months and presumed to be revocable.

Question 21

What Suits may a shareholder bring?

Answer 21

Direct action or Derivative Action

Question 22

What is a direction action Suit?

Answer 22

A suit to enforce share holder rights, typically voting rights, failure to declare a dividend or merger

Question 23

What is a Derivative action?

Answer 23

A suit to enforce the rights of the cooperation against a third party (might be a director or board members)

Question 24

What is required for a derivative action?

Answer 24

1. Standing: must have been a shareholder when the injury occurred
2. Demad of the board, unless it would be futile

Board may reject or dismiss in good faith BJR applies

Shareholder gets litigation expenses