Agency

Question 1

Express actual authority

Answer 1

oral or written words; clear, direct and definite language; or specific, detailed terms and instructions

P’s manifestation must cause A to believe that A is doing what P wants (subjective) and A’s belief must be reasonable (objective); P must give clear notice if P disagrees with A’s actions

Question 2

Implied actual authority

Answer 2

allows A to take whatever actions are properly necessary to achieve P’s objectives, based on A’s reasonable understanding of the manifestations and objectives of P

Implied by business customs/trade usage in a industry; by the position of the agent; by acquiescence (P’s acceptance of A’s acts or failure to object)

Question 3

Apparent authority

Answer 3

P causes third party to believe agent has authority to act;

Reasonable belief based on past dealings; trade customs, relevant industry standards, P’s written statements of authority, A’s position

Question 4

Ratification

Answer 4

P must ratify the entire act/transaction; P must have legal capacity; ratification must be timely; P must have knowledge of the material facts involved in the original act

Question 5

Promoter liability

Answer 5

A promoter is personally liable for knowingly acting on behalf of a corporation before incorporation and remains liable after C comes into existence unless (1) there is a subsequent novation; (2) the third party knows a corporation has not been formed and agrees to look only to C for performance; or (3) the promoter has no actual knowledge that C’s charter has not yet been issued

Question 6

Piercing the veil

Answer 6

Totality of circumstances: whether C is being used as alter ego for a dominant SH’s personal dealings and whether there is a unity of interest and ownership between C and its members; P must prove that incorporation was just a formality and C neglected corporate formalities and protocols

Factors: undercapitalization, disregard of corporate formalities, using C’s assets as SH’s own assets, self-dealing with C, siphoning of C’s funds

Question 7

Duty of care

Answer 7

D has a duty to act with a care of an ordinarily prudent person in a like position and similar circumstances; and required to use any additional knowledge or special skills he possesses when deciding how to act

Question 8

Reliance protection

Answer 8

D can rely on information and opinions of officers, employees, outside experts or committees if D reasonably believes them to be reliable and competent

Question 9

Business Judgment Rule

Answer 9

A rebuttable presumption that D reasonably believed his actions were in the best interest of C; does not apply when D engages in a conflict of interest dealing with C

Question 10

Overcoming BJR

Answer 10

(1) D did not act in good faith; (2) D was not informed to the extent he reasonably believed was necessary; (3) D had material interests in the challenged conduct and was not objective; (4) D failed to devote attention to C’s affairs; no oversight; (5) D failed to timely investigate matters of material concern; or (6) D received financial benefits to which he was not entitled

Question 11

Duty of loyalty

Answer 11

D must act in a manner that D reasonably believes is in the best interest of C; typically a director breaches this duty by placing his own interests before those of the corporation

Question 12

Self-dealing

Answer 12

D who engages in a conflict of interest transaction with his own C violates duty of loyalty unless the transaction is protected under the safe-harbor rules; D cannot profit at C’s expense

Question 13

Safe harbors

Answer 13

(1) disclosure of all material facts and majority approval by BD or SHs without a conflicting interest; or (2) fairness (comparable exchange in value) of the transaction to C at the time of commencement

Question 14

Usurpation of corporate opportunity

Answer 14

A director may violate duty of loyalty by usurping a corporate opportunity rather than first offering it to the corporation; interest/expectancy test; line of business test

Other factors: relationship of third party to D and of D to C; how and when D acquired knowledge of the opportunity

Question 15

10b-5

Answer 15

Fraudulent purchase/sale of stock:

(1) P purchased/sold security; (2) transaction involved use of interstate commerce; (3) D engaged in fraudulent or deceptive conduct; (4) conduct related to material information; (5) D acted intentionally/recklessly; (6) P relied on D’s conduct; and (7) P suffered harm b/c of conduct

Question 16

10b-6

Answer 16

A corporate insider can be forced to return short-swing profits to corporation.

(1) public traded corporation or assets of more than $10M and more than 500 SHs; (2) only directors, officers and SHs who hold more than 10 perfect of stock; (3) during any 6 month period, a corporate insider who buys/sells stock is liable for any profits made; (4) corporate insider required to report change in stock ownership to the SEC.