Bus. Orgs. "The Last Decks" Flashcards
(51 cards)
- The duty of ______ is the duty to act in what the manager believes to be the entity’s best interest.
- Action contrary to above belief is a breach of that duty and an act in ___ ___.
- Duty of Loyalty
- Bad faith
T/F) Nearly all directors are actually conflicted through “structural bias.”
True. This is why mere conflict itself is not a breach of fiduciary duties if you disclose it.
Outside of the MBCA, DL, and LLC/P sep. analysis models for exculpating conflicts of interest… what other tool can bypass invalidation due to director conflict?
BJR if the conflict was disclosed and approved.
DL Corporate Law
- _________ = Not having a material financial interest in the transaction, except through the entity.
- ________ = Not being controlled by a person who has interest in the transaction.
- Disinterested
- Independent
[DL Corp. Law]
How are director conflicts approved?
- Disinterested SHs / Directors approve of it.
- K is “entirely fair.” P+S fairness.
T/F) Under DL corporate law, conflicted directors may still participate and vote, even when conflicted.
True if:
1. Majority D/SH’s who are disinterested approve it
2. Entirely fair S+P
[MBCA]
When does a director have conflict of interest?
- Aware of material financial interest in transaction or;
- Related person has material financial interest in it
How are director conflicts waived in MBCA?
Qualified directors approve by majority. “Qualified” means directors who are not conflicted. [At least 2]
[MBCA]
If a director on the board has a “material relationship” with another director are they a qualified director who can approve the transaction?
No!!
Under MBCA, a _____ ____ to a conflicted director means a relationship that would reasonably be expected to impair the objectivity of the director’s judgment.
Material relationship
DL v. MBCA
When board votes to approve conflicts of interest, under which law set can the conflicted director be present / participate in the vote?
DL only
Majority approval of conflicts in the MBCA requires approval by “qualified” directors and the conflicted director may not be present.
Is there a min. number of qualified directors that must approve?
No less than 2
[DL]
Here, only a _____ or systematic failure of board oversight will establish lack of GF neccessary for liability. [Stone v. Ritter]
lack of SUSTAINED oversight
This case showed that only “sustained” and system failure of board oversight qualifies as lack of GF necessary for liability.
Stone v. Ritter
What case in 2009 showed that a board in DL must make GF efforts to put “reasonable system of monitoring” in place for oversight liability issues?
Barnhill
Regarding oversight liability in DL, complaint must plead…
Particularized facts that board knew of misconduct [red flag] but consciously disregarded. [bad faith]
2 Prongs of oversight liability? [DL & MBCA]
- Lack of sustained oversight
- Conscious disregard of red flags
What’s an additional factor for MBCA oversight liability? [Hint: Inquiry requirement]
- Lack of sustained oversight [MBCA & DL]
- Conscious disregard red flags [MBCA & DL]
- Reasonable inquiry requirement = OR failure to devote timely attention to particular facts that would alert reasonable alt. director to inquiry… [MBCA only]
_________ controls = Policies & Procedures that enable ppl at top to:
1. Know what org is doing [detective controls]; and
2. Control what org. is doing [preventive controls]
Internal controls
Two types of internal controls?
- Detective
- Preventive
If a lawyer for a organization knows there is internal fraud or violations of law.. lawyer shall proceed in the best interest….
of the entity. Do nothing lol
________ rule = Directors have no liability for bad decisions.
1. GF
2. Loyalty
3. Care
4. Business related
5. Rational
BJR
________ rule = Directors are “fully protected” if they relied on ppl around them.
1. GF reliance
2. Reasonably believe in that expert opinion
Reliance rule
Investor legal actions:
If managers injure the entity and entity doesn’t sue, investors may bring _____ actions.
Derivative
