Business

Question 1

BUSINESS

Duty of Care & Business Judgment Rule

Answer 1

BUSINESS

Duty of Care & Business Judgment Rule

Business Judgment Rule

• Directors are fiduciaries and owe a duty of care to the corporation.
• They must discharge their duties:
  
  1. in good faith
  2. they reasonably believe to be in the best interests of the corporation AND
  3. care that a person in a like position would reasonably believe appropriate under similar circumstances.
• If satisfied, a Director will NOT be liable for corporate decisions that resulted in adverse consequences to the corporation.

Informed

• Directors must be reasonably informed on the decisions they make.
• They may rely on reasonable advice of advisors, eg, attorneys accounts, officers, when:
  
  1. reliance is reasonable AND
  2. advisor is qualified to provide such advice

Outcome

• A court will NOT disturb decisions under the Business Judgment standard if a rational business purpose exists.
• A party attacking a board decision must rebut the presumption that its business judgment was an informed one.
• The Business Judgment Rule DOES NOT apply or protect Directors:
  
  1. financially interested in a transaction (a conflict of interest)
  2. not acting in good faith OR
  3. engaged in fraud or illegality

Liability

• If a Director breaches the duty of care, they may be held personally liable to the corporation for any losses suffered as a result.

Question 2

BUSINESS

Duty of Loyalty: Fiduciary Duty Owed

Answer 2

BUSINESS

Duty of Loyalty: Fiduciary Duty Owed

• Directors owe a fiduciary duty of loyalty.
• Requires:
  
  • acting in the best interests of the corporation
  • without personal conflict.
• Forbids:
  
  1. conflicting interest transactions
  2. usurping a corporate opportunity
  3. competing with the corporation OR
  4. trading on inside information

Question 3

BUSINESS

Duty of Loyalty: Conflicting Interest Transaction

Answer 3

BUSINESS

Duty of Loyalty: Conflicting Interest Transaction

• A conflicting interest transaction is a breach of the duty of loyalty UNLESS the Director shows that:
  
  1. it was approved by a majority of disinterested Directors OR Shareholders after full disclosure of all relevant material facts
     OR
  2. the transaction as a whole was fair to the corporation at the time it was entered into (fair price, beneficial to corporation, and fair dealing)

Conflict of Interest

• A conflict of interest occurs when the director or a family member:
  
  1. is a party to the transaction
  2. has a beneficial interest in the transaction or is so closely linked to it that director’s judgment may reasonably be affected
     OR
  3. another entity is conducting business with the corporation and it would normally be brought before the Board of Directors because of its importance to the corporation.

Question 4

BUSINESS

Creation of a General Partnership

Answer 4

Question 5

BUSINESS

Shareholder Liability & Piercing the Veil

Answer 5

Question 6

BUSINESS

Authority of Agent: Actual Authority

Answer 6

Question 7

BUSINESS

Authority of Agent: Apparent Authority

Answer 7

Question 8

BUSINESS

Vicarious Liability: Employee vs. Independent Contractor

Answer 8

Question 9

BUSINESS

Personal Liability of General Partners

Answer 9

Question 10

BUSINESS

Liability for Pre-Incorporation Contracts

Answer 10

Question 11

BUSINESS

Duty of Loyalty: Usurping a Corporate Opportunity

Answer 11