Business Orgs

Question 1

The business judgement rule shields corporate leadership from liability for…

Answer 1

(1) good faith decisions (2) reasonably believed to be in the (3) best interests of the corporation. [F22]

Question 2

Acting agains the best interests of a corporation is a violation of…

Answer 2

…the duty of loyalty. [F22]

Question 3

Virginia ___ allow corporations to cap liability of leadership in articles of incorporation.

Answer 3

Does.

But does not apply to willful misconduct. [F22]

Question 4

Who can bring an action for breach of fiduciary duty of loyalty by corporate leadership?

Answer 4

(1) The corporation or (2) shareholders via a derivative action on behalf of the corporation.

This is true even if small and closely held. [F22]

Question 5

___ generally are not liable for the debts of a corporation or for contracts signed as agents of a corporation.

Answer 5

Shareholders, directors and officers. [J22]

Question 6

anyone who purports to act on behalf of a corporation knowing that the entity has not been incorporated is

Answer 6

personally liable unless the other party also knew that there was no incorporation. [J22]

Question 7

Directors owe fiduciary duties of ___ to the corporation.

Answer 7

Care and loyalty. [J22]

Question 8

The duty of loyalty includes ___

Answer 8

the duty not to misappropriate, or usurp, a corporate opportunity. [J22]

Question 9

In determining whether an opportunity belongs to the corporation and must be offered to the corporation before a director takes it for herself, a court will consider factors such as:

Answer 9

(1) the similarity of the opportunity to the business of the corporation, and
(2) how the director learned of the opportunity. [J22]

Question 10

Upon dissolution, the partnership __

Answer 10

-does not immediately terminate
-enters a winding up phase
[F15]

Question 11

During winding up, a partnership is bound by a partner’s act if:

Answer 11

the act is appropriate for winding up the partnership business. [F15]

Question 12

(Liability) After their dissociation, dissociated partners __

Answer 12

can have lingering liability unless the partnership dissolves. [F15]

Question 13

To create a limited partnership, the partners must…

Answer 13

-file a certificate of limited partnership with the SCC and pay the required filing fee
-include registered agent and office, names and addresses of all general partners, and location of principal office
-least one general and one limited partner. [F15]

Question 14

partnership at will - partner’s dissociation by express will triggers ___

Answer 14

a dissolution of the partnership.
[F15]

Question 15

A loan from the corporation to a director ___ per se improper.

Answer 15

Is not.

Especially where approved of by disinterested directors. [J15]

Question 16

A corporate director’s failure to do due diligence can be…

Answer 16

…a breach of their fiduciary duty of loyalty outside of protection from the business judgement rule. [J15]

Question 17

Purchasing assets of another corporation is…

Answer 17

…not a fundamental corporate change. [J15]

Question 18

A fundamental corporate change, like the sale of substantially all assets, requires:

Answer 18

1. Resolution by board at a valid meeting
2. Notice of special meeting (25-60 days in advance)
3. Approval by more than 2/3 of all shares entitled to vote. The articles may provide for different percentage, but not less than a majority
4. File notice with the state corporation commission

Exception where all shareholders approve. [J15]

Question 19

Upon dissolution of a corporation, the Board of Directors is required to…

Answer 19

…pay creditors’ claims before distributing assets to the shareholders.

A director who votes for or assents to (including by failing to dissent or abstain) a distribution that violates the Va. Code is liable to the corporation and its creditors for the amount of the improper distribution. The director can recoup from the shareholders who received the improper distribution and can sue other directors for contribution. No liability for a proper distribution.

Shareholders are liable for the amount received in an improper distribution. [F16]

Question 20

A limited partner ___ have actual authority to bind the partnership in contract.

Answer 20

Does not. [J16]

Question 21

Limited partners can lose their limited liability if they…

Answer 21

participate in the control of the business and the other party reasonably believes that the limited partner is a general partner. [J16]

Question 22

General partners owe a ___ to the partnership.

Answer 22

fiduciary duty of loyalty.

Self-dealing can be a breach.

When a fiduciary breaches his duty, disgorgement of profits is generally the appropriate remedy. [J16]

Question 23

A member of a nonstock corporation may inspect…

Answer 23

the minutes of Board of Directors’ meetings and obtain a list of the members, as long as the member acts with a proper purpose and gives the requisite notice. [F17]

Question 24

Unless otherwise provided in the corporation’s articles of incorporation, the members of a nonstock corporation may remove a director…

Answer 24

with or without cause at a meeting specially called for that purpose.

A simple majority vote is sufficient to remove a director (unless otherwise provided in the articles). [F17]

Question 25

Articles of Incorporation provide that officers and directors shall be entitled to indemnification "to the fullest extent permitted by Virginia law." Corporation has obligated itself to provide…

Answer 25

indemnification & advance funds or pay for reasonable expenses (includes counsel fees & judgments) even if he is removed as a director caveat: the obligation to indemnify does not apply if the director engaged in willful misconduct or a knowing violation of law. [F17]

Question 26

Doctrine of employment-at-will

Answer 26

an employment contract for an indefinite period is terminable at any time after reasonable notice by either party for any reason or no reason at all. [F18]

Question 27

How many votes is a shareholder entitled to? Under what conditions?

Answer 27

1 vote for each outstanding share of stock held, on each corporate matter submitted to a vote at a shareholder meeting. Must be free of duress and intimidation from corporate management. shareholder-employee: must be free from reprisal by employer [F18]

Question 28

When can corporate veil be pierced?

Answer 28

-The *separate personalities* of the entity and its owners *do not practically exist*, and adhering to the formal separation between them would allow an *injustice* to occur. -The owners controlled or used the entity to evade *personal obligations*, perpetrate a *fraud or a crime*, commit an *injustice* or gain an *unfair advantage.* Extraordinary remedy rarely applied. [J20]

Question 29

A partnership is formed when…

Answer 29

two or more people associate to carry on as co-owners a business for profit. No formalities, writing, or formal agreement are required to form a partnership; the parties’ intent may be implied from their conduct. Sharing profits triggers a presumption of partnership, and other indicia of partnership include sharing control and sharing losses. [F19]

Question 30

Purported partnership (partnership by estoppel)

Answer 30

a person who *represents herself* as a partner, or *consents to being represented* by another as a partner, is liable to third parties who *extend credit* to the apparent partnership *in reliance* on the representation. [F19]

Question 31

Procedural steps to perfect the right to sue in a derivative suit

Answer 31

(1) Standing: shareholder must have owned stock at the time of the alleged wrongdoing & must fairly and adequately represent the interests of the corporation. (2) Demand: Shareholder must make written demand on the corporation prior to bringing the suit. After making demand, the shareholder must wait until the demand is rejected / until 90 days pass, unless he can show irreparable injury to the corporation. If the demand is rejected, the shareholder may file the suit only if he alleges that the demand was not properly rejected by a disinterested decision-maker. [F19]

Question 32

Shareholders have ___ to enter into agreements that are…

Answer 32

broad latitude. …set forth in either the articles, bylaws or a written agreement signed by all the shareholders

Question 33

Partners who formed a professional corporation but continue to conduct their business as a partnership may have ___

Answer 33

their rights and liabilities determined according to the law of partnership.

Question 34

To obtain judicial dissolution of a corporation, plaintiff shareholders must prove:

Answer 34

(1) deadlock in the management of the corporation, (2) oppressive or illegal conduct by the majority, or (3) waste of corporate assets.

Question 35

A partnership is liable for the torts of a partner…

Answer 35

…committed within the ordinary course of partnership business. [F20]

Question 36

Each partner is ___ liable for the debts of the partnership, although…

Answer 36

Jointly and severally. …the creditor must seek to recover from the partnership entity first, before pursuing recovery from individual partners. [F20]

Question 37

Under the doctrine of respondeat superior, an employer is liable for the torts of his employee committed…

Answer 37

…within the scope of his employment. [F20] Courts generally hold the employer liable for an employee’s *minor deviations* (detours). Where an employer is found liable, the employer has an indemnification claim against the tortfeasor employee. Generally no liability for independent contractors unless inherently dangerous activities / negligent hiring. [F17]

Question 38

In order to bind a principal in contract, the agent must…

Answer 38

act with actual or apparent authority, or the principal must subsequently *ratify* the contact. [F20]

Question 39

Actual authority

Answer 39

may be express or implied; is based on the principal's communications with the agent and the agent's reasonable belief that he is authorized. [F20]

Question 40

Apparent authority

Answer 40

third party reasonably believes, based on manifestations of the principal, that the agent is authorized. [F20]

Question 41

Ratification

Answer 41

a subsequent affirmation of an unauthorized contract. principal must know the material terms of the contact / be aware of his lack of knowledge. (principal cannot avoid ratification by relying on his ignorance of the contract terms where he was deliberately ignorant of those terms) Silence may constitute ratification where a person would be expected to speak. [F20]

Question 42

Doctrine of respondeat superior - an act is within the scope of the employment if

Answer 42

(1) it was *expressly or impliedly directed* by the employer, or is *naturally incident* to the business, and (2) it was performed, although mistakenly or ill-advisedly, with the *intent to further the employer's interest*, or from some impulse or emotion that was the *natural consequence* of an attempt to do the employer's business, and did not arise wholly from some *external, independent, and personal motive* on the part of the employee to do the act upon his own account. [J19]

Question 43

An action by the Board of Directors of a ___ corporation must be approved by…

Answer 43

Non-stock. …a majority of the *directors* in a vote taken when a quorum is present. [J21]

Question 44

A conflict of interest transaction made by a director on behalf of a corporation is permissible if:

Answer 44

(1) it is approved by disinterested directors or members after disclosure of material facts, or (2) it is fair the corporation. [J21]

Question 45

The sale of substantially all assets outside the regular course of business is…

Answer 45

a *fundamental corporate change* and must be approved by the members of the non-stock corporation. [J21]

Question 46

A partner is ___ from the partnership upon death.

Answer 46

Dissociated. Disassociation does not necessarily trigger dissolution and winding up of the partnership. However, to continue, the partnership *must buy out* the dissociated partner’s interest. [F21]

Question 47

The buy-out price of a dissociated partner's interest is __

Answer 47

the greater of the partnership’s: (1) liquidation value (partner’s share if business were liquidated) or (2) going-concern value (liquidation value + good will), on the date of dissociation. [F21]

Question 48

The dissociated partner will remain liable only to:

Answer 48

a third party who transacted business with the partnership within 1 year of the dissociation & who reasonably believed that the dissociated partner was still a partner *without notice or knowledge* otherwise. [F21]

Question 49

Partnership must indemnify the dissociated partner for __

Answer 49

all partnership obligations, whether incurred before or after the partner’s dissociation. [F21]