Corporations Flashcards
(29 cards)
What are directors and what do they owe to a corporation?
(1) directors are fiduciaries of the corporation (2) they owe a duty of care and (3) a duty of loyalty
What does the duty of care require?
directors must (1) act in good faith and (2) in the best interests of the corporation, (3) using the care that would be exercised by a person in a like position
If a directors actions meet the duty of care, what happens in a proceeding against them?
the BJR protects them against lawsuits challenging their decisions
Who may directors rely on when making their decisions?
reports of other directors, corporate officers, corporate EEs, and outside experts if the reports are within their competence
What is the result if the ct pierces the corporate veil?
They may hold the shareholders of a corporation liable for the debts of the corporation
What is the general rule when the court is asked to pierce the corporate veil?
generally, shareholders will not be personally liable for the obligations of the corporation
When will the ct pierce the corporate veil?
If (1) corporate formalities have been ignored and injustice has resulted (2) the corporation was inadequately capitalized at the time of formation; or (3) the corporate form is being used to perpetuate a fraud
What is a corporate “alter ego” and what does it give a court grounds to do?
It is when shareholders treat the corporation as their alter ego- such as taking corporate funds for personal use - leaving the corporation unable to pay its debts
This allows the court to pierce the corporate veil
Fraud as a basis for piercing the corporate veil - what proof is required?
proof of a misstatement of fact
Are distributions within a board’s discretion? what is required?
(1) yes, distributions are within a boards discretion;
(2) BD of directors must act as a group - no one director may speak for or bind the corporation
What are the quorum and voting requirements for a BD decision?
(1) majority of the bd is a quorum unless the number is altered by the articles or bylaws
(2) a quorum must be present for a decision to be valid
(3) if quorum is present, resolutions will be deemed approved if approved by a majority of directors present
Shareholders inspections rights (2 kinds)
Qualified or unqualified, depending on how they demand inspection and what documents they are demanding to inspect
What documents does a SH have an unqualified right to view after demand?
(1) the incorporating documents,
(2) the bylaws,
(3) board resolutions on classification of shares,
(4) minutes of shareholders meetings from the past three years,
(5) communications sent by the corp to the shareholders from the past three years,
(6) a list of the names and businesses of the current directors and officers, and
(7) the corporation’s most recent annual report
What documents does a SH have an qualified right to view after demand? Any additional requirements?
All other documents ; must state a proper purpose
Proper purpose = one that is reasonably related to the person’s interest as a shareholder, such as investigating a director’s misconduct or seeking support for a shareholder initiative.
How many days notice must a SH give on demand to access documents?
at least 5
What is a direct suit?
a shareholder is seeking to enforce their own claims against the corp, officers, directors, or majority shareholders
what is a derivative suit?
a shareholder is seeking to assert the corp’s own claim and enforce the corp’s right because it is not doing so itself
*** directors owe fiduciary duties to the corporation, and the shareholder is arguing that they have breached
Standing in a derivative suit
A shareholder must
(1) have been a SH at the time of the act or omission complained of
(2) the SH has to adequately and fairly represent the interests of the corporation
How must SH make demand on the corp to sue derivatively?
(1) written demand to bd to take suitable action
(2) cannot sue until after 90 days unless bd respond with rejection OR irreparable injury will occur to Corp in 90 days if they wait
what is the business judgement rule?
directors who meet the duty of care will not be liable for corporate decisions that in hindsight turn out to be poor or erroneous
Duty of loyalty and conflicting interest transactions rules
(1) all directors owe corp a duty of loyalty
(2) if a director has a personal interest in a transaction in which her corporation is a party, a conflict of interest arises
What constitutes a director’s personal interest in a transaction?
(1) D is a party to the transaction,
(2) D has a beneficial interest in the transaction such that their judgement would be impacted in a vote,
(3) D is a director, general partner, agent or EE of another entity that the corp is transacting business with and it would be the kind of thing that would go before the board
When will a conflicting interest transaction be upheld?
When:
(1) it was approved by a majority of the disinterested directors after all material facts are disclosed to the board
(2) the transaction was approved by a majority of votes by disinterested shareholders after all material facts are disclosed to them; or
(3) the transaction, judged by circumstances; was fair to the corporation
SH agreement rules
(1) sh may enter into written/signed agreements providing for the manner in which they will vote their shares.
(2) specifically enforced unless otherwise provided
(3) do not need to be filed with the corporation
(4) do not have to be subject to a time limit
