Corporations

Question 1

What is the standard for a director’s duty of loyalty?

Answer 1

A director must:
* Discharge duties in good faith
* And with reasonable belief
* That actions are in best interest of the corp

Question 2

What is the standard for a director’s duty of care?

Answer 2

Director must:
* Use the care a person in like position
* Would reasonably believe appropriate
* Under the circumstances

Question 3

What 3 situations typically present a duty of loyalty issue?

Answer 3

(1) Self-dealing / interested Director transaction
Transaction will be set aside OR Director liable for damages unless Director shows either:
* Deal was fair to corp when entered, OR
* Director’s interest was disclosed/known and deal was approved by (i) majority of disinterested directors (at least 2), or (ii) majority of disinterested shares, and may require (iii) fairness

(2) Competing ventures
Director cannot compete directly with her corporation.

(3) Corporate opportunity
Director cannot usurp a corporate opportunity until:
* She tells the BOD about it
* AND waits for BOD to reject that opportunity

Question 4

A director will be liable for BOD action, unless…

Answer 4

Dissent/abstention was noted in writing in the corporate records.

Dissention/abstention must be:
* In minutes
* Delivered in writing to presiding officer at meeting
* Written dissent to corp immediately after meeting

Question 5

What is the business judgment rule?

Answer 5

It is a presumption that a director’s decision may not be challenged if the director:
(i) acted in good faith,
(ii) with the care that a person would exercise in a like position, and
(iii) in a manner the director reasonably believed to be in the best interest of the corporation

Question 6

What is required for a self-dealing transaction to be upheld?

Answer 6

A transaction that personally benefitted a director will be upheld if:
(i) the director disclosed the material facts of the transaction to disinterested members of the board (or the shareholders), who approved the transaction
OR
(ii) the transaction was fair to the corporation

Question 7

When can a director/officer’s liability NOT be limited?

Answer 7

Liability cannot be eliminated to the extent that the director/officer:
(i) received a benefit to which he was not entitled,
(ii) intentionally inflicted harm on the corporation or its shareholders,
(iii) approved unlawful distributions, or
(iv) intentionally committed a crime

Question 8

True or False

A corporation’s articles of incorporation may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken

Answer 8

True

Question 9

What is needed for a fundamental corporate change to be authoirzed?

Answer 9

• BOD must pass a resolution to implement the plan, AND
• SHs approve the plan

Question 10

What is the apprisal remedy? When does it apply?

Answer 10

Apprisal Remedy: For SHs who dissent from a fundamental corporate change; can force corp to purchase their shares at a fair price

Steps:
(1) SHs must file an objection to the transfer before or at the SH’s meeting where vote is taken
(2) Not vote in favor of the plan, AND
(3) Send the corporation a written demand for the fair value of their shares