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Flashcards in Corporations Deck (16):

Business Judgment Rule

In the absence of FRAUD, ILLEGALITY, or SELF-DEALING, a court will not disturb the good-faith judgment of the directors or officers.


Duty of Care - Standard

Directors and officers must use the care a person in a like position would reasonably believe appropriate under similar circumstances.


Duty of Care - Entitled to rely on the expertise and reports of?

1. Officers and other employees
2. Outside experts AND
3. Committee of the Board of Directors


Duty of Loyalty - Standard

Directors and officers cannot receive unfair benefits to the detriment of the corporation unless they effectively DISCLOSE and OBTAIN RATIFICATION of those benefits.


Self-Dealing Transaction

When director / officer / relative receives compensation directly from corporation


Corporate Opportunity

When director / officer prevents money from coming into the corporation


Avoid Liability from Self-Dealing Transaction or Pursuing Corporate Opportunity

1. Approval by majority disinterested board members
2. Approval by majority disinterested shareholders OR
3. Court concludes transaction was fair


Annual Meeting

Every corporation required to hold one every year at which shareholders elect directors and conduct other shareholder business


Special Meeting

May be called to vote on fundamental corporate changes


Notice for Special Meeting

No fewer than 10 days; no more than 60 days before meeting
Must give date, time, location, and purpose of meeting
Attendance waives notice requirement


Record Date

Date determines which shareholders are eligible to vote even if they subsequently sold shares
Set no fewer than 10 days; no more than 70 days before meeting


Alternative to Shareholder Meeting

Unanimous written consent by shareholders


Requirements for Proxy Voting

1. In writing
2. Signed by shareholder
3. Sent to secretary of corporation
4. Authorization by shareholder to vote shares AND
5. Valid for no more than 11 months (unless otherwise specified)



When corporation removes profit from corporation and gives it to shareholder


Prohibited from distributing?

Board cannot declare dividend if
1. corporation is insolvent OR
2. declaring dividend would make corporation insolvent


Liability from Unlawful Dividend

Directors who vote to authorize an unlawful dividend in violation of their fiduciary duties are PERSONALLY LIABLE, jointly and severally, to the corporation in the amount in excess of the lawful amount