Corps Essay Rules Flashcards by Christine Su

T/F Under VA law, properly formed corporations are responsible for all debts and obligations incurred on their behalf by their agents and employees, and individual shareholders generally are not liable for the corporation’s debts and obligations

True

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Under VA law, properly formed corporations are responsible for all debts and obligations incurred on their behalf by

Their agents and employees

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Are individual shareholders liable for the corporation’s debts and obligations?

No, individual shareholders generally are not liable for the corporation’s debts and obligations

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T/F In VA, there is no such thing as a de facto or estoppel corporation

True

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A corporation is either a

De jure corporation (with an effective cert of incorporation) or it is not a corporation at all

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De jure corporation =

Corporation w effective cert of incorporation

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T/F If it is not a corporation at all (no effective cert of incorporation), persons purporting to act on behalf of a corporation knowing that there is no corporation are jointly and severally liable for the liabilities created

[Exception: These persons are not liable to persons who also know that there is no corporation]

True

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If no corporation at all, persons purporting to act on behalf of a corporation knowing that there is no corporation are

Jointly and severally liable for the liabilities created

[Exception: These persons are not liable to persons who also know that there is no corporation]

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T/F Although a person purporting to act on behalf of a corporation that does not exist is liable under VA law for the liabilities created, that rule applies only to individuals who know that the corporation does not exist

True

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T/F An individual acting on behalf of a corporation who is unaware that the corporation does not actually exist is not liable

True

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An individual acting on behalf of a corporation who is unaware that the corporation does not actually exist is

Not liable

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Duty of loyalty - Under VA law, a director cannot acquire a personal advantage in any transaction in which she is under a duty to guard the interests of the corporation

One component of the duty of loyalty is the corporate opportunity doctrine, which provides that

A director may not divert a business opportunity in which her corporation may reasonably be interested without first giving the corporation a chance to take the opportunity for itself, or unless the corporation releases the opportunity to her

In determining whether a corporate opportunity has been diverted, directors are generally held to a standard of good faith measured by general business ethics

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One component of the duty of loyalty is the corporate opportunity doctrine, which provides that

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Duty of loyalty - Usurping corporate opportunities

Director or officer can’t usurp business opportunity for themselves w/o giving corporation opportunity to take first (or release opportunity to them)

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Duty of loyalty - self dealing

Director (or relative) receives unfair benefit in transaction

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Articles must include

1) Description of authorized shares and preferences, if any

2) Registered agent and office

3) Names and addresses of incorporators

4) Name of corporation (must indicate corporate status)

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Corporate existence begins

When articles filed with SCC

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Alternative biz forms - LLC provides members

Limited liability of shareholders in a corporation plus beneficial tax treatment of partnership

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T/F Members are not personally liable for obligations of LLC

True

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T/F VA law allows corps to cap liabilities of officers and directors in the articles of incorporation

True

The Virginia Code does allow corporations to cap liability of officers and directors in the articles of incorporation. It is important to note that such a cap does not apply to willful misconduct

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VA law allows corps to cap liabilities of ________ and ________ in the ________ or ________

Officers; directors; articles of incorporation; bylaws

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A corp’s cap of liabilities of officers and directors in the articles of incorporation does not apply to

Willful misconduct

[Here, it is clear that Romeo acted intentionally, knowing that his conduct was wrong. His conduct constituted a clear misappropriation of assets from CCC. Thus, the cap in the articles of incorporation will not protect him]

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The biz judgment rule protects corporate officers who ________ and ________

Act in good faith; reasonably believe the action is in the best interests of the corporation

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A corporate officer is protected by the VA biz judgment rule when he makes

A good faith decision he reasonably believes to be in the best interests of the corporation

[Romeo caused CCC to allow International to use its facilities without paying compensation, and he renegotiated CCC’s exclusive distributorship agreement with Professor Sila, transferring the exclusive rights to International. There is no basis for Romeo to argue that he made these decisions in the good faith belief that they were in the best interest of CCC]

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T/F The fiduciary **duty of loyalty** is owed to the corporation itself and not to the shareholders, unless the Corporation is defined as a “closely held” corporation under Virginia Law

False Unlike some other states, Virginia does not recognize an exception to this rule in closely held corporations

T/F A shareholder derivative suit is brought by a director or officer of the corporation against a shareholder who has committed wrongdoing in the corporation

False A shareholder (stockholder) derivative suit is a lawsuit brought by a shareholder on behalf of the corporation, filed against the corporation's directors, officers, or other third parties who **breach their duties to the corporation**

T/F A corporate officer’s fiduciary duty of loyalty is owed to the corporation itself and to the shareholders of the Corporation

False A corporate officer's fiduciary duty of loyalty is owed to the corporation itself and not to the shareholders

The fiduciary duty of loyalty is owed to ________, and not to ________

The corporation itself; the shareholders VA does not recognize an exception to this rule in the case of small, closely held corporations [Izzy claims that Romeo breached his fiduciary duty of loyalty. That duty is owed to the corporation itself and not to the shareholders] [Must be brought by corporation or by derivative action on behalf of corporation; shareholder cannot individually bring claim of violation of fiduciary claim of loyalty]

The business judgment rule does not protect against decisions that were

**Not made on behalf of the organization** [It is not clear that Romeo's actions constituted decisions on behalf of CCC, and to the extent that Romeo was not making decisions on. behalf of CCC, the businesss judgment rule is inapplicable

The business judgment rule protects

A corporate officer

T/F Whenever you see a **corporate officer who makes a decision that is a bad one**, analyze whether the business judgment rule will protect him If it turns out to be a bad one but believed it was in the best interest of the company, he would be protected If no reason to think it was in the best interest of the company or personally benefitted from the decision, it is not going to protect him

True

T/F To the extent that Romeo was **not making decisions on behalf of the CCC**, the biz judgment rule is inapplicable

True

Officers of a corporation have a fiduciary duty of loyalty, which requres that they not engage in

Outside business activities to the detriment of the corporation

The fiduciary duty of loyalty is owed to

The corporation itself and not to individual shareholders In VA, there is no exception to this rule for small, closely held corporations [Izzy claims that Romeo breached his fiduciary duty of loyalty when he formed another corporation and used CCC’s facilities and equipment for that separate corporation. Whether Romeo breached his duty to CCC is not relevant here, as the duty of loyalty is owed to the corporation itself and not to Izzy or any particular shareholder. This case captioned “Izzy Investor v. Romeo Dickerson,” is one that Izzy filed in her personal capacity rather than as a derivative suit on behalf of the corporation. Therefore, Romeo will prevail on his defense that Izzy's claim is a corporate cause of action, not a claim accruing personally to Izzy]

In suits alleging a **director or officer** violated their **duty of care** to the company, courts will apply

The business judgment rule

Under the business judgment rule standard, a court will uphold the decisions of a director as long as they are made

1) In good faith, 2) With the **care that a reasonably prudent person would use**, and 3) With the **reasonable belief that the director is acting in the best interests** of the corporation

T/F Directors owe a duty of care to the corporation The general rule is that a director **must discharge her duties** in accordance with her good faith business judgment of the best interests of the corporation This rule is applicable to the directors in both non-stock and stock corporations, in addition to not-for-profit corporations Directors do not inure the success of every decision that they make, and will not be liable if they comply with this standard

True

Directors owe a duty of care to

The corporation

T/F Directors owe a duty of care to the corporation The general rule is that a director must **discharge her duties in accordance with her good faith business judgment** of the best interests of the corporation

True [Owen has not discharged his duties in accordance with good faith business judgment. He secretly created another corporation, BBC, that used ABC's equipment without compensation and sold wine cheaper to undercut ABC's sales and eventually poach Argentine from ABC]

The duty of care owed to the corporation by directors is applicable to both ________ and ________ corporations in addition to ________ corporations

Non-stock; stock; for-profit

T/F The duty of care owed to the corporation by directors - directors do not inure the success of every decision that they make, and will not be liable if they comply with this standard

True

A corporation is permitted to limit liability in

The articles of incorporation or **its bylaws**

A corporation is permitted to limit liability in the articles of incorporation or its bylaws However, the liability of officers or directors is not limited if

The officer or director is engaged in willful misconduct or a violation of criminal or any federal or state securities law

T/F In a derivative suit, a shareholder seeks to **enforce a corporate c/a** where the corporation for some reason has not sued to protect its own rights

True

T/F A derivative suit should be distinguished from a shareholder's personal action (in which she asserts for her own interest and seeks a personal recovery) or a shareholder class action

True

T/F Generally, a shareholder has no right to sue in her own name upon a c/a existing in the corporation

True

T/F The test of a derivative action is whether a recovery would **benefit the corporation generally** and all the shareholders, as distinguished from benefitting only an individual or a determinate group or class of individuals

True

T/F Recovery in a derivative suit almost always runs to the corporation rather than to the plaintiff shareholder personally

True

T/F Unless they comply with the statutory standards of conduct, **directors are jointly and severally liable to the corporation and its creditors** for authorizing unlawful distribution

True

T/F VA Code forbids a distribution to shareholders if, after the distribution, **remaining assets do not at least equal liabilities**, and this provision **covers distributions in voluntary liquidation**

True

When does the VA code forbid a distribution to shareholders?

If, after the distribution, **remaining assets do not at least equal liabilities**, and this provision covers distributions in voluntary liquidation

If, after the distribution to shareholders, remaining assets do not at least equal liabilities,

VA Code forbids distribution to shareholders

T/F A director's liability for an unlawful distribution is limited to the amount that was unlawfully distributed

True

A director's liability for an unlawful distribution is limited to

The amount that was unlawfully distributed

T/F A director can rely on financial statements represented to be correct by an **officer responsible for such statements** or an outside accountant

True

A director can rely on financial statements represented to be correct by

An officer responsible for such statements or an outside accountant

T/F VA Code provides that directors who assent to the improper distribution are liable to injured creditors

True

VA Code provides that directors who assent to the improper distribution are liable to

Injured creditors

T/F The shareholders who received the improper distribution are not directly liable to creditors, **although the directors can seek contribution from the shareholders**

True

Are shareholders who received the improper distribution directly liable to creditors?

No, shareholders who received the improper distribution are not directly liable to creditors, although the directors can seek contribution from the shareholders

T/F If SupplyCo pursues its claim only against Chris, Chris can seek contribution from Hugo and Ronny, and the directors can recover from Ethel and Lucy A director against whom a claim is asserted is entitled to contribution from the other directors who authorized the distribution Additionally, the directors may recover from the shareholders in proportion to the amounts received by them

True

A director against whom a claim is asserted is entitled to contribution from

**The other directors who authorized the distribution** Additionally, the directors **may recover from the shareholders in proportion to the amounts received by them**

A director against whom a claim is asserted is entitled to contribution from the other directors who authorized the distribution Additionally, the directors may recover from the shareholders

In proportion to the amounts received by them

SOL - Statutory claims against a corporation

2 years

T/F Under VA corp laws, **only record shareholders as of the record date** have the right to vote Thus, such a shareholder is entitled to a notice of the date, time, and place of each annual and special shareholders' meeting If there is going to be a special shareholders' meeting, the notice must specify the purpose of the meeting A shareholder whose shares are pledge is entitled to vote her shares until her shares have been transferred into the name of the pledgee Once the transfer of name occurs, the pledgee is entitled to vote the shares

True

T/F Under VA corp laws, only **record shareholders as of the record date** have the right to vote Thus, such a shareholder is entitled to a notice of the date, time, and place of each annual and special shareholders' meeting

True

Under VA corp laws, who has the right to vote?

Only record shareholders as of the record date have the right to vote

A shareholder (record shareholder as of record date) is entitled to a notice of

The date, time, and place, of each **annual and special** shareholders' meeting

T/F A **shareholder whose shares are pledged** is entitled to vote her shares **until her shares have been transferred** into the name of the **pledgee**

True

A shareholder whose shares are pledged is entitled to vote her shares until

Her shares have been transferred into the name of the pledgee

T/F Under VA corp laws, a shareholder who has been a shareholder for at least six months or who owns more than 5% of the outstanding shares has the right, upon written request at least 10 days in advance, to inspect and copy, during regular business hours, at the corporation's principal office, the articles and all amendments to them currently in effect, the bylaws and amendments, director resolutions creating outstanding classes of shares, the minutes of all shareholders' meetings, all written communications to shareholders for the past three years, director and officer information, the most recent annual report, and the accounting records of the corporation

True

T/F A shareholder can object at the beginning of the meeting on the basis that the **meeting is not lawfully called or convened** Furthermore, a shareholder can object to consideration of a specific matter on the basis that the **matter is outside the scope of the notice** given If a shareholder does not **object at the proper time**, she waives her right to proper notice

True

T/F A shareholder can **object at the beginning of the meeting** on the basis that the meeting is **not lawfully called or convened**

True

A shareholder can object at the beginning of the meeting on the basis that the meeting is

Not lawfully called or convened

T/F Furthermore, a shareholder can **object to consideration of a specific matter on the basis that the matter is outside the scope of the notice** given

True

A shareholder can object at the beginning of the meeting on the basis that the meeting is not lawfully called or convened Furthermore, a shareholder can object to consideration of a specific matter on the basis that the matter is

Outside the scope of the notice given

T/F If a shareholder does not object at the proper time, she waives her right to proper notice

True

If a shareholder does not object at the proper time, she

Waives her right to proper notice

T/F VA **allows shareholders to remove any or all of the directors, with or without cause**, at a meeting called expressly for that purpose, unless the articles of incorporation provide otherwise The **notice of the meeting must specify that the purpose of the meeting includes the removal of one or more directors**; and it must be given not less than 10 or more than 60 days prior to the meeting If the articles do not provide for cumulative voting, it is not permitted A majority of the shares entitled to vote at an election is sufficient to remove a director However, if the director was elected by a class of shares, a majority of that class is required

True

T/F VA allows shareholders to remove any or all of the directors, with or without cause, at a meeting called expressly for that purpose, unless the articles of incorporation provide otherwise

True

VA allows shareholders to remove any or all of the directors, with or without cause, at a meeting called ________, unless ________ provide otherwise

Expressly for that purpose; the articles of incorporation

T/F The notice of the meeting must specify that the purpose of the meeting includes the removal of one or more directors; and it must be given not less than 10 or more than 60 days prior to the meeting

True

The notice of the meeting (removal) must specify that the purpose of the meeting includes ________ and it must be given not less than ________ or more than ________ days prior to the meeting

The removal of one or more directors; 10; 60

The notice of the meeting (removal) must be given not less than ________ days or more than ________ days prior to the meeting

10; 60

T/F If the articles do not provide for cumulative voting, it is not permitted

True

Cumulative voting is not permitted unless

The articles provide for it

T/F A majority of the shares entitled to vote at an election is sufficient to remove a director

True

________ is sufficient to remove a director

**A majority of the shares entitled to vote at an election** [Unless the director was elected by a class of shares, a majority of that class is required]

T/F However, if the **director was elected by a class of shares, a majority of that class** is required for removal

True

If the director was elected by a **class** of shares, a ________ is required for removal

Majority of that class

Corps Essay Rules Flashcards

(90 cards)