Corps II - Loyalty and Conflicts

Question 1

Duty of loyalty

Answer 1

DOFLI-CUBAS

1. Directors and Officers owe a Fiduciary duty of Loyalty
2. to promote the Interests of the Corporation without regard to personal gain
3. bars Usurping any legitimate Opportunities of the corporation.
4. not Competing
5. not Both sides
6. Approval by disinterested directors or shareholders = safe harbor.

Question 2

Approving conflict of interest transactions (Ratification for breach of duty of loyalty)

Answer 2

1. common law - only majority vote of shareholders could ratify, otherwise voidable by corporation, liable for profits.
2. modernly - ratified by board if fair and honest by disinterested majority;
3. interested can satisfy quorum, but not majority vote.

MOSOV-MoDD (Majority of Shareholders Otherwise Voidable Majority of Disinterested Directors)

Question 3

Fairness factors for conflicts of interest

Answer 3

1. adequacy of proposed Consideration;
2. availability of Alternatives
3. Financial position of corporation;
4. Need to enter transaction

CAF-N

Question 4

Duty of disclosure

Answer 4

DOMReL

1. Director or Officer with Material facts;
2. RElevant to proposed transaction before the board;
3. Breach of duty of Loyalty if fails to disclose.

Question 5

Duty of care

Answer 5

DOD-SCOP-AIR

1. presumption that Directors and Officers owe a fiduciary duty to the corporation;
2. must exercise duties with same degree of Diligence, Care, and Skill which
3. an Ordinary Prudent erson would manage their own affairs.
4. Areas include: Attentive to corporate business,
5. Informed on voting matters, and
6. Rational basis for decisions.

Question 6

Business Judgement Rule

Answer 6

DOLLERS-FaDS

1. Directors or Officers
2. Are not Liable for Losses to corporation where
3. they Exercised good faith and
4. Reasonable judgement.
5. safe harbor when Fair; or approved by
6. Disinterested directors; or
7. Disinterested shareholders.

Question 7

Corporate opportunity doctrine

Answer 7

1. Legitimate corporate opportunity;
2. Financially able to undertake;
3. within Line of business (Fundamental Knowledge, Experience Practical; Ability to Pursue); and
4. Interest or Expectancy (Formalized plans, Standard Operating Procedures).

FULF-KEPAP-IE-FoP-SOP

Question 8

Self-dealing (conflict of interest)

Answer 8

1. Director or Officer’s Misuse of Assets for Direct personal benefit;
2. Disgorgement and Lost Profits.
3. Constitutes a breach of loyalty

DOMAD-DiLP

Question 9

Competing with corp during employment

Answer 9

1. EE precluded from competing during employment;
2. Going into competing business, even on EE’s own time;
3. Effect is diverting corporate benefits to EE.

PEEDOTED (Precludes EE During Own Time Effect Diverting)

Question 10

Competing post-employment

Answer 10

1. proprietary info and trade secrets;
2. Customer lists; and
3. Saleable info developed not of common knowledge.
4. Processes, whether or not patented;
5. Resolve by disclose and decline

PITS-CLISP-DD (Proprietary Info Trade Secrets Customer Lists Info Saleable Processes Disclose Decline)