Quiz Flashcards
(35 cards)
Directors are ___________ of the corporation. If a director breaches the duty __ ____, he may be ___________ _______ to the corporation for any losses that result.
fiduciaries
of care
personally liable
Directors owe a duty of care to the corporation to discharge their duties:
1) in _____ _______;
2) with the reasonable belief that they are acting in the ____ ____________ of the corporation;
AND
3) with the care that a person in a ____ _________ would reasonably believe appropriate under like circumstances.
good faith
best interests
like position
In making decisions, Directors must be reasonably __________.
They may rely on the reasonable advice of _____________ if 1) the reliance was reasonable and 2) the advisor or committee was ____________
informed
advisors
qualified
A shareholder may bring a direct action when there is a breach of a duty owed to a shareholder of a corporation. The injury cannot be solely the result of an injury suffered by the corporation. Damages in a direct action are awarded to the shareholder
In an LLC, a member may bring a direct action against a member, manager, or the LLC on showing that the injury is not solely the result of an injury to the LLC
A ___________ action occurs when a shareholder sues to enforce the corporation’s claim.
derivative
Under the Revised _______ Business Code Act, in order to bring a derivative action, the shareholder must:
1) own stock at the time the claim ______ (or became a shareholder by __________ __ ___ from a shareholder who owned stock at the time the claim arose);
2) continue to be a shareholder through entry of judgment;
3) ______ and adequately represent the corporation’s interests; and
4) make a __________ demand to the corporation to take suitable action.
Model
arose
operation of law
fairly
written
A derivative suit cannot be commenced until __ days after the ________, unless the corporation either a) _______ the demand, or b) will suffer ____________ harm if forced to _____.
90
demand
rejects
irreperable
wait
For an LLC, the elements of bringing a derivative action are the same except:
1) the action may be commenced within a ___________ time after the demand; and
2) the demand requirement may be waived if ______.
reasonable
futile
In derivative actions, the damages are paid to the corporation or LLC, but the shareholder/member recovers reasonable costs of ___________.
litigation
A derivative action must be dismissed on a motion by the corporation if:
1) a majority of the Board of Director’s __________ directions have,
2) determined in _____ _______,
3) after conducting a reasonable _______; that
4) the action is not in the best interests of the corporation.
qualified
good faith
inquiry
Shareholders are generally not personally liable for corporation liabilities and
obligations.
Courts may disregard the corporate form and hold an individual shareholder (or director/officer) personally liable for actions taken on behalf of the corporation when:
a) the corporation is acting as the alter ego of the shareholder;
b) there is a failure to follow corporate formalities;
c) the corporation is inadequately capitalized at its inception; OR
d) to prevent _______.
fraud
Courts generally apply the same factors to pierce the veil of an LLC to hold members or _________ liable.
But failure to follow ____________ is NOT a ground to pierce the LLC veil.
managers
formalities
Shareholders and LLC members are _______ liable for their own torts.
always
Directors must act in the ____ ___________ of the corporation and without ___________ conflict.
best interests
personal
The Duty of Loyalty prevents a director from:
1) entering into conflicting _________ transactions;
2) __________ a corporate opportunity;
3) __________ with the corporation; or
4) _______ on inside information.
interest
usurping
competing
trading
Any conflicting interest transaction is a breach of the duty of loyalty unless:
1) approved by a majority of disinterested directors after full disclosure of all relevant material facts;
2) approved by a majority of disinterested shareholders; OR
3) the transaction as a whole was fair to the corporation at the time it was entered into,
including a price comparable to an arm’s length transaction and fair negotiations).
The Business Judgment Rule does NOT protect directors who are financially interested in a transaction or who are engaged in fraud.
A conflict occurs when a director/officer or family member:
1) is a party to the transaction;
2) has a beneficial interest in the transaction or is so closely linked to it that that director’s judgment may reasonably be affected; or
3) is involved with another entity that is conducting business with the corporation and that transaction would normally be brought before the Board of Directors.
Only registered shareholders on the _______ ____ are entitled to vote at the shareholders meeting, even if a shareholder sells the shares between the record date and the meeting, unless a proxy is given to the buyer. The record date cannot be more than __ days prior to the shareholder meeting.
record date
70
A ______ grants the holder the ability to vote shares as he or she deems appropriate if the proxy is signed on either:
1) an ____________ form, or
b) electronic _____________.
Proxy grants are valid for no more than __ months.
proxy
appointment
transmission
11
Proxy agreements are freely revocable by the shareholder unless 1) it states that it is ____________, AND 2) it is coupled with an _______ or a _____ right.
irrevocable
interest
legal
A promoter is ___________ liable when he purports to act as or on behalf of a corporation, AND knows that __ corporation was formed.
personally
no
