Shareholders and Managers
What is one of the main disadvantages of shareholders for corporations?
Shareholders have the ability to veto the decisions of directors.
What are the three general fiduciary duties that an agent must act with?
Care, obedience, and loyalty.
The board has the power to adopt and amend these, unless the Articles give the power to the shareholders.
The by-laws
This is prima facie evidence of a partnership.
Profit sharing
What word best describes why insider trading considered a 'bad thing'?
Bias, Fraud, inequity (all answers acceptable)
What are one (or more) of the rights that shareholders have?
(Any of the following) The right to vote, right to dividends, right to elect directors, appraisal rights, right to inspect books, rights to sue the corporation
If an agent has been expressly granted authority to act by the principal, they have this type of authority:
Actual authority.
Courts are generally more willing to pierce the corporate veil for this type of claim than they are for this type of claim.
Tort claim - contract claim
If you want to recharacterize profit sharing as wages of an employee, use this case.
Fenwick
Why do shareholders have the ability to amend bylaws?
Shareholders have say in what the corporation can and cannot do, sway over board, ect...
What is the key difference between majority and minority shareholders?
Minority shareholders have limited power to influence corporate affairs compared to majority shareholders.
Unauthorized acts by an agent can be ratified by the principal in these two ways:
Express conduct or implied conduct.
These two prongs must be satisfied for a plaintiff to recover under an alter-ego theory of liability.
Control prong & adherence to limited liability would "sanction a fraud or promote injustice"
At a minimum, when a partner is approached with a partnership opportunity, they have a duty to do this.
Duty to disclose
Policy behind why the corporate form is considered attractive about the corporate form?
Separation of ownership and control creates leverage, capital, growth [attractive investors to back your idea]
Limited liability – shield, ect....
Shareholders generally do not owe fiduciary duties to a corporation except in these two exceptions:
(1) if they are a controlling shareholder they are a fiduciary; and/or (2) in a closed corporation, a shareholder management agreement requires it.
What are the two elements of apparent authority?
Principal's manifestation and the third party's reasonable belief.
Directors are provided protection by this rule from lawsuits that might seek to challenge the decisions of those directors.
Business judgement rule
This case gives us the important quote that partners have "an obligation to renounce all sense of self".
Meinhard
Policy behind having a proxy system?
Need mechanism for shareholders to vote without having to show up, because we need their votes on certain issues such as who is on the board.
What is one benefit to being a shareholder rather than a manager for liability purposes?
Shareholders have limited/no liability and managers can be held liable.
A principal is vicariously liable for torts of the agent if there are these two elements present:
Elevated control over the manner and means and agent acting within the scope of employment.
When shareholders are able to show a directors made an uninformed or grossly negligent decision, the burden shifts to the directors to prove this.
The entire fairness of the transaction
This rule, expressly rejected by the UPC, provides that service only partners do not share in partnership losses in proportion to the partner's share of the distributions.
Kovacik Rule
Why do we have the Business Judgment Rule? (BJR)
Judges do not have business degrees, judges do to understand the ins and outs of a specific business decisions, ect...