A phrase that pays – fill in the blank
If a director is sued for a decision, the
court will presume that the director acted in what way:
Answer: What is (1) in good faith; (2) upon reasonable and adequate information; and (3) in honest belief that the act was in the corp. best interest.
you can make this excuse concerning your demand in a derivative lawsuit.
futility
These are known as safe harbors.
approval of a majority of disinterested directors; Approval of a majority of disinterested shareholders;
fairness test
(1) there is a procedural, administrative, or other defect in the process of incorporation, so that a de jure corporation does not come into being;
(2) the incorporators tried, in good faith, to comply with the statutory incorporation requirements; and
(3) the incorporators exercised corporate prerogatives, or actually conducted the business as though there were a de jure corporation.
De Facto Corporation
This type of merger occurs in the case of a parent corporation who is merging with a subsidiary company of its own. The parent company is typically required to have an extremely large stake in the subsidiary – at least 90%.
Short Form Merger
Under the MBCA, a corporation shall indemnify a director who was whollysuccessful by this 5 word standard.
"on the merits or otherwise"
you do not need to be wholly successful to do this.
requirements to be indemnified. (MBCA requires to be "wholly successful on the merits or otherwise.")
when the parent, by virtue of its domination of the subsidiary, causes the subsidiary to act in such a way that the parent receives something from the subsidiary to the exclusion of and detriment to the minority stockholders of the subsidiary.
Self- Dealing
(1) commingling of shareholder’s assets with corporate assets;
(2) undercapitalization;
(3) disregard for corporate formalities;
(4) using the corporate entity for a shareholder’s personal benefit or using the corporation’s assets as though they were the shareholder’s own;
(5) manipulating assets and liabilities so that the liabilities rest with one entity, but assets rest with another, nominally beyond creditors’ reach;
(6) using the corporate form to avoid satisfying a debt that should, in fairness, be the shareholder’s personal obligation;
(7) using the corporate form to facilitate fraud or crime;
(8) gross failure to maintain adequate corporate records; or
(9) concentrated stock ownership in the hands of one person or very few persons.
factors in deciding whether to pierce the corporate veil?
A shareholder may exercise these rights (within limitations) if the corporation is a party to a merger, a share exchange involves the corporation, or if the corporation is disposing of its assets.
Appraisal rights § 13.02
A minority shareholder in a close corporation may be entitled to equitable relief if the majority shareholders' conduct endangers the minority shareholder's rights or interests. Disputes between a close corporation's owners do not turn on the defendant’s oppressive, overreaching, grossly abusive, or unfair treatment of the plaintiff, but rather look to whether this was frustrated.
reasonable expectiations
you may not be exculpated for these actions:
breach of duty of loyalty, for acts or omissions not in good faith, or which involve intentional misconduct or knowing violation of the law or for any transaction from which the dire tor derives an improper personal benefit. (Differs from MBCA where exculpation looks for improper financial benefits).
If a director is unsuccessful in a derivative suit, then the corporation is permitted to indemnify the director so long as the director acted in this manner.
acting in good faith pursuant to the Business Judgment Rule
(1) the opportunity is presented to the director or officer in his individual and not his corporate capacity;
(2) the opportunity is not essential to the corporation;
(3) the corporation holds no interest or expectancy in the opportunity; and
(4) the director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity.
The Guth Line of business test
In a merger, two corporations combine, one ceases to exist, and the other survives with the combined assets and liabilities of both. However, in this transaction, neither corporation continues to exist; a new entity emerges and succeeds to the combined assets and liabilities of both.
A consolidation. Shareholders in the dissolving entities effectively exchange their shares for shares in the new entity. A consolidation requires approval from the shareholders of both dissolving entities, just as a merger requires approval from the shareholders of both the dissolving and surviving corporations.
In this type of proceeding a shareholder with standing may bring a lawsuit "by and in the right of" the corporation.
A derivative proceeding
you can only inspect these documents (Inspection Rights).
Answer: What are the corporation's stock ledger, a list of its stockholders, and its other books and records, and a subsidiary's books and records to the extent that the corporation has actual possession and control of such records of such subsidiary, or the corporation could obtain such records through the exercise of control over such subsidiary. § 220(b)(1)-(2). Under the MBCA § 16.01(a), a shareholder is entitled to inspect, it's articles of incorporation, any notices to shareholders, its bylaws, all written communications within the past three years to shareholder's generally, minutes of all meetings of, and records of all actions taken without a meeting by its shareholders, its board of directors, and board committees, a list of names and business addresses of its current directors and officers, and its most recent annual report. § 16.01(a).
To prevail on a suit of dividend distribution, a shareholder must prove these two things:
1. that funds were legally available; and 2. Directors refused to pay in bad faith
The rights or interests protected by the rule depends on the plaintiff's expectations. Those expectations must be: (1) substantial and reasonable; (2) known or assumed by the other owners; (3) frustrated without the plaintiff's fault and largely beyond his control; and (4) such that, under all the circumstances, some form of equitable relief is appropriate.
Reasonable Expectations Test
Unless stated otherwise in the plan, a plan of merger may be amended only with the consent of …
each party to the merger
Unless the articles of incorporation provides for a greater or lesser number, a majority of the number of directors on a board present at a meeting.
a quorum
you file demand and thus, lose this opportunity.
the opportunity for excusal? (the right to argue futility or irreparable injury as an excuse for not filing a demand in a derivative lawsuit?)
If a director is held liable for an improper distribution made, then she may be entitled to proportionate contribution from these people.
other directors who are also liable for approving or failing vote against an improper distribution; and recoupment from shareholders who received distributions knowing the distributions were improper.
(1) A false statement of fact, or omission of fact, necessary to make the statement not misleading;
(2) material information has an impact on the decision to trade;
(3) scienter;
(4) In connection with the purchase or sale of a security;
(5) the plaintiff justifiably relied;
(6) proximate cause of damages;
(7) a jurisdictional nexus.
Implied private action
an entity of or in which that person owns, directly or indirectly, all of the outstanding shares or eligible interests
wholly owned subsidiary