Fiduciary Duties
What is a fiduciary? Who is the fiduciary of a corp? What are the fiduciary of a corp?
A person that's acting in the best interest of someone else.
Board of directors
Duty of Care and Duty of loyalty
When will the courts pierce the veil?
A plaintiff may pierce the corporate veil of a corporation, and impose liability on its shareholders, to prevent fraud or to achieve equity.
What is a voting agreement?
When shareholders come together and agree to vote in a particular manner
What is issuance?
When the corporation sells its own stocks
What is a dividend
Payment from the corporation to the shareholder
What is the duty of care and what facts trigger this analysis?
the board made a dumb decision, the board made a decision without appropriate study and preparation, or the board did not spend enough time and effort in supervising others,
What is the ultra vires doctrine ? Who has standing to use the ultra vires doctrine to say that the corp. lacks power?
acting beyond legal authority (Articles of Incorporation)
Voting agreement is enforceable. True or false.
It depends. Generally, the court will not enforce a voting agreement unless in a MBCA jurisdiction. In addition, the court is most likely to enforce it in a close corporation
What is preemptive rights? Does it have to be explicity stated?
Preemptive rights enable the existing shareholder to maintain their percentage of ownership when the corp. issues additional stock. Yes, in the articles.
What is a distribution?
direct or indirect transfer of cash or other property (except a corporation's own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; a distribution in liquidation; or otherwise
What facts triggers the duty of loyalty analysis?
Self dealing
Fill in the blank
A corporation may make a charitable gift, absent any showing of ____ _____ or ____ by the ____. typically, a corporation’s charitable contributions must be ____ in light of the corporation’s financial and business circumstances.
A corporation may make a charitable gift, absent any showing of bad faith or negligence by the directors.
MBCA 3.02 However, typically, a corporation’s charitable contributions must be reasonable in light of the corporation’s financial and business circumstances.
What is cumulative voting? What is straight voting? Provide an example of each.
Voting structure that allows voters to cast multiple votes for a candidate; corporate law often mandates cumulative voting to protect the rights of minority shareholders.
A corporation can receive any consideration for additional shares sold to a stockholder to maintain their percentage of ownership. True or false?
False. Cash only
Officers decide when and how much the dividend is. True or false?
What is the Business judgement rule and what facts trigger it?
In the absence of fraud, illegality, or self-dealing, courts will not disturb good faith business judgments of corporations.
A board decision to do or not do something on behalf of the business.
Factors that indicate injustices and inequitable consequences and allow a court to pierce the corporate veil (Common elements):
Requirements to impose a share restriction?
1. The restrictions must be conspicuously noted on the front of the stock certificate (Is it eye-catching enough? Might need to make this stand out so it can draw it attention) and 2. The restrictions on transfer must be reasonable – we are attempting to avoid restraints on alienation.
What is watered stock? Who is liable if the corp sells watered stocks?
The board member that approves it or the person that purchased it.
When will a shareholder that sues the board of director for issuing dividend will prevail?
If the shareholder can show that the board issued the dividends in bad faith
Under which duty do the insider trader and corporate opportunity fall under? Define them
Duty of loyalty
When a promoter makes an agreement on behalf of a corporation that has not yet been formed, the intent of the parties can be represented by one of four alternatives:
(1) a revocable offer is being made to the nonexistent corporation that will result in a contract if the corporation is formed and accepts the offer;
(2) an irrevocable offer is being made for a limited time, which offer is kept open by the promoter’s promise to organize the corporation and try to cause it to accept the offer;
(3) the promoter is liable, but that liability terminated if the corporation is formed and manifests its willingness to become a party to the contract; or
(4) the promoter remains liable even if the corporation becomes a party, either primarily or as surety for the corporation’s performance
What is a voting trust? What are the requirements of a voting trust?
Without looking at your notes define the following terms:
- outstanding shares
- par value
- dilution
- what is the remedy to dillution?- shares the corp issued
- the minimum the stock can be issued for
- when a shareholders gets less share than originally because the corp. issued additional shares.
- preemptive rights
Test for determine the legality of the distribution?
(a)able to pay its debt as they become due in the usual course of business
(b)the corporation's total assets must exceed its total liabilities after making provision for the liquidation preference of senior securities.