Corporations Law: Questions and Answers, Exams of Corporate Law

Download Corporations Law: Questions and Answers and more Exams Corporate Law in PDF only on Docsity! Corporations Law Questions and answers Liability for Pre-Incorporation Agreements CORRECT ANSWERS✅ Promoter is liable for pre-incorporation agreements unless: 1. They had no knowledge that the corporation wasn't formed yet; OR 2. The corporation relieves the promoter of liability through a novation or use of the benefits from the contract. Ultra Vires Actions CORRECT ANSWERS✅ If the corporation has a narrow business purpose and it engages in activities outside of the purpose; can be challenged by: 1. A shareholder filing suit to enjoin; 2. The corporation against a director/officer/employee; OR 3. the State to enjoin. Will be enjoined if equitable to do so. Stock Subscriptions CORRECT ANSWERS✅ Revocable after 6 months from date of subscription or if all subscribers agree. Corporation can sell to someone else if subscriber doesn't pay 20 days after written demand. Solvency Limitation on Distribution CORRECT ANSWERS✅ Corporation may not make a distribution if it is insolvent, or the distribution will make it insolvent. Must pass two tests: 1. Equity Test: Corporation must be able to pay off debts as they come due in usual course of business; Corporations Law Questions and answers 2. Balance-Sheet Test: Corporation's total assets must exceed total liabilities plus liquidation preferences of senior securities. Time of Measurement: *Dividend: Date dividend declared. *Stock Purchase: Date purchase price is paid. Rule 10b-5 Action CORRECT ANSWERS✅ Fraudulent Purchase or Sale of Security: 1. Plaintiff [P]urchased or sold security; 2. transaction involved use of [I]nterstate commerce; 3. defendant engage in [F]raudulent or deceptive conduct; 4. Conduct related to [M]aterial information; 5. Defendant acted with [S]cienter (intent or recklessness); 6. Plaintiff justifiably [R]elied on defendant's conduct; and 7. plaintiff suffered [H]arm because of conduct. Rule 16(b) Action CORRECT ANSWERS✅ Corporate insider can be forced to return short-swing profits. Reasons for trading are immaterial. 1. Applicable Corporations: traded on SE or more than 10M in assets and more than 500 shareholders. 2. Corporate Insiders: directors, officers, shareholders with more than 10 percent of any class of stock. Corporations Law Questions and answers 2. Non-shareholder actions: straight tort or fraud actions Derivative Shareholder Actions CORRECT ANSWERS✅ Suit filed by shareholder on behalf of the corporation for a harm suffered by the corporation. Standing: Must have been shareholder at time of the wrong OR at time the action is filed and continue to be shareholder during litigation. Demand: Must make written demand for action upon board of directors. Only 90 days after demand may shareholder commence suit. *Irreparable Injury: May be excused if delay would result in irreparable injury. Litigation Expenses: Can recover reasonable litigation expenses from corporation if it results in substantial benefit to corporation. Piercing the Corporate Veil Factors CORRECT ANSWERS✅ 1. Undercapitalization of corporation at time of formation; 2. Disregard of corporate formalities; 3. Use of Corporate assets as shareholder's own; 4. Self-dealing; 5. Siphoning of corporate funds or assets; 6. Use of corporate form to avoid requirements or obligations; 7. shareholder's impermissble control over corporation; 8. wrongful, misleading, or fraudulent dealings with a corporate creditor. Corporations Law Questions and answers Director Quorum Requirements CORRECT ANSWERS✅ Majority of all directors. Present if all persons participating in the meeting can hear and speak to one another. Director Dissent CORRECT ANSWERS✅ In order to forestall liability for improper action, director must: 1. Promptly object to the holding of the meeting; 2. Ensure that dissent or abstention is noted in minutes; OR 3. Deliver written notice of dissent to presiding officer before adjournment or to corporation immediately afterward. Committees CORRECT ANSWERS✅ Consist of 2 or more directors. Majority of directors vote for creation and appointment. Overcoming Business Judgment Rule CORRECT ANSWERS✅ Must be shown that: 1. Director did not act in good faith; 2. Director was not informed to extent that director reasonably believed was necessary before making a decision; 3. Director did not show objectivity or independence; 4. Sustained failure to devote attention to ongoing oversight of business and affairs of corporation; 5. Director failed to timely investigate a matter of significant material concern after being alerted; OR Corporations Law Questions and answers 6. Director received financial benefit to which he was not entitled or breached duty to corporation. Director Self Dealing CORRECT ANSWERS✅ Generally, self dealing is violation of duty of loyalty unless protected by safe harbor rules: 1. Disclosure of all facts and approval by majority of non-conflicted members of board; 2. Disclosure of all facts and approval by majority of shareholders without conflict; OR 3. Fairness of the transaction to the corporation at the time of commencement. Director Usurpation of Opportunity CORRECT ANSWERS✅ May violate duty of loyalty without first offering opportunity to corporation: 1. Interest Test: Whether corporation had existing interest of expectancy or seeking similar opportunity; 2. Line of Business Test: Whether the opportunity is within corporation's current or prospective line of business. 3. Other factors: relationship of third party, how and when acquired knowledge, relationship of director to corporation. Director Indemnification CORRECT ANSWERS✅ Mandatory: Costs incurred in successful defense against director in role as director. Prohibited: Liability because of receipt of improper personal benefit.