Corporations

• 1) express board resolution
• 2) implied ratification through a) knowledge and b) acceptance of benefits

yes, unless there is a novation releasing him from liability

yes

• 1) ultra vires act can be enjoined
• 2) corporation can recover losses from the D/O

• 1) corporation is not validly formed
• 2) organizers made a good faith, colorable attempt to comply with corporate formalities
• 3) no knowledge of the lack of corporate status

• when shareholders are personally liable for corporate debts
• results in joint and several liability!

• 1) alter ego: shareholders treat the assets of the corporation as their own, fail to observe sufficient corporate formalities
• 2) fraud: avoiding personal liability through corporate formation operates as a fraud on creditors
• 3) undercapitalization: failure to maintain sufficient funds to cover foreseeable liabilities
• *must be some basic injustice that equity requires that the individual shareholders be held responsible for the damage they caused

• 1) board meeting [quorum, majority vote of those present], or
• 2) unanimous written consents

• 1) duty of care
• 2) duty of loyalty
• 3) duty not to waste corporate assets
• 4) duty to disclose (material corporate information to other members of the board)

• directors must act in:
• 1) good faith
• 2) best interest of the corporation
• 3) due care of an ordinarily prudent person
• *BJR!

presumption that directors manage the corporation in good faith and in the best interests of the corporation and its shareholders

• director may not receive an unfair benefit to the detriment of the corporation or shareholders unless there has been:
• 1) material disclosure
• 2) independent ratification

• director who receives an unfair benefit to herself (or relative, or another business of hers) in a transaction with her own corporation
• 1) ok if fair, or if independent ratification after full disclosure
• 2) remedy is recission

• director receives an unfair benefit by usurping an opportunity which the corporation would have pursued
• 1) remedies are damages, constructive trust, or corporation gets the opportunity at cost

• 1) majority vote of independent directors
• 2) majority vote of a committee of at least 2 independent directors
• 3) majority vote of independent shareholders

• 1) contemporaneous stock ownership - when claim arose, and throughout the litigation
• 2) demand must be made (and rejected), or excused because futile

• 1) mandatory indemnification if director is successful in defending the suit
• if director loses the suit, then indemnification depends on the nature of the suit
• 2) if director loses a derivative suit for wrongdoing, indemnification generally not allowed
• 3) suit is settled, some states allow indemnification

• written agreement to vote shares as required in the agmt
• 1) binding and enforceable
• 2) no time limit

• formal written agreement delgating voting power to a trustee
• 1) on file
• 2) expires in 10 years

must be reasonable

• 1) stock must be suppored by consideration
• 2) exchange of property for stock, the board must assess the adequacy of the consideration (duty of care & loyalty)
• 3) future services are not consideration
• 4) promissory notes at CL were not consideration; modernly are sufficient consideration

• owe fiduciary duties (care/loyalty) to minority shareholders.
• Must:
• 1) refrain from obtaining a special advantage
• 2) refrain from causing corporation to prejudice minority shreholders
• 3) must refrain from selling corporation to a looter, unless reasonable measures were taken to investigate

• 1) directors and shareholders entitled to vote of BOTH corporations must approve
• 2) appraisal rights of dissenting shareholder: 1) written objection before mtg, 2) vote against merger, 3) file written claim

• if outside the ordinary course of business,
• 1) majority of directors and shareholders entitled to vote must approve
• 2) sale of assets may be a de facto merger, may trigger possible recission or appraisal rights
• 3) purchasing corporation may be liable for debts and liabilities

majority of directors and shareholders entitled to vote must approve

• 1) tort of fraud or misrepresentation
• 2) Rule 10b5 federal securities action

• 1) large corporation [national exchange, or 500+ sh & $10MM assets)
• 2) Officer, director, or 10% shareholder
• 3) purchase and sale of stock within 6 month period
• *strict liability!

• private plaintiff must show:
• 1) interstate commerce
• 2) fraudulent conduct (scienter - intent to deceive; materiality; misrepresentation or failure to disclose that breaches fiduciary duty)
• 3) reliance
• 4) in connection with purchase or sale
• 5) damages

someone who owes a fiduciary duty not to disclose material, nonpublic information

• an insider breaches 10b5 if by trading he breaches a duty of trust and confidence owed to:
• 1) issuer
• 2) shareholders of the issuer
• 3) another person who is the source of the material nonpublic information (misappropriation)
• Elements:
• 1) insider
• 2) bought or sold stock via interstate commerce
• 3) based on nonpublic information

• insider gives a tip of material inside information to someone else who trades on the basis of the inside information, tipper can be held liable under 10b-5 if:
• 1) insider
• 2) improper purpose
• 3) personal gain (reputation or monetary)

• 10b-5 violation
• 1) tipper breached
• 2) tippee knew that tipper was breaching
• 3) tippee bought or sold stock via interstate commerce

• brought by government against any trader who:
• 1) misappropriated information from any source
• 2) breach of duty of trust and confidence owed to the source of information
• *if you find tippee is not liable bc tipper not liable, then raise misappropriation theory!