Business Associations Flashcards

Under the California Corporations Code, a corporation legally comes into existence upon:

Answer: Filing of the articles of incorporation with the California Secretary of State

A California corporation is legally formed upon the Secretary of State's filing of the articles of incorporation, not upon execution or later corporate actions.

The business judgment rule in California corporate law protects directors from liability when they:

Answer: Make informed, good faith business decisions in the best interest of the corporation

The business judgment rule shields directors who act in good faith, on an informed basis, and in the honest belief that the action is in the corporation's best interest.

In California, the 'piercing the corporate veil' doctrine permits courts to hold shareholders personally liable when:

Answer: The corporate form is used to perpetrate fraud or there is such unity of interest that separateness would sanction injustice

California courts pierce the corporate veil when the corporation is used to perpetrate fraud or when such unity of interest exists that enforcing separateness would sanction injustice.

A director's duty of loyalty under California corporate law primarily requires the director to:

Answer: Disclose conflicts of interest and obtain approval for self-interested transactions

The duty of loyalty requires directors to disclose any personal conflicts and obtain approval from disinterested directors or shareholders for self-interested transactions.

Which procedural requirement must generally be satisfied before a shareholder can file a derivative suit in California?

Answer: The plaintiff must make a demand on the board or demonstrate that demand would be futile

California requires a shareholder to make a written demand on the board to take corrective action, or to plead with particularity why such demand would be futile, before filing a derivative suit.

Under California cumulative voting rules for director elections, a shareholder with 100 shares voting to fill 3 director seats may:

Answer: Cast 300 votes allocated in any combination among the candidates

Cumulative voting multiplies a shareholder's shares by the number of director seats available, allowing all resulting votes to be concentrated on one or more candidates as the shareholder chooses.

When a California corporation pays an unlawful dividend that exceeds retained earnings, who may be held liable?

Answer: Directors who approved the dividend and shareholders who received it with knowledge of its unlawfulness

Directors who vote for or assent to an unlawful dividend are jointly and severally liable for the amount, and shareholders who received distributions knowing they were unlawful must return them.