Corporate Governance Fiduciary Duties & Legal Liability 2

Question 1

The Caremark decision established that directors have an oversight duty that requires them to:

Accepted Answer

Implement and monitor a system of controls to detect legal violations

Answer

Caremark held that directors must ensure a reasonable information and reporting system exists so they can monitor corporate compliance.

Question 2

Which of the following best describes an 'exculpation clause' in a corporate charter?

Accepted Answer

A clause eliminating or limiting director monetary liability for breaches of the duty of care

Answer

Exculpation clauses, permitted under statutes like Delaware § 102(b)(7), shield directors from personal monetary liability for duty-of-care breaches.

Question 3

Corporate indemnification of directors and officers typically covers legal expenses when they are sued in connection with their corporate role, UNLESS the director or officer:

Accepted Answer

Acted in bad faith or for personal profit at the corporation's expense

Answer

Indemnification is generally unavailable when the director or officer acted in bad faith or gained improper personal benefit at the corporation's expense.

Question 4

Under Delaware law, which party bears the burden of proof when a plaintiff challenges a board decision protected by the Business Judgment Rule?

Accepted Answer

The plaintiff shareholder

Answer

When the Business Judgment Rule applies, the plaintiff bears the burden of rebutting the presumption that directors acted in an informed, good-faith manner.

Question 5

A derivative lawsuit in corporate law is one filed by:

Accepted Answer

A shareholder on behalf of the corporation to remedy a wrong done to the corporation

Answer

In a derivative suit, the shareholder acts as a proxy for the corporation, seeking recovery for a harm suffered by the corporation itself.

Corporate Governance Practice Test

Corporate Governance Practice Test

Corporate Governance Fiduciary Duties & Legal Liability 2