LA Bar Business Organizations 2 — Questions and Answers
Question 1: Which fiduciary duty requires a Louisiana corporate director to avoid self-dealing and conflicts of interest when making decisions on behalf of the corporation?
- Duty of care
- Duty of loyalty (Correct answer)
- Duty of disclosure
- Duty of obedience
Correct answer: Duty of loyalty
The duty of loyalty requires directors to prioritize the corporation's interests over their personal interests and to avoid conflicts of interest or self-dealing transactions.
Question 2: The business judgment rule in Louisiana corporate law shields directors from liability when they:
- Make decisions that always result in profits for the corporation
- Follow the instructions of majority shareholders at all times
- Make informed, good faith decisions in the corporation's interest, even if the outcome is unfavorable (Correct answer)
- Consult outside legal counsel before every major corporate decision
Correct answer: Make informed, good faith decisions in the corporation's interest, even if the outcome is unfavorable
The business judgment rule protects directors who make good faith, informed decisions in the corporation's interest from personal liability, even when those decisions ultimately harm the corporation.
Question 3: Under Louisiana law, which of the following is generally required to effectuate a valid merger of two Louisiana corporations?
- Board approval of each corporation and approval by a majority of shareholders of each corporation (Correct answer)
- Unanimous approval of all shareholders of both corporations
- Approval only by the board of directors, with no shareholder vote required
- A three-fourths supermajority vote of all outstanding shares of each corporation
Correct answer: Board approval of each corporation and approval by a majority of shareholders of each corporation
A merger of Louisiana corporations generally requires approval by the board of directors of each corporation and a majority vote of the shareholders of each constituent corporation.
Question 4: A Louisiana corporation's board of directors declares a dividend. Under which circumstance would the declaration be unlawful?
- The corporation has not paid dividends in the previous two fiscal years
- Not all shareholders voted in favor of the dividend declaration
- The dividend would render the corporation unable to pay its debts as they become due in the ordinary course of business (Correct answer)
- The corporation's annual shareholders' meeting has not yet been held for that fiscal year
Correct answer: The dividend would render the corporation unable to pay its debts as they become due in the ordinary course of business
Under Louisiana law, a dividend is unlawful if it would render the corporation insolvent or unable to pay its debts as they come due in the ordinary course of business.
Question 5: Under the Louisiana Business Corporation Act, shareholders may remove a director:
- Only for cause, upon proof of fraud or gross negligence
- Only through a court proceeding initiated by shareholder petition
- Only by unanimous vote of all remaining shareholders
- By majority vote at any time, with or without cause, unless the articles of incorporation require cause for removal (Correct answer)
Correct answer: By majority vote at any time, with or without cause, unless the articles of incorporation require cause for removal
Under the Louisiana Business Corporation Act, shareholders may remove a director with or without cause by majority vote, unless the articles of incorporation specifically require cause for removal.
Question 6: Which of the following most accurately describes the equitable doctrine of 'piercing the corporate veil' under Louisiana law?
- A procedure allowing majority shareholders to access corporate assets for personal use
- A process by which a corporation may be involuntarily converted to an LLC by court order
- An equitable doctrine holding shareholders personally liable when they fraudulently abuse the corporate form to evade obligations (Correct answer)
- A statutory right permitting creditors to consolidate multiple defendant corporations for collection purposes
Correct answer: An equitable doctrine holding shareholders personally liable when they fraudulently abuse the corporate form to evade obligations
Piercing the corporate veil is an equitable doctrine that permits courts to impose personal liability on shareholders when the corporate form is used fraudulently or as a device to evade legal obligations.
Question 7: Under Louisiana law, the primary purpose of the annual shareholders' meeting of a corporation is to:
- Elect directors and transact other proper business brought before the meeting (Correct answer)
- Approve the corporation's operating budget for the upcoming fiscal year
- Ratify all contracts executed by officers during the prior year
- Approve the compensation packages of all corporate officers and key employees
Correct answer: Elect directors and transact other proper business brought before the meeting
The primary purpose of the annual shareholders' meeting is to elect directors and conduct any other business properly brought before the meeting by shareholders or the board.
LA Bar Business Organizations 2
Which fiduciary duty requires a Louisiana corporate director to avoid self-dealing and conflicts of interest when making decisions on behalf of the corporation?