Business Organizations & Corporate Law Flashcards

Under the MBCA's universal demand rule, after making a written demand a shareholder may sue derivatively without waiting 90 days if:

Answer: The demand has been rejected or irreparable injury would result from waiting

MBCA §7.42 requires a 90-day wait unless the demand is rejected earlier or waiting would cause irreparable injury.

A shareholder buys stock in March 2025 and wants to sue derivatively over director misconduct that occurred in 2023. The suit will most likely fail because of:

Answer: The contemporaneous ownership requirement

A derivative plaintiff generally must have owned shares when the challenged wrong occurred.

1,000 shares will vote to elect 4 directors under cumulative voting. What is the minimum number of shares needed to guarantee electing one director?

Answer: 201

The formula is [shares voting ÷ (directors to be elected + 1)] + 1, so 1,000 ÷ 5 + 1 = 201.

Under the DGCL, a corporation's charter or bylaws may set the stockholder quorum, but no lower than:

Answer: One-third of the shares entitled to vote

DGCL §216 permits a reduced quorum but not below one-third of the voting shares.

In Donahue v. Rodd Electrotype, the Massachusetts court held that shareholders in a close corporation owe one another:

Answer: The utmost good faith and loyalty, similar to partners

Donahue imposed partner-like fiduciary duties among close corporation shareholders and required equal opportunity in share repurchases.

Under MBCA §16.02, a shareholder who wants to inspect accounting records and board minutes must:

Answer: Give at least five business days' written notice describing a proper purpose with reasonable particularity

Inspecting these records requires advance written notice, a good-faith proper purpose described with reasonable particularity, and records directly connected to that purpose.

A court is most likely to pierce the corporate veil to hold a sole shareholder liable when:

Answer: The shareholder commingled personal and corporate funds and left the corporation grossly undercapitalized, which produced an injustice

Piercing usually requires that the corporation was the owner's alter ego (commingling, ignoring formalities, undercapitalization) plus fraud or injustice; having one owner is not enough.