Business Organizations & Corporate Law Flashcards

Shares of a Delaware target are listed on the NYSE. In a merger, target shareholders must accept cash for their shares. Do dissenting shareholders have appraisal rights?

Answer: Yes, because the market-out exception does not apply when holders must accept cash

Under DGCL §262 the market-out exception is lost when shareholders must accept consideration other than listed stock (cash in lieu of fractional shares aside).

Parent Corp. owns 92% of each class of Sub Corp.'s stock. Under DGCL §253, Parent may merge Sub into itself:

Answer: Without a vote of Sub's shareholders or Sub's board

A short-form merger is available once the parent owns at least 90% of each class, with no subsidiary shareholder vote; minority holders get appraisal rights.

Corporation A sells substantially all of its assets, outside the ordinary course of business, to Corporation B for cash. Which approvals are generally required?

Answer: A's board and A's shareholders

Only the selling corporation's shareholders vote on a sale of substantially all assets; the buyer's shareholders have no vote.

Under the MBCA, a distribution to shareholders is prohibited if, afterward, the corporation:

Answer: Would be unable to pay its debts as they come due, or its total assets would be less than total liabilities plus preferential liquidation rights

MBCA §6.40 applies both an equity-insolvency test and a balance-sheet test.

To recover in a private Rule 10b-5 action, a plaintiff must prove the defendant acted with:

Answer: Scienter, meaning intent to deceive or at least recklessness

Ernst & Ernst v. Hochfelder held that negligence is insufficient under Rule 10b-5, so scienter is required.

A director buys company shares on January 10 and sells them at a profit on May 20 of the same year, without using any inside information. Under Section 16(b), the director:

Answer: Must disgorge the profit to the corporation

Section 16(b) imposes strict liability on directors, officers, and >10% holders for short-swing profits from matching trades within six months.

Under United States v. O'Hagan, a lawyer whose firm represents a bidder buys target stock using confidential tender-offer information. The lawyer is liable under the:

Answer: Misappropriation theory, for deceiving the source of the information

O'Hagan upheld misappropriation liability where a person trades on confidential information in breach of a duty owed to the source.