Business Associations Flashcards
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Read the first 7 Business Associations flashcards as text
A shareholder derivative suit is brought on behalf of a corporation. Which of the following prerequisites must ordinarily be satisfied?
Answer: The shareholder must make a demand on the board or plead why demand is excused
A shareholder derivative plaintiff must ordinarily make a pre-suit demand on the board to address the wrong or allege facts showing demand is futile (excused).
Director self-dealing transactions (interested director transactions) are subject to scrutiny under Oregon corporate law. Such a transaction will be upheld if:
Answer: The interested director recused from the vote and the transaction was approved by disinterested directors or shareholders after full disclosure
An interested director transaction survives challenge if it was approved by disinterested directors or shareholders following full disclosure of the material facts about the director's interest.
Courts 'pierce the corporate veil' and hold shareholders personally liable most commonly when:
Answer: The corporate form is used to perpetrate fraud or the corporation is merely the alter ego of its shareholder
Veil-piercing typically requires showing the corporate form was used for fraud or that the corporation was so dominated by a shareholder as to be merely the shareholder's alter ego.
Under the duty of loyalty, a corporate officer discovers a business opportunity that falls within the corporation's line of business. Before personally taking that opportunity, the officer must:
Answer: Disclose the opportunity to the board and allow the corporation to reject it before taking it personally
The corporate opportunity doctrine requires an officer or director to disclose an opportunity within the corporation's line of business to the board and allow the corporation to act before taking it personally.
A special litigation committee (SLC) is formed by a corporation to evaluate a shareholder derivative claim. Under the majority approach, the court's review of the SLC's recommendation to dismiss includes:
Answer: A two-step inquiry: independence/good faith of the SLC, then whether the court agrees with the recommendation
Most courts apply the Zapata two-step: first examining SLC independence and procedural integrity, then applying the court's own business judgment whether dismissal serves corporate interests.
A corporate director's duty of care is generally satisfied by:
Answer: Acting on an informed basis in good faith in a manner the director reasonably believes is in the corporation's best interest
The duty of care requires directors to act on an informed basis, in good faith, in a manner they reasonably believe is in the best interest of the corporation — not to guarantee outcomes.
Shareholders of an Oregon corporation vote to ratify an interested director transaction. The effect of shareholder ratification is:
Answer: The burden shifts to the challenger to show the transaction was unfair to the corporation
Informed shareholder ratification shifts the burden to the challenger to prove the transaction was unfair, but does not grant absolute immunity from challenge.
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