corporations outline

Essay text:

Committee cannot amend bylaws, fill vacancies, or submit fundamental corporate changes to shareholders 3) Duty of Care (Burden on the Plaintiff) a) General Rule: A director must discharge her duties in good faith and with a reasonable belief that what she does is in the corporations best interests. She also must act with that degree of care that a prudent person would use with regard to her own business. b) Exception: Director is not liable if she meets the business judgment rule. A court will not second-guess a decision of a director if it was made in good faith, was informed, and had a rational basis 4) Duty of Loyalty (Conflicts) a) General Rule i) Director owes a corporation the duty of undivided loyalty ii) No BJR defense b) Interested Director Transaction i) General Rule: Transaction will be set aside ii) Exceptions (1) Deal was fair to the corporation (2) Approved by majority of disinterested directors or (3) Majority of shares in good faith iii) NOTE: Court may insist on a showing of fairness c) Competing Ventures i) General Rule: Director cannot compete unfairly with the corporation ii) Remedies (1) Constructive trust on profits imposed (2) Profits are disgorged and corporation recovers the profits d) Corporate Opportunity Doctrine i) General Rule: Director cannot usurp a corporate opportunity; Director MUST: (1) Disclose the opportunity to the board and (2) Wait for the board to reject the opportunity ii) Corporate Opportunity (1) Necessary to the corporation (2) In the corporation's business line (3) Something the corporation has an interest or expectancy iii) Remedy: disgorge profits or impose a constructive trust e) Other Self Dealing i) Stealing money ii) Accepting money to resign board position f) Compensation of Directors i) Board can set its (and officers') compensation ii) Must be reasonable iii) Excessive salaries are wasteful and breach the duty of loyalty 5) Other State Law Bases of Director Liability a) Ultra vires (see above) b) Improper Distributions (see below) c) Which Directors Are Liable? i) General Rule: Director is presumed to concur with board action ii) Exceptions (1) Dissent is noted in writing in the corporate records (2) Absent directors are not liable (3) Good faith reliance on book value of assets, financial statements, opinions of others 6) Officers a) Status i) Agents of the corporation ii) Must have a president, secretary, and treasurer or "person treated as such" iii) One person can hold multiple offices b) Selection and Removal i) Selected and removed by directors ii) Directors monitor officers iii) SH do NOT fire/hire officers c) Compensation i) Board sets reasonable compensation for officers ii) Before or after services are rendered iii) Compensation must be reasonable: otherwise, its waste iv) Stock Options: permissible compensation if made as an incentive to service 7) Indemnification of Directors and Officers a) General Rule: Corporation indemnifies directors and officers unless director/officer is liable to the corporation itself b) Mandatory Indemnification: to the extent the director/officer wins on the merits or otherwise c) Permissive Indemnification i) Settlements ii) Good faith and reasonable belief that director/officer's action was in the company's best interests iii) Eligibility for permissive indemnification determined by disinterested directors, independent legal counsel in written opinion, or the shareholder d) Court can order indemnification costs for attorney's fees and expenses e) Corporation can advance litigation expenses f) Articles can limit liability of directors for damages except for breach of duty of loyalty, reckless/intentional misconduct, or wrongful personal benefit g) Corporation can purchase liability insurance RIGHTS AND LIABILITIES OF SHAREHOLDERS 1) General Rule: Shareholder is not liable for the acts or debts of a corporation 2) Exceptions: PA courts MAY pierce the corporate veil to avoid fraud or unfairness, although there is a STRONG presumption against PCV a) Alter ego Rule: SH might be personally liable if he treats the corporation as his alter ego (i...