Corporations

CA v. AFSCME Employees Pension Plan

1) A bylaw is permissible if it defines the process & procedure by which a board of directors makes business decisions 2) A corp's board may not enter a contract that requires it to act in a manner that would violate its fiduciary duties

2 governing documents

1) Certificate/Articles of Incorporation 2) Bylaws

3 major roles in a corporation

1) Directors 2) Officers 3) Shareholders

Officers

1) Execute policies & provide day to day management 2) Receive compensation for services (no residual profit unless they own shares)

Directors (roles)

1) Make Major Policy Decisions 2) Determine basic corporate policies 3) Appoint/monitor corporate officers 4) Determine when/if dividends are to be paid to shareholders

Shareholders

1) Provide capital & elect directors 2) Collectively have power to elect annually the board of directors 3) Ability to approve fundamental changes in the corps governing rules or structure

Types of Parternships

1) Sole proprietorship 2) General partnership 3) Limited liability

Brehm v. Eisner

A board of directors has a duty to inform itself, prior to taking action, of all material facts that are reasonably available to it

Airgas v. Air Products & Chemicals

A bylaw passed at a company's annual meeting that is inconsistent w/ the corp's charter is invalid

Dodge v. Ford

A company cannot take actions that harm its shareholders and are motivated solely by humanitarian concerns, not by business concerns

Coggins v. NE Patriots

A controlling shareholder who is also a director on both sides of a freeze-out merger must show that the merger is for the advancement of a legitimate corporate purpose and is fair based on the totality of the circumstances

Zapata v. Maldonado

A corp. board of directors cannot dismiss a derivative lawsuit based solely on the fact that a committee composed of disinterested members found that the litigation is not in the corp's best interest

Baatz v. Arrow Bar

A ct may pierce the corporate veil and hold shareholders individually liable where continued recognitiion of a corp as a separate legal entity would produce injustices and inequitable consequences

US v. Bestfoods

A parent corp. may not be held liable for a subsidiary's actions under CERCLA unless state law piercing requirements are met, but the parent may be held directly liable if the parent itself exercised significant control over the facility

Sinclair Oil v. Levien

A parent corp. must pass the intrinsic fairness test only when its transactions w/ its subsidiary constitutes self-dealing

Hariton v. Arco Electronics

A sale of assets accompanied with a mandatory plan of dissolution and distribution is legal even if no appraisal rights are given to shareholders

Consumer's co-op v. Olsen

Absent evidence of pervasive control or failure to follow formalities, under-capitalization is insufficient grounds by itself to justify piercing the corporate veil

Kaycee Land v. Flahive

An aggrieved party may pierce the LLC veil in the same manner as it would pierce the corporate veil

Globe Woolen v. Utica Gas & Electric

As a fiduciary a corporate director has a duty to deal fairly with the corp. & not to permit the corp. to suffer losses at his expense

Shlensky v. Wrigley

As long as a corp's directors can show a valid business purpose for their decision that decision will be given great deference by the cts

Int'l brotherhood of Teamsters v. Fleming Co.

Case resulted in today's rule that shareholders can't amend bylaws

In re Walt Disney

Concept of intentional dereliction of duty & conscious disregard for one's responsibilities is an appropriate standard for determining whether fiduciaries have acted in good faith

Limited Liability

Corporations use this most of the time *Shareholders have limited liability

Klang v. Smith's Food & Drug Centers

Cts will defer to the board's measurement of surplus, absent evidence of bad faith or failure on the part of the board to evaluate the assets on the basis of acceptable data it reasonably believed reflected current value

Ryan v. Gifford

Deliberately back-dating stock options in violation of a stock option plan constitutes bad faith action that is not shielded by the business judgment rule

Western Rock v. Davis

Directors and officers may be held personally liable for a corp's tortious conduct if they exercised dominating control over the corp and deliberately kept it under-capitalized

Adlerstein v. Wertheimer

Directors may not act on a plan to remove a controlling shareholder and director w/o 1st informing that person of the plan and giving him a chance to protect his interest

Stone v. Ritter

Directors will be liable for failure to engage in proper corporate oversight where they fail to implement any reporting or info system, or having implemented such as system, consciously fail to monitor or oversee its operations

Shapiro v. Greenfield

If a director does not stand to personally benefit from a transaction the director is an interested director if it would reasonably be expected that the director's exercise of independent judgment would be compromised due to his personal relationship to a party w/ an interest in the transaction

In re the Limited

If a director is beholden to a controlling shareholder or other director such that he lacks capacity for independent judgment he is not independent for the purposes of demand excusal

Zion v. Kurtz

In a close corp. a written agreement between majoriy of the stockholders is valid even if it restricts or interferes w/ the board of directors' powers

Hewlett v. Hewlett Packard

In order to invalidate a shareholder vote on the basis of faulty disclosures, a P must show that management knowingly & intentionally made material misrepresentations

KC Roofing v. On Top Roofing

It is proper for a ct to "pierce the corporate veil" of a corp. & hold its shareholders or owners personally liable for injury caused to a P if the owners: 1) maintained complete control of the the entity's business practices so as to render the corp. functionless and; 2) Utilized their control over business functions in order to violate a P's legal rights

Weinberg v. UOP

Minority shareholders voting in favor of a proposed merger must be informed of all material information regarding the merger for the merger to be considered fair

General Partnership

Partners are joint & severally liable Partners make every decision together!

Ramos v. Estrada

Pooling agreements are valid and may be enforced equitably

SEC v. Purina

Sale of a security will not be exempt from securities regulations if it can be determined that the class of person involved in the sale require the protections afforded by the federal securities act

Aronson v. Lewis

Stockholders wishing to bring a derivative suit must first make a demand for redress to the board of directors, unless such a demand would be futile

Miller v. US Foodservice

The business judgment rule does not shield a corp. director from allegations that he intentionally misled the corporation regarding potentially fraudulent internal practices

Certificate/Articles of Incorporation

The chief document that governs the corporation *Document serves as a K as to how the corp will be governed

Craig v. Lake Asbestos

The corporate veil of a subsidiary may only be pierced to reach the parent corporation when the parent so dominates the subsidiary that the subsidiary has no separate existence and when the parent has used the corporate form to perpetuate fraud or injustice

In re Caremark Int'l

The directors of a corporation have a duty to make good-faith efforts to ensure that an adequate internal corporate info & reporting system exists

Hoschett v. TSI Int'l Software

The obligation to hold an annual meeting may not be satisfied by shareholder written consent action

Smith v. Van Gorkom

There is a rebut-table presumption that a business determination made by a corp's board of directors is fully informed and made in good faith and in the best interests of the corp.

Joy v. North

Under the business judgment rule corporation directors & officers will not be held liable for bad business decisions

Broz v. Cellular Info Systems

Under the corporate opportunity doctrine it is not required the director in question formally present the opportunity to his corp's board of directors if the corp. does not have an interest in or the financial ability to undertake the opportunity

Sole proprietorship

Unincorporated business w/ 1 owner

Mapiede v. Townson

When a corp. has an exculpatory provision in its articles of incorporation, a complaint alleging breach of fiduciary duty by directors will be dismissed if the complaint does not adequately allege breach of the duties of good faith or loyalty

Applestein v. United Board & Carton

When an asset sale & stock exchange is used to cause a virtual consolidation of two corp's, dissenting shareholders may object and seek appraisal rights

Owens Corning v. Nat'l Union Fire Insurance

When bylaws grant a corp. the max flexibility in determining when to indemnify officers & directors, a party challenging an indemnification must overcome a presumption that the directors or officers acted in good faith

NE Harbor Golf Club v. Harris

When the director of a corp. is present w/ a business opportunity closely related to a business in which the corp. is engaged, the director must fully disclose the opportunity to the corp. prior to taking advantage of it himself