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
