ch 11

13. Can a corporation be liable in a tort action? Explain

A Corporation becomes liable through the actions of its directors, officer, or employees. When an employee commits a tort against another, both the employee and the corporation can become liable. This is due to the concept of respondeat superior "let the master respond.";

17. What are shareholder derivative actions or a Derivative Suit?

A derivative suit is a suit brought from the shareholders, against their own corporation. Step 1: the shareholder is dissatisfied with actions or policies of corporate management, who have caused harm to the corporation. Step 2: the shareholder requests the corporation files the action on their behalf Step 3: the corporation has refused to file the requested action. Now the shareholder may proceed.

11. When and under what circumstances can a corporation be guilty of a crime?

DGLD Hosting Drug transport G Housing illegal gambling L accounts help Launder money

5. What is the four prong test of the business judgment rule?

Did the Officers and Directors do the following: -Act in good faith? -Not acting for personal interests over the corporation? - reasonable actions under the circumstances - reasonable believe their decisions were in the best interest of corporation at time If so, they are shielded against civil liability.

14. What is the doctrine of respondeat superior, and how does it apply to corporations?

Employers should be responsible for the actions carried out by his/her employee as long as the employee is acting with in the scope of his or her employment.

2. How can corporate officers and directors become personally liable in their corporate duties? What form of law does this borrow from? Does this include making bad business decisions?

If they do an action that FALLS BELOW MINIMUM STANDARDS OF CARE AND PRUDENCE including: -Actions beyond their power or authority (-acted against principals.) -violate ethical duties (-using corporate funds for their own purposes or criminal acts) -Gross negligence (tortuous acts) -Mismanage corporate affairs, -This is because of agency law. -Generally no, because it's assumed that the agent is acting within the business judgment rule

8b. Is there Ratification for officers?

No, by not having a Ratification policy for unauthorized acts, it prevents many officers from engaging in questionable practices in the place.

12. What type of criminal penalties can be brought against a corporation?

Seizure of Corporate Assets Fines Dissolving Corporation

1. Why is a corporation liable to be sued in its own right?

Since corporations are artificial persons, they can be both criminally and civilly liable for their people's actions.

2b. How does the court determine whether an officer has breached its duty to the corporation?

Via asking these questions: -Does the individual have a personal state in the decision? -Is the relationship one of control between the director and some other party who is engaging in unauthorized practices/ breaking the law?

2a. When an officer commits an activity that is against interests of company and the director doesn't now about it, is the supervising director liable?

Yes because the director is required to stay informed about the business matters and general activities that the corporation is engaged in. In this case INDEMNITY payments would be made to the shareholders to compensate them for their losses.

8. What are ultra vires actions?

Actions that are caused by a Corporate officer or director exceeding his or her authority. -Claimed by shareholder against corporation -Actions that the officer or director take are not necessarily illegal, just unauthorized

6. When does a corporate officer's reliance on others shield the officer from liability?

As long as the officer questionable action resulted from information he believed to be accurate from the other officer. This is protected by the business judgment rule.

16. How does respondeat superior affect independent contractors?

Independent contractors make their own decisions about what work to perform and how it should be carried out. They have little or no supervision by the company and thus, the corporation is not liable for actions.

18. What are some of the ethical concerns faced by corporate counsel?

The big one is Conflict of Interest. Can occur during: corporate officers seeking advice on how to best shield their income, personal loans, accounting errors, and questionable practices for shareholder. Corporate officers have been prosecuted for defrauding their corporations.

3. What is the business judgment rule? How does this rule persuade the courts from ruling shareholder cases?

-A rule that protects corporate officers and directors from liability for businesses made in good faith -Creates presumption that Directors acted in good faith and with corporations best interest in mind, even if it turned out to be wrong. -Prevents shareholders from bringing actions against directors when shareholders aren't fully familiar with circumstances. -It makes it difficult to persuade the courts that a corporation was responsible for the losses of a case.

7. What are some of the limitations of the business judgment rule?

-If a director was negligent in their duties -If the officer and director was committing fraudulent activities -If a reasonably prudent person would have suspicions about specific information relayed to the board. - ex, Sarbanes-Oxley act weeping revisions among which certifying accuracy of reports and made False documents signed off by CEO personally liable.

4. Provide two arguments for the business judgment rule.

-It protects officers and directors from lawsuits against shareholders, encouraging the directors to take higher risk/higher reward choices in the interest of the company. -It keeps the courts from being clogged with the task of monitoring business decisions.

15. What are "frolic" and "detour" as they apply to respondeat superior?

Frolic and Detour represent the two scenarios when a corporation is not liable for an employes actions: Frolic: occurs when an employee is taking care of personal business, like running an errand Detour: occurs when an employe deviates form his job to go to some other place.

9. What are the legal consequences of entering into an ultra vires contract?

Serious consequences. The officer/director who acted without authority may be fully liable to the damages to the corporation, third party, or both.

10. Explain the concept of piercing the corporate veil. Give an Ex.

The court terminates a corporate existence and allows lawsuits against the corporate creators and shareholders. NO MORE LIMITED LIABILITY. Typically used very sparingly in case by case situations. Examples:SCAPEFS -S Corporation has been set up as a Sham or a trick just to protect the shareholder's assets. -C Corporation actively involved in Criminal enterprises -A Shareholders use corporation as Alter ego (no distinction between personal assets and corporate assets) of creators -P Shareholders created corporation to use funds for Personal use -E Corporation set up to Evade specific laws, ie income tax laws or environmental regulations -F Shareholders engaging in Fraud by creating or maintaining the corporation