Ba E&e-Short

Front 1

FRONT
A & B are coaches at different universities. C is a businessman looking to sell Z shoes. C provides his warehouse and invests $200K to finance an inventory of Z shoes. A and B agree to sell the shoes. All will receive % of the profits. What type of relationship did they form?

Back 1

Partnership, but could be classified as C lender to the business.

Front 2

Who is liable for unpaid corporate debts in a defectively formed corporation?

Back 2

Only shareholders who are active in the corporation's management. That excludes passive investors. MBCA 2.04.

Front 3

Is a corporation bound by the actions of a shareholder (i.e. buying goods/products for the corporation w/o the corp's permission?)

Back 3

No. Shareholders have no authority to conduct corp business. So, a shareholder who is not an officer or director cannot either enter into a K on the corp's behalf unless the board has explicit given him authority to do so.

Front 4

At common law, can directors be removed by shareholders w/o cause?

Back 4

NO

Front 5

Betty is hired as treasurer with the express authority to handle corporate funds, and no express authority to do anything else. However, she often fills in for others can orders products for the corp. The board of directors now want to cancel an order. Are they bound by Betty's order?

Back 5

YES, under either implied actual authority or apparent authority. Implied: implicitly granting authority: Apparent authority: officer has authority to act on his belief, and third person believes in good faith that such authority exists.

Front 6

A majroity shareholder wants to use #1million of corp funds to acquire an island. 2 other board members ask number of questions, to which the director gives superficially reasonable answers. The other director says he'd rather save the money. A reasonable real estate investor would probably vote against it b/c the property was 25% above normal price. Causes company to go broke. The director who voted against the decision sues director who wanted to buy island. What doctrine would you use to defend director? What would be the result of the lawsuit?

Back 6

Business judgment rule bars liabilty. Under the business judgment rule, a director or officer who makes a business judgment in good faith fulfills the duty of care if the directors has no conflict of interest concerning the transaction, is reasonably well-informed about the transaction, and rationally believes that business judgment is the corps best interests

Front 7

Does a 5% shareholder owe a duty to a corp?
Outside director? VP in charge of sales and marketing?

Back 7

NO, NO, and YES

Front 8

Z enters into a K with P to purchase widgets. Z signed agreement, "Z, n behalf of Amco a corp to be formed." Amco ratified K. Who is liable to Amco.

Back 8

Both Z and Amco. DONT YOU NEED P's CONSENT/K FOR AMCO TO BE LIABLE?????

Front 9

John enters into K with Alice, where Alice will serve as a consultant to Exco Copr for $2K/mo for one year. Singed as "John, on behalf of Exco, a corp to be formed but not for himself personally." Exco is formed. K is not ratified by board but board members see Alice working at Exco's premises for corp. Who is liable to Alice?

Back 9

Exco is liable to Alice. When a corp knowingly accepts benefits of a K, it may have impolicitly approved the agreement.

Front 10

What's the diff b/w ratification, novation, and adoption?

Back 10

Ratification is the retroactive approval of a previously unauthorized act. Bind the principal and the TP to original undertaking.
Adopting occurs when an agent purports to bind a principal to an agreement while lacking the power to do so.
Novation is a new, independent agreement b/w principal and the third party.

Front 11

Under the partnership agreement, L, M, and C agree to share losses 60/20/20. S has $100K claim against the partnership which each partner is jointly and severally liable. But S sues only L. What is L liable for?

Back 11

Everything. Can't just claim $60K if he is the only one named in the judgment.

Front 12

Graphic's five person board authorizes Buck to fire all of the company's commercial artists and replace them with a computer that would generate graphic designs. Shirley is upset about the board's action.

a) As majority shareholder, she signs and submits a written consent that purports to remove all of the directors. Will this work?
b) She calls a special shareholder's meeting to remove the incumbent directors and Buck. Will this work?
c) She calls a shareholders meeting to vote on a shareholder resolution requiring the board to reverse its decision. Will this work?

Back 12

a) No. The MCArequires that the consent be unanimous.
b) In part. As the holder ofmore than 10% of Grpahic's shares, she can demand a special shareholde'rs meeting. S he must have a proper purpose for the meeting. Removal of directors is a proper purpose, but rmeoval of officers is not. The MBCA permits sahroelders to reomvoe driecotrs w/ or w/o cuase. Theo removal or appointment of officers, hoeve,r is within the sole discreiton of teh board of directors.
c) No. Some courts have held that shareholders can approve non-binding request/precatory resolutions concerning the management of the corporation. Shirley's resolution, however is not phrased as a request, but a demand. This shareholders cannot do.

Front 13

Graphic's articles specify a board of b/w three and seven directors, the exact number to be fixed by the board of directors in the bylaws. The current bylaws call for five directors. Shirley wants to charge the balance of power on the board at the next annual shareholder's meeting by proposing: a) an amendment to the articles that would fix the number of directors at seven, with any vacancies to be filled by the shareholders. Is this proper?
b) an amendment of the bylaws that would increase the number of directors from five to seven. Is this proper?
c) An amendment to the bylaws that mandates that any shareholder must give notice of nominations to the board at least 60 days before the shareholder's meeting. Is this proper?

Back 13

a) No. Amendments to the articles must be recommend by the board of directors for approval by shareholders.
b) Yes. Shareholders have an inherent power ot amend the bylaws.
c) Probably. Courts have permitted shareholder proposed bylaws to amend the procedures by which directors are elected. In fact, advance-notice bylaws are common, and their validity has not been questioned.

Front 14

Graphic's articles are silent on the question of how director are elected. Nine directors sit on Graphic's board.
a) How are Graphic's directors elected?
b) Shirley owns 78 of Graphic's 100 shares. Mildred owns the remaining 22. How many directors can Mildred elect under a straight voting scheme?

Back 14

a) Straight voting, each year. Under MBCA, unless the articles specify otherwise, all directors are up for election at each annual shareholder's meeting.
b) None. Under straight voting, Shirley and Mildred each will case their vote nine times for nine candidates.

Front 15

Graphic's articles specify that the corporation's board is to be elected by cumulative voting. The bylaws specify a board of nine directors.
a) With 22 of 100 shares, how many directors is Mildred assured of electing to the board?
Shirley has heard that Mildred plans to cast her 198 cumulative votes in the following manner: Mary (66), Manny (66), Morton (66). Can Shirley take advantage of this information to increase her representation on the board?

Back 15

a) Two directors The cumulative voting formula provides the answer:
NS = (NDxTS)/(TD +1) +1 or some fraction
NS=# of shares needed to elect desired # of directors
ND=Number for directors that shareholder desired to elect
TS=Total number of shares authorized t vote
TD=total number of directors to be elected
1 director = 11 shares [(1x100)/(9+1) +1)
2 directors= 21
b) Yes. Shirley can distribute her 702 votes among nine candidates, casting 78 vote for each. Shirley will elect all nine directors in this way--the top nine vote-getters will all be her candidates. By spreading her votes among three candidates, Mildred dilutes her cumulative voting power.

Front 16

Shirley becomes unhappy with the directors Mildred has elected to Graphic's board. With six of her nominees on the nine-person board, Shirley considers some strategies for the board to pursue. Consider the legality of:
a) an amendment to the articles that would eliminate cumulative voting
b) an amendment to the articles that would reduce the number of directors to three
c) an amendment to he articles classifying the nine-person board into three groups, each group members coming up for election once every three years.
d) an amendment to the bylaws to stagger the board in this way

Back 16

a) Legal. Assuming the board proposes the amendment and shareholders approve it, the articles may be amended to delete a provision not required by the articles. Cumulative voting under the MBCA is an opt-in right and can be removed by action of the board.
b) Legal. As a practical manner, the reduction in board size will destroy the effectiveness of cumulative voting. Even though Mildred can continue to accumulate her votes her 22 shares are no longer sufficient to elect a director.
c) Legal. The effect would be similar to reducting the size of teh board. Mildred would no longer be assure dteh ability to elect a director despite her continuing right to accumulate her votes.
d) Not legal. Shirley cannot adopt a classified board through a bylaw amendment. The MBCA requires that a staggered board be provided for in the articles.