• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

25 Cards in this Set

  • Front
  • Back
Courts will not second-guess the business decisions of a Board as long as the director/officer ...
(1) had no conflict of interest when he made the decision
(2) gathered a reasonable amount of information before deciding; and
(3) did not act wholly irrationally
What is the standard that a director must exercise under the Duty of Care?
Director must, in handling the corp's affairs, behave with the level of care that a reasonable person in similar circumstances would use.

Very easy standard! As long as board said that they evaluated it - court will defer
What can a SH claim as a Duty of Care violation?
(1) Fraud
(2) Self dealing
(3) bad faith; or
(4) oppressive conduct
Under DE law, what must Bd consider in order to avoid breaching the DoC?
Del directors must use all info reasonably available to inform themselves to not breach the DoC
What did the Board do wrong in the Van Goarkom case?
(1) had a short meeting (2 hours!)
(2) no written studies or summary of the merger agreement
Under the ALI standard, what must a board consider to save itself from a DoC violation?
Directors must be informed to the degree that they reasonably believe to be appropriate
What are the factors in the entire fairness analysis?
1. fair price
2. transaction (timing, initiation, negotiation, disclosure and approval by directors and SHs)
Where does the burden lie in a DoC analysis?
BoP is on the SH plaintiff to show that a DoC violation, but once they've proved it, the burden is on the directors to show that it meets the entire fairness standard.
Does the BJR apply when a Bd doesn't make a decision, or doesn't stay informed about the business?
NO. Straight up DoC violation.
What are the basics of a DoL violation?
Interested directors/officers
Can the Business Judment Rule allow for a Conflict of Interest?
No. When there is a CoI it rebuts the BJR, but there is no breach of the DoL if the court concludes that the transaction is fair to the corporation.
What must a Board prove in order to rebut a DoL violation?
good faith of the transaction and inherent fairness from the viewpoint of the corp.
What is the DE test for the Corporate Opportunities Doctrine?
An officer/director violates DoL by embracing a business opportunity for herself IF:
1. the corp is financially able to take the opportunity
2. the opportunity is the corp line of business
3. the corp has an interest or expectancy in the opportunity; and
4. by embracing the opportunity the officer would create a conflict between his self interests and that of the corp.
What test do you apply when there is evidence of self-dealing?
Entire fairness. Corporation bears the burden of showing it was fair. Otherwise apply the BJR.
When is there self-dealing?
When a parent received a benefit to the exclusion and at the expense of the subsidiary.
What is required for a quorum
A majority of ALL directors are present
What is required for a ratification?
Majority of all disinterested directors
How does ratification work?
No K will be void because an interested director was present at the voting for the contract if:
1. with disclosure of material facts, the transaction is approved by a majority of the disinterested direcotrs
2. with disclosure of material facts, it is approved by a majority of the shareholders OR
3. contract is fair to the corporation at the time it is authorized, approved or ratified
In order to successfully ratify, do a majority of the SHs need to be disinterested?
No. Unlike requirement for Board of Directors - Because SHs have persistent conflicts (most usually have interests in other corporations)
What does proper ratification mean?
Court can't void a K solely because it was executed by interested parties.
What is the effect of ratification on a DoC claim?
Effective ratification extinguishes a DoC claim.
What is the effect of ratification on a DoL claim against a Director?
BJR applies: Effective ratification shifts the burden of proof to the Plaintiff to show that there was a Waste of Corporate Resources (like burning money - bjr)
What is the effect of ratification on a DoL claim against a Controlling Shareholder?
Effective ratification shifts the burden of proof to the Plaintiff to show unfairness.

Note: only applies to de facto controlling shareholder.
What does the court evaluate when reviewing corporate waste?
It evaluates the process that the Bd of Directors took when determining how to spend the money (like on CEO salary - Disney) - not whether the amount of money spent was reasonable.
What is a defense to a corporate waste/DoC violation?
Board is protected because it relied on experts. But, there are multiple exceptions to this defense (like no actual reliance, bad faith, didn't select expert with rxble care, just so crazy)