Term
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Definition
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Term
| Thompson & Green Machinery Co. & Music City Lumber Co. |
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Definition
| De facto corporations no longer exist, you have to have filed to be a corporation |
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Term
| Equipto Division Aurora Equip. Co. v. Yarmouth |
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Definition
| Not liable for debt if the corp. has been dissolved for missed due date of payment. MBCA requires actual knowledge (adminstrative dissolution) |
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Term
| Total Access, Inc. v. Caddo Electric Cooperative |
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Definition
| Total lacked the standing to bring the action (for utra vires) because it wasn't (1) a shareholder (2)the corp. in an action against an officer or director for loss or damage or (3) the AG |
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Term
| Wartzman v. Hightower Productions, Ltd. |
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Definition
| In the event of a breach of contract, damages for expenses incurred in reliance on the contract are recoverable, less any loss that would have resulted if the contract had been performed. |
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Term
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Definition
Created a test for when an instrument qualifies as an investment contract for purposes of the securities act: (Howey Test)
(1)investment of money due to an (2) expectation of profits arising from a (3) common enterprise (4) which depends solely on the efforts of a promoter or third party |
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Term
| SEC v. Ralston Purina Co. |
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Definition
| Offerings must be made to individuals who have access to the kind of information that a registration statement would supply in order to be exempt from the filing requirements of Section 5 the Securities Act of 1933. |
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Term
| Escott v. BarChris Construction Corp. |
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Definition
| Defendant corporate officers will be held liable for false or misleading statements when they materially affect the purpose of the registration statement.——— The court reviewed many of the statements contained in the registration statement filed by Defendants. Some of the statements were within normal accounting standards, and some of the figures were only slightly different from what the court calculated. However, other statements were misleading or omitted figures altogether, and the difference was significant enough to be considered material under the Act. The case was remanded to determine which of the officers were responsible for the material omissions or misstatements to determine who should be considered the defendants moving forward. |
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Term
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Definition
| Board did not withhold dividends in bad faith. |
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Term
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Definition
| Chancellor said: Ps entitled to dividends, squirreling away balance to meet future needs was inequitable. |
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Term
| Klang v. Smith's Food & Drug Centers |
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Definition
| Court of chancery was correct in finding that there was no impairment of capital and there were no disclosure violations. |
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Term
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Definition
| Veil is pierced - no attempt to provide adequate capitalization. Never had any substantial assets. Alter ego also applies to contractual debts. |
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Term
| NLRB v. West Dixie Enterprises, Inc. |
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Definition
Used two prong test to analyze whether Ds should be personally liable:
(a) the degree to which the corporate legal formalitieshave been maintained, and (b) the degree to which individual and corporate funds, other assets, and affairshave been commingled
Determined that corp. veil was pierced and Ds were personally liable |
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Term
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Definition
| A summary judgment motion will be granted only there exists no genuine issues of material fact. A corporation is considered a separate legal entity until there is a sufficient reason to indicate that the corporate veil should be pierced. Determined in this case the veil should NOT be pierced. |
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Term
| Brusnwick Corp. v. Waxman |
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Definition
| Can't pierce the corporate veil. Brunswick knowingly entered into the contract - could have done some due diligence |
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Term
| Kinney Shoe Corporation v. Polan |
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Definition
LAYA V. ERIN HOMES ANALYSIS
Two Questions:
1. Is the unity of interest and ownership such that the separate personalities of the corp and the shareholder no longer exist;
2. would an equitable result occur if the acts are treated as those of the corporation alone.
LAYA FACTORS
(1) commingling of funds and other assets of the corporation with those of the individual shareholders;
(2) diversion of the corporation’s funds or assets to noncorporate uses (to the personal uses of the corporation’s shareholders);
(3) failure to maintain the corporate formalities necessary for the issuance of or subscription to the corporation’s stock, such as formal approval of the stock issue by the board of directors;
(4) an individual shareholder representing to persons outside the corporation that he or she is personally liable for the debts or other obligations of the corporation;
(5) failure to maintain corporate minutes or adequate corporate records; (6) identical equitable ownership in two entities;
(7) identity of the directors and officers of two entities who are responsible for supervision and management (a partnership or sole proprietorship and a corporation owned and managed by the same parties);
(8) failure to adequately capitalize a corporation for the reasonable risks of the corporate undertaking;
(9) absence of separately held corporate assets;
(10) use of a corporation as a mere shell or conduit to operate a single venture or some particular aspect of the business of an individual or another corporation;
(11) sole ownership of all the stock by one individual or members of a single family;
(12) use of the same office or business location by the corporation and its individual shareholder(s);
(13) employment of the same employees or attorney by the corporation and its shareholder(s);
(14) concealment or misrepresentation of the identity of the ownership, management or financial interests in the corporation, and concealment of personal business activities of the shareholders (sole shareholders do not reveal the association with a corporation, which makes loans to them without adequate security);
(15) disregard of legal formalities and failure to maintain proper arm’s length relationships among related entities;
(16) use of a corporate entity as a conduit to procure labor, services or merchandise for another person or entity;
(17) diversion of corporate assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors, or the manipulation of assets and liabilities between entities to concentrate the assets in one and the liabilities in
(18) contracting by the corporation with another person with the intent to avoid risk of nonperformance by use of the corporate entity; or the use of a corporation as a subterfuge for illegal transactions;
(19) the formation and use of the corporation to assume the existing liabilities of another person or entity.” |
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Term
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Definition
| Distinguishes corporations that are shells for each other from corporations that are shells for an individual's actions |
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Term
| Gardemal v. Westin Hotel Co. |
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Definition
| Under the single business enterprise doctrine, a corporation can be held liable for the acts of another if they are not operated as separate entities, but integrate their resources to achieve a common business purpose. |
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Term
| OTR Associates v. IBC Services, Inc. |
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Definition
The Appellate Court found that courts can only pierce the corporate veil if the parent corporation:
So dominated the subsidiary that it has no separate existence, but is merely a conduit for the parent, and
The control was used to commit a fraud or wrong, or to avoid a positive legal duty.
The Court found that IBC had no office, no staff, and no assets beyond the leases, it did not have a separate existence.
The Court found that IBC misrepresented itself in its dealings, leading OTR to believe that they were dealing with Blimpie. That was fraud because IBC was just a corporate shell created by Blimpie to avoid liability. |
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Term
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Definition
| a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as an operator of the facility. |
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Term
| A.P. Smith Mfg. Co. v. Barlow |
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Definition
Corporations have the right to donate to private institutions of higher education. Factors for Analysis: The donation was:
(1) not made indiscriminately
(2) not made to a pet charity of the corporate directors in furtherance of personal rather than corporate ends
(3) was made to a preeminent institution of higher learning
(4) was modest in amount
(5) was well within statutory limits
(6) was voluntarily made in the reasonable belief that it would aid the public welfare and advance the interests of the P as a private corp and as part of the community in which it operates |
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Term
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Definition
| Affirms giving dividends. |
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Term
| Ringling Bros.–Barnum * Bailey Combined Shows v. Ringling |
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Definition
| Shareholders should be allowed to band together and make pooling agreements. However, the court decided in this case not to invalidate the voting and held that the members that were voted in by Haley and North would remain. Eventually, DE supreme court disqualified Haley shares, and North became controlling shareholder. |
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Term
| Mountain Manor Realty, Inc. v. Buccheri |
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Definition
1) Business Judgment Rule
2) Court may intervene to prevent (or annul) conduct on part of directors that is fraudulent or represents breach of their fiduciary obligations.
3) Assuming stock issuances which have effect of consolidating or perpetuating management control are legal in all other respects, court looks to see if there was any legitimate business purpose for transaction other than self-interest of directors; if it finds that purpose, it would then determine whether that independent purpose was primary or principal one, or whether, conversely, primary object was merely to manipulate control, in which case, transaction may be invalid. |
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Term
| Superwire.com, Inc. v. Hampton |
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Definition
| If you're going to remove a director for cause, you have to establish cause and give the director a chance to contest and respond |
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Term
| Schnell v. Chris-Craft Industries, Inc. |
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Definition
| Corporate directors may not act with the sole purpose of obstructing shareholder action, even if the methods are legally permissible. |
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Term
| Blasius Industries, Inc. v. Atlas Corp. |
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Definition
| Unless the board can articluate a "compelling justificaiton" for its action, court intervene to protect "established principles of corp. democracy." |
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Term
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Definition
Any “right” to purchase stock must be approved by the board and evidenced in writing. This is in order to
(1) consolidate in its board of directors the exclusive authority to govern and regulate a corporations capital structure and
(2) to ensure certainty in the instruments upon which the corporation’s capital structure is based.
(3) (issuance of stock is very, very important and rules will be strictly construed) |
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Term
| International Brotherhood of Teamsters General Fund v. Fleming |
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Definition
Rule 1: “[T]here is no exclusive authority granted boards of directors to create and implement shareholder rights plans, where shareholder objection is brought and passed through official channels of corporate governance.”
Rule 2: “We find no Oklahoma law which . . . precludes shareholders from proposing resolutions or bylaw amendments regarding shareholder rights plans.” |
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Term
| Lacos Land Company v. Arden Group, Inc. |
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Definition
| A shareholders’ vote authorizing a charter amendment is not valid if it is made under the threat that, unless authorized, the company’s principal shareholder and chief executive officer will oppose transactions that may be in the company’s best interests. |
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Term
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Definition
| The court held that the merger had no meaningful effect on plaintiff's ownership of the business enterprise; therefore, he had standing to maintain the derivative suit. |
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Term
| Mills v. Electric Auto-Lite Co. |
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Definition
| A material misrep. or omission is enough to establish a cause of action. A company could release an exteremly false proxy statement and justify it as long as they could demonstrate the merger was fair: The court noted that misleading material would violate 14(a). In this case, Petioner has established facts, namely that shareholders may have been materially affected by the recommendation of an interested board of directors, which would allow for a cause of action. |
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Term
| Lovenhein v. Iroquois Brands, Litd. |
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Definition
| Foi gras case - court holds that precedent demonstrated that rule 14a-8(c)(5) would only omit proposals that were less than the minimum 5% of sales and not signficantly related to the businesses. In this case, pate issue was significant to its pate business regardless that it did not comprise greater than 5% of sales. |
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Term
| State ex rel Pillsbury v. Honeywell, Inc. |
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Definition
| Vietnam war case - holds that petioner's purpose not proper. Proper purpose has to pertain to investment purposes rather than just simply whenever a stockholder has any grievance with a company's management. No "absolute right of inspection" |
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Term
| Seinfeld v. Verizon Communications, Inc. |
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Definition
| Wasn't allowed to see the books. |
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Term
| Donahue v. Rodd Electrotype Co. of New England, Inc. |
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Definition
PRIMARY RULE: "stockholders in the closely held corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another[:]"
SECONDARY SIGNIFICANCE:
Definition of a closely-held corporation:
1) small number of stockholders
2) no ready market for the corporate stock
3) substantial majority stockholder participation in the mgmt, direction, and operations of the corp |
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Term
| Wilkes v. Springside Nursing Home, Inc. |
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Definition
| Shareholders in a close corporation owe each other a duty of acting in good faith, and they are in breach of their duty when they terminate another shareholder’s salaried position, when the shareholder was competent in that position, in an attempt to gain leverage against that shareholder.. |
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Term
| Smith v. Atlantic Properties, Inc. |
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Definition
| Court held that determining factor for the fiduciary duty owed is whether a party would be considered a controlling party. Because Wolfson was the controlling party in that he alone prevented the dividend payouts despite no real business justification, the court affirms that a fair dividend should be declared. Wolfson was unreasonable and did not demonstrate utmost good faith and loyalty to th business. |
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Term
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Definition
| Not a breach of duty situation - controlling group must have some room to maneuver in establishing business policy. |
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Term
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Definition
| Duties of corp to CEO are contractual , don't involve minority stock holder status |
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Term
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Definition
| The court reversed judgment that defendants overcharged, because contract with third party gave it power to approve fees to defendants and evidence in the record supported their reasonableness. It affirmed judgment for defendants on their counterclaim, because substantial evidence supported finding, as well as damages determination. |
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Term
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Definition
| Even if a corporation isn’t organized as a close corporation, if it looks like a duck and quacks like a duck, there’s probably a fiduciary duty |
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Term
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Definition
Personal Relationship Rule: “A court should gvie relief, dissolution or some other remedy to a minority shareholder whenever corporate managers or controlling shareholders act in a way that disappoints the minority shareholder’s reasonable expectations, even though the acts of the managers or controlling shareholders fall within the literal scope of power or rights granted them by the corporation at or the corporation’s charter or bylaws.”
Factors for “reasonable expectations”
(1) History
(2) Reasonable expectations created at the inception of the participants’ relationship
(3) Reasonable expectations as altered over time
(4) Reasonable expectations which develop as participants engage in a course of dealing in conducting the affairs of the corporation
(5) Interests and views of other participants |
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Term
| In the Matter of Kemp & Beatley, Inc. |
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Definition
| Oppressive conduct (as distinct from illegal conduct) refers to conduct that substantially defeats the "reasonable expectations" held by minority shareholders in committing their capital to the particular closely-held corporation. — “[O]ppression should be deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner's decision to join the venture." |
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Term
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Definition
Oppression
Has to be burdensome, harsh, or harmful conduct. Traditionally oppression is wheni. only arises when the majority conduct substantially defeats expectations, that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner's decision to join the venture (see above) BUT this case shows that if there is burdensome, harsh or harmful conduct, there can also be oppression. |
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Term
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Definition
The criteria under Delaware precedence for finding a voting trust is that
(1) the voting rights of the stock are separated from the other attributes of ownership;
(2) the voting rights granted are intended to be irrevocable for a definite period of time; and
(3) the principal purpose of the grant of voting rights is to acquire voting control of the corporation. |
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Term
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Definition
The business of a corporation shall be managed by its board of directors.
Shareholders can not form an agreement to control the decisions traditionally vested in the judgment of the directors of a company |
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Term
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Definition
| An agreement between shareholders, wherein the shareholders entering the agreement are the only shareholders of the company, is valid even if the agreement contemplates controlling management decisions |
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Term
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Definition
| A shareholder agreement, particularly in closed corporations, that controls the voting for board members and the members’ management decisions, should nevertheless be enforced as long as the agreement is not fraudulent or harmful to the public. |
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Term
| Lash v. Lash Furniture Company of Barre |
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Definition
| Have to contract around this kind of situation. Fiduciary duty not to let outside commitments detracts - presence of competing interests may prevent directors from acting ——— Director may not profit at the expense or against the interest of the corporation. The duties of good faith and loyalty require that a director must not allow personal interests to interfere with or supersede the interests of the corporation. |
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Term
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Definition
| The court concluded that the causes should not be reinstated and affirmed the dismissal. The court found that there was no cognizable breach of any fiduciary duty owed to the former employee under the plain terms of the parties' repurchase agreement. |
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Term
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Definition
| Fiduciary duty can be breached in more ways than just a diminishing of the stock value, such as by terminating Respondent and forcing a share sale at the agreement’s stated price of 75% market value. There was also evidence that, in the facts surrounding the structure of this close corporation, that there was an expectation of lifetime employment for the shareholders. |
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Term
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Definition
| Breached duty of care by not hedging - leaving inexperienced manager in charge and not supervising |
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Term
| Francis v. United Jersey Bank |
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Definition
| Court says: kind of like a bank - in that respect (creditors) were also dependent on directors. Company was in a precarious was in a precarious financial position as a result of unauthorized loans. Ps here are creditors - there is duty there. |
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Term
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Definition
| “creditors of a Delaware corporation that is either insolvent or in the zone of insolvency have no right, as a matter of law, to assert direct claims for breach of fiduciary duty against [a] corporation’s directors.” Instead, creditors can protect their interests by asserting derivative fiduciary duty claims on behalf of an insolvent corporation or by asserting any applicable direct non-fiduciary duty-based claims. —— std for director liability is whether there is a "sustained or systematic failure of the board to exercise oversight – such as an utter failure to attempt to assure a reasonable information and reporting system exists... |
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Term
| Stone ex rel. Amsouth Bancorporation v. Ritter |
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Definition
| (1) Caremark standard is the appropriate standard for director duties with respect to corporate compliance issues; and (2) there is no duty of "good faith" that forms a basis, independent of the duties of care and loyalty, for director liability. |
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Term
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Definition
| The court found the director guilty of misprision of his office but held that he is not liable to the corporation in as much as the plaintiff failed to show that had the director done his duty he could have made the company prosper , or at least could have broken its fall. |
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Term
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Definition
| Business judgment rule will not shield an uninformed decision. Board didn't do adequate research. |
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Term
| State ex rel Hayes Oyster Co. v. Keypoint Oyster Co. |
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Definition
| Breach of duty of loyalty if there is a possibility or even probability that some controversy might arise between the two interests a President/Manager is involved in. Shareholders are entitled to know if there is a potential conflict of interest. Intent to defraud is not necessary |
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Term
| Today Homes, Inc. v. Williams |
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Definition
*A corporate officer has a fundamental duty not to divert a corporate opportunity for personal gain.
*A corporate officer must disclose a corporate opportunity to the employer before taking advantage of it for himself. Once plaintiff has shown that a corporate opportunity existed and that the corporate fiduciary appropriated it without disclosure and the consent of the company, a prima facie case has been made out. There is further discussion of the corporate opportunity doctrine. |
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Term
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Definition
–A corporate opportunity exists when a proposed activity is
1) reasonably incident to the corporation’s present or prospective business and
2) is one in which the corporation has the capacity to engage.
–Whether or not a given opportunity meets the requisite relationship is largely a question of fact to be determined from the objective facts and surrounding circumstances existing at the time the opportunity arises.
–Whether or not an officer has misappropriated a corporate opportunity does not depend on any single factor. |
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Term
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Definition
| Can't backdate stock options grant dates |
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Term
| In re Tyson Foods, Inc., Consolidated Shareholder Litigation |
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Definition
| Spring-loading is illegal |
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Term
| In re The Walt Disney Company Derivative Litigation |
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Definition
| Court says: if you effectively abdicate your responsibilities, knowlingly fail to implement any system to ensure corp. is complying with law or in instance, pay no attention to what is before you at board meeting - that is a breach of duty of good faith - and - because of Stone v. Ritter, a breach of duty of loyalty |
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Term
| Sinclair Oil Co. v. Levien |
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Definition
| Defendant did not engage in self-dealing by issuing large dividends but it did engage in self-dealing when they breached the agreement. Defendant complied with Delaware statute 8 Del.C. Section: 170, concerning the payment of dividends, and Defendant’s motives are not a factor when all shareholders benefit from the transaction (not self-dealing). However, the contract breach was to the detriment of Sinven and its minority shareholders with the positive effect being exclusive to Defendant, so the breach is self-dealing. |
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Term
| Zapata Corp. v. Maldonado |
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Definition
| The court should first determine if a defendant corporation proves that the appointed committee is independent, and then determine, when applying their business judgment standard, whether the motion to dismiss the derivative suit should be granted. |
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Term
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Definition
| An SLC will be okay if its members (a) were not involved in the challenged transaction (b) has the business expertise to evaluate the transaction (c)retained an outside law firm to assist them (d) reviewed a substiantial amount of documents (e) interviewed potential witnesses |
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Term
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Definition
| The Court of Chancery’s holding is reversed because the Plaintiff failed to first make a demand to Defendant Directors before bringing a derivative suit. Plaintiff further failed to show that such a demand was excused because he did not allege particularized facts that indicate such a demand would be futile. |
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Term
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Definition
| only if a director owes his position and is otherwise financially dependent will court find that person lacks independence |
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Term
| Tooley v. Donaldson, Lufkin & Jenreete, Inc. |
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Definition
| The highest court (1) redefined a test to determine if the shareholders' claim was a direct or a derivative claim, (2) found they did not state a derivative claim, (3) found they did not state a ripe direct claim upon which relief could be granted, but that that issue was not argued, and (4) affirmed the dismissal, but reversed the judgment and remanded for the trial court to dismiss the case without prejudice--with leave to replead. Grimes test holds. |
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Term
| Escott v. Barhris Construction Corporation |
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Definition
| Material misreps were violation of sec. act |
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Term
| Santa Fe Industries, Inc. v. Green |
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Definition
| Section 10(b) of the Securities Exchange Act and Rule 10b-5 prohibit conduct involving manipulation or deception, but are not so expansive as to govern incidences of fiduciary breach. |
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Term
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Definition
| Misleading statements during merger discussions will be material under Rule 10b-5 if the misstatements would have changed the view of the total information by a reasonable investor |
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Term
| Asher v. Baxter International, Inc. |
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Definition
| Narrowed the safe harbor created by Private Securities Litigation Reform Act of 1995 to say that a court cannot interpret the reasonableness of cautionary language in a forward-looking statement when considering a motion to dismiss———only plaintiffs unable to draft a complaint to fit within the Asher loophole will not be allowed to conduct "fishing expeditions" into defendants' documents |
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Term
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Definition
| A duty to disclose information arises if there is a relationship of trust and confidence between parties to the transaction. Chiarella had no such duty. He was not a corporate insider in the acquiring corporation and he did not receive confidential information from the target company. He also had no fiduciary relationship with the shareholders of the target company: he was not their agent; they placed no trust or confidence in him; indeed, they had no prior dealings with him. A duty to disclose under Section 10(b) does not arise from the mere possession of nonpublic market information. |
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Term
| Dirks v. Securities and Exchange Commission |
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Definition
| A tippee owes a fiduciary duty to shareholders if the tippee received material nonpublic information from an insider that breached his fiduciary duty by disclosing the information, and the tippee knows of the breach. |
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Term
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Definition
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Term
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Definition
| An outsider who misappropriates confidential information to personally benefit violates Section:10(b) because there is deception in connection with the purchase or sale of a security. |
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Term
| Sphinx International, Inc. v. National Union Fire Insurance Company of Pittsburgh |
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Definition
| insured v. insured exclusion: precludes coverage of claims by one director of officer against another |
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Term
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Definition
nonprofit corporations can be converted into for-profit corporations without members' approval, since non-profits' governing bodies have more authority than typical corporate boards. The court also held common law and state General Corporation Law principles applicable to nonprofit corporations' governance, with nonprofits' fiduciaries subject to the same standards as for-profits' in answering allegations of violations.
Read more: http://www.readabstracts.com/Law/Interested-director-transactions-and-the-equivocal-effects-of-shareholder-ratification.html#ixzz2SWrU6y5r |
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Term
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Definition
| Delaware law (8 Del.C. §271(a)) requires majority shareholder approval for the sale of "all or substantially all" of the assets of a Delaware corporation. |
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Term
| Hariton v. Arco Electronics, Inc. |
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Definition
| Asset sales statutes and merger statutes are independent of each other, and a corporation complying with one or the other is complying with the law. |
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Term
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Definition
| A majority shareholder owes a fiduciary duty to minority shareholders to provide all relevant information that would pertain to a proposed cash-out merger. |
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Term
| Unocal Corp v. Mesa Petroleum Co. |
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Definition
TWO PART TEST (first, is there a change in control or identifiable threat?)
1. Board must reasonably perceive the bidder's action as a threat to corp. policy - a threshold dominant-purpose inquiry into the board's investigation AND
2. Any defensive measure the board adopts "must be reasonable in relation to the threat posed" - proportionality test |
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Term
| Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. |
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Definition
| When a takeover is inevitable, the directors’ duty is to achieve the best price for the shareholder. (this is contrasted by the Time case - where court allows board to consider future interests of the company) |
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