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Business Organizations - Coggle Diagram
Business Organizations
Fiduciary Duties
Duty of Loyalty
Meinhard - DOL to disclose opportunity and give co-adventurers equal chance to participate --> failure to disclose biz venture = breach of duty
DOL breach = breach by secrecy --> full disclosure giving equal chance = this is to eliminate informational advantage to co-venturers ---> managing fiduciaries = HEIGHTENED DUTY
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British American Rule = no deriving "excess benefits" = DOL breach --> creates presumptive harm to P (no need to show actual financial damages)
Labovitz = sole discretion over profit disbursements --> offer to buy stock at 2/3 of book value = economic coercion = DOL breach
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Extended British-American Rule ---> "nominal hospitality" = not a breach (ex. fancy dinner to celebrate closing a big merger deal) ---> req. = material inducement that could reasonably influence = breach
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Corp DOL Breaches = (a) Interested party transactions = (we lose BJR ---> IFT test applies ---> burden shifts to defendants), (b) Corp opportunity transactions - someone took opportunity, (c)
Duty of Care
Partner Default Rule = you can be negligent, but you can't be GROSSLY Negligent (This is also Business Judgement Rule)
No intentional, reckless, or grossly negligent conduct = DOC
Francis = Total Failure to Act or Nonfeasance by Director = no BJR ---> Director = Heightened Duties ---> (a) Substantive Due Care & (b) Procedural Due Care ---> (a) = were you given warnings in consults during actual decision-making? ---> (b) did you do any procedural investigations or monitor operations leading up to decision-making? -
Wrigley - corp directors may use long-term or non-financial factors when making biz decisions (Ex. concerns about night-games and there effect neighborhood property values)
Van Gorkom - Corp BJR = Procedural DOC violation = approving a major merger w/o valuation reports or meaningful deliberation - no big decisions "over coffee" ---> BJR = duty to monitor financial situation
Decision Time - need not be correct when decision panned out ---> need only be reasonable at the time of the decision being made
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Theories of Liability
Direct-Act Liability:
Revco = obedience to directions given by negligent P = P can be liable for A's actions in following orders that are a natural, reasonably forseeable, and proximate result of P's orders to A
Bestfoods Inc. = parent corp can be held Directly Liable for subsidiary's damages ---> ONLY if they have managers/officers with direct operational control over the tortious activity (i.e. environmental damage from dumping) ---> mere oversight is not sufficient to create Direct Liability
Respondeat Superior:
Jackson = sexual relationship w/ coworker = outside the scope of employment when purely personal and consensual
Lourim = authorized duties of the P given to A (mentoring/"grooming activity") --> created the opportunity to sexually assault Boy Scouts --> misuse of job-conferred powers can trigger RS vs. purely consensual sexual activity w/ coworker
Gen Partnerships = joint and severable liability --> whether in K or in tort --> each partner is liable as entity and as individual for the FULL amount --> both are liable jointly for the tortious acts of one
LLC Law:
Cortez = statute can immunize LLC member from Respondeat Superior --> can not immunize from negligent directed acts under Direct Liability
Member-Managed = all members participate in management - all owe fiduciary duties to the company and one another
Manager-Managed = all members elect managers - only managers owe fiduciary duties to company and other managers
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New Horizons = (a) if LLC is dissolved and assets are distributed before creditors are paid, members of LLC are personally liable to creditors, (b) liability is limited to liquidated value of assets the member received, and (c) burden of proof is on the LLC member to prove compliance w statutory wind-up rules
LLC Veil-Piercing = Kaycee Land => injustice, inequity, or fundamental unfairness
Direct liability = participate, direct, or knowingly allow
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Corporate Law
Piercing the Corporate Veil: (a) Alter-Ego/Mere Instrumentality Theory, (b) Lack of Corp Formalities, (c) Fraudulent Practice, (d) Undercapitalization, (e) Enterprise Liability - Horizontal Piercing
Ex. of (a) - siphoning corporate funds by a dominant shareholders for family vacations - this is using corp as "personal piggy-bank"
(d) Ex. = corp lawsuit for $3-mill but they only maintain insurance claim for $1-mil (they don't have enough money)
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McQuade Rule = Private Shareholder agreements do not bind corporate managers in salary and positional modifications
Only controlling shareholders have fiduciary duties - If MC question just says shareholder --> assumer no duties
Derivative Action - (a) suit by shareholders to management of corp, (b) shareholders are suing behalf of the corp for damages done to the corp, (c) for the purposes of getting money back to the corporation so the shareholders stock in the corp can grow in monetary value ---> if the corp is harmed the stock value of shareholders goes down - that is why they act.
AP SMITH - Ultra Vires Doctrine = When can corps do charity? ---> (a) it has to be modest, (b) must serve a corp interest, (c) not disguised as a personal gift, (d) does not constitute waste
Exculpation - corp waives its duty of care and some duty of loyalty in the founding docs towards directors or officers --> if the directors breach DOC (but only some DOL) they can't be sued
Indemnification - a clause in the founding documents that give insurance to directors who are sued for breach of DOC by shareholders and ends up derivatively harming the other shareholders
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