Business Entities Outline
BUSINESS ENTITIES OUTLINE
FIDUCIARY DUTIES: 2 different analyses • DELAWARE ▪ 1) Nature of Breach • A) Duty of loyalty: The duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer, or controlling shareholder o i) Self-Dealing: Any time a corporation is in a transaction where a director, officer, or majority shareholder is on the other side, and the corporation is exchanging too much for what it is receiving; such a transaction is not invalid unless unfair to the corporation at the time of the transaction (Tomaino) o ii) Usurpation of Corporate Opportunity: When a director or officer takes a business deal for herself when the corporation would have accepted it. 3 Tests/Elements for Corporate Opportunity: • 1) Line of business test • Actor knows the opportunity is a business activity closely related to a business in which the corporation is engaged or expects to engage. • 2) Expectancy test • Whether offeror expects opportunity will be offered to the corporation or whether a corporation would expect to have an interest in opportunity. This is a narrower test than the line of business test and uses the reasonableness standard. • 3) Financial capacity of corporation • Not whether a corporation would have taken opportunity, but if it could have taken it. A large company has many types of ways to get capital if it wants to, so unless it’s on the verge of bankruptcy, they have a good argument that it could have had the capacity • If the opportunity meets all of these elements/tests, then there is an implied requirement that the director/officer disclose the opportunity to the board • Can cleanse the
FIDUCIARY DUTIES: 2 different analyses • DELAWARE ▪ 1) Nature of Breach • A) Duty of loyalty: The duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer, or controlling shareholder o i) Self-Dealing: Any time a corporation is in a transaction where a director, officer, or majority shareholder is on the other side, and the corporation is exchanging too much for what it is receiving; such a transaction is not invalid unless unfair to the corporation at the time of the transaction (Tomaino) o ii) Usurpation of Corporate Opportunity: When a director or officer takes a business deal for herself when the corporation would have accepted it. 3 Tests/Elements for Corporate Opportunity: • 1) Line of business test • Actor knows the opportunity is a business activity closely related to a business in which the corporation is engaged or expects to engage. • 2) Expectancy test • Whether offeror expects opportunity will be offered to the corporation or whether a corporation would expect to have an interest in opportunity. This is a narrower test than the line of business test and uses the reasonableness standard. • 3) Financial capacity of corporation • Not whether a corporation would have taken opportunity, but if it could have taken it. A large company has many types of ways to get capital if it wants to, so unless it’s on the verge of bankruptcy, they have a good argument that it could have had the capacity • If the opportunity meets all of these elements/tests, then there is an implied requirement that the director/officer disclose the opportunity to the board • Can cleanse the