Duties of general partners and LLC members Bar Exam Flashcards - Medical Study Cards
Master Duties of general partners and LLC members with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Duties of general partners and LLC members Flashcard Deck - 9 Cards
Flashcard 1: What is the corporate-opportunity rule?
Answer: A fiduciary may not take a business opportunity belonging to the corporation, particularly one within its line of business or discovered through corporate resources or position, without first disclosing it and obtaining proper rejection. The rule generally applies unless the corporation is unable to pursue the opportunity or lacks a reasonable interest in it.
Flashcard 2: What is the general rule for a director’s duty of loyalty?
Answer: A director must act in the corporation’s best interests and may not use corporate position or information for personal benefit. The director must disclose conflicts and refrain from self-dealing unless properly approved or fair to the corporation.
Flashcard 3: How does a Delaware court review a special litigation committee’s decision to terminate a derivative suit?
Answer: Under Zapata’s two-step approach, the court first examines the committee’s independence, good faith, and reasonable investigation, and then may independently exercise its own business judgment about dismissal. The committee’s recommendation is therefore not automatically controlling.
Flashcard 4: When does a controlling shareholder owe fiduciary duties to the corporation or minority owners?
Answer: Under the majority rule, control alone does not create fiduciary liability, but a controller owes duties when using control to obtain a non-ratable benefit or engage in self-dealing, such as a freeze-out. Such transactions are ordinarily subject to entire-fairness review unless validly cleansed under applicable law.
Flashcard 5: What is the standard for a director’s duty of care?
Answer: A director must act in good faith, with the care an ordinarily prudent person would use in a like position, and in a manner reasonably believed to serve the corporation’s best interests. The duty generally concerns informed decision-making and oversight, not guaranteed results.
Flashcard 6: What are the two components of entire-fairness review?
Answer: Entire fairness requires both fair dealing—the process, timing, disclosure, and approval—and fair price—the economic terms and value received. The fiduciary generally bears the burden unless applicable law shifts it.
Flashcard 7: How do courts distinguish a direct owner action from a derivative action?
Answer: An action is direct when the owner suffered an individual injury and seeks a recovery belonging to that owner; it is derivative when the corporation suffered the injury and the recovery belongs to the corporation. The claim’s nature, not the label or requested relief, controls.
Flashcard 8: What is the demand requirement and when is demand excused in a derivative suit?
Answer: A shareholder ordinarily must demand that the board cause the corporation to sue, unless demand would be futile under the governing law. Under Delaware’s traditional demand-futility test, demand may be excused when a majority of the board is interested or lacks independence, or when the challenged transaction was not a valid exercise of business judgment.
Flashcard 9: What must a shareholder prove to bring a derivative action?
Answer: The shareholder must have owned shares when the alleged wrong occurred, continue to own them through judgment, and fairly and adequately represent the corporation. The shareholder must also make a demand on the board or plead with particularity why demand would be futile, unless the governing law provides otherwise.
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