CORPORATIONS QUIZ # 1 FALL 2011

QUESTION: Name three circumstanceseither from your casebook or

from your outlinein which a court has found (or a corporation statute allows a court to find) that a shareholder of a corporation owes a fiduciary duty to the other shareholders of that corporation. In answering, it is not necessary that all state corporation statutes and/or court decisions recognize all three of these circumstances.

ANSWER: The court has found

shareholders owe a fiduciary duty in situations where tippiees, constructive insider, or misappropriators are engaged in insider trading.

CORPORATIONS QUIZ # 2 FALL 2011

QUESTION: You have a client who wants to start a business. The client
wants to make all the management decisions for the business. The client makes clear that he/she wants the other owners to be passive investors. The client tells you that he/she does not want the other owners to be able to participate in making every day business decisions and policies for the business. The client tells you that the business will have five owners (including the client) and that each owner will own a 20% interest in the new business. QUESTION 1: What type of business organization (or business organizations) would you recommend to the client in view of the clients objectives? ANSWER:
A Limited Liability Partnership

QUESTION 2: Would you recommend to your client that he/she have you draft any additional documents? If so, briefly discuss. ANSWER:
I would recommend the client draft an operating agreement explicitly stating that the only owner with management privileges would be the client. I would also mention the corporate structure and management privileges in the articles of organization. It may also be important to draft a pooling agreement.

QUESTION 3: Would you recommend to the client that the other prospective owners obtain their own attorneys to review any documents that you prepare on behalf of the client? Briefly discuss. ANSWER:
I would recommend that the other owners have their attorneys review the documents because it would be possible for the owners to change the operating agreement later if it seemed that it agreement was unfair or fraudulent. Although the agreement would have the weight of law it would be better to have a clear understanding that the other parties willfully entered the agreement.

CORPORATIONS QUIZ #3 FALL 2011

QUESTION:
Are the provisions of the 1934 Securities and Exchange Act applicable only to publicly held corporations and persons who are affiliated with publicly held corporations? Please explain briefly.

ANSWER: The Securities and Exchange Act only applies to coporations that are publically. Any corp that has stock in secondary market is automatically covered by 5 provisions of the 1934 securities act. This can be avoided if a company has under 500 shareholders.