Business Organizations and Corporate Governance
Entity Forms and Formation
Candidates should compare sole proprietorships, general and limited partnerships, LLCs, and corporations on formation, liability shielding, taxation, and management. Know that a corporation requires articles of incorporation and that de facto corporation and corporation by estoppel doctrines may protect defective formations. Understand the limited liability of shareholders and the circumstances for piercing the corporate veil, notably commingling, undercapitalization, and fraud.
Governance and Duties
Study the roles of shareholders, directors, and officers. Directors owe duties of care and loyalty, with the business judgment rule presuming informed good-faith decisions. Understand entire fairness review when a conflict exists, the demand requirement in derivative suits, and the special litigation committee. Know basic shareholder rights: inspection, voting, proxy, and preemptive rights where granted.
Securities and Close Corporations
Understand the basics of registration and exemptions, insider trading on material nonpublic information, and the heightened fiduciary duties in close corporations. Know the difference between a merger and a sale of substantially all assets, and appraisal rights.
Traps and Rule of Thumb
Traps: assuming the business judgment rule protects fraud or self-dealing; confusing direct and derivative claims; forgetting that an LLC member's liability shield can be pierced. Rule of thumb: ask whether the decision was informed, disinterested, and in good faith. If yes, courts defer; if no, entire fairness applies.