Business Organizations and Corporate Governance
Business Organizations and Corporate Governance tests entity choice, authority, fiduciary duties, and liability shields.
Core rules
- General partnership: default joint and several liability; RUPA default rules; limited partners are passive investors. LLC: operating agreement controls; members may be manager- or member-managed; limited liability.
- Corporation: board manages or directs; officers execute; shareholders elect directors and vote on fundamental changes.
- Fiduciary duties: care (gross negligence standard) and loyalty (self-dealing, usurping corporate opportunity, competing). Business judgment rule presumes informed, disinterested decisions.
- Corporate opportunity factors: financial ability, line of business, and interest or expectancy of the corporation.
- Veil piercing: alter ego, undercapitalization, fraud, or injustice; rare. Derivative suits require demand or futility.
Worked example
A director learns of a profitable supply contract that the corporation is financially able to perform. She takes it personally without disclosure. Even if the deal turns out well, the business judgment rule does not protect her: the opportunity is within the corporation's line of business, and loyalty required disclosure and a board decision.
Traps
The business judgment rule is a presumption, not immunity. LLC fiduciary duties are often variable by agreement. Officers and controlling shareholders owe duties. Piercing requires more than a small company.