Business Organizations and Corporate Law Review

Comprehensive practice flashcards defining core vocabulary, doctrines, statutory provisions, and foundational judicial tests from business organizations, agency, partnership, and corporate law lecture notes.

Agency Relationship

A fiduciary relationship that arises when one person (a principal) manifests assent to another (an agent) to act on their behalf and subject to their control, and the agent consents to act in accordance with the principal's directives.

Positive Control

The operational control established when a creditor moves beyond protecting its financial security interest through veto or oversight (negative control) to directing management and business operations, creating liability as a principal under A Gay Jenson Farms Co. v. Cargill.

Implied Actual Authority

Authority determined by the agent's reasonable interpretation of the principal's manifestations, empowering the agent to take acts incidental or necessary to accomplish the principal's objective based on custom or past dealings.

Apparent Authority

Authority arising when a third party reasonably believes an agent has authority to act on behalf of a principal, where that belief is directly traceable to the principal's manifestations.

Watteau v. Fenwick Doctrine

The principle that an undisclosed principal cannot narrow an agent's authority to less than what a third party would reasonably believe the agent to possess under identical circumstances had the principal been disclosed.

Agency by Estoppel

An equitable doctrine holding a principal liable when an agent lacks actual or apparent authority, but the principal negligently failed to notify the third party or caused the third party to believe the agent possessed authority.

Partnership (RUPA § 202)

An association of two or more persons as co-owners of a business for profit, formed regardless of their intent, unless organized under another statutory business form.

Partnership by Estoppel

A doctrine under which a non-partner is held liable as a partner if they represented or consented to being represented as a partner, and a third party detrimentally relied on that representation in entering into a transaction.

Meinhard v. Salmon Rule

The standard establishing that partners owe an exceptionally high duty of loyalty to each other, meaning business opportunities presented to a managing partner within the scope of the venture belong to the enterprise and must be disclosed.

Transferable Interest (RUPA § 502)

The only personal property interest in a partnership that can be transferred to a non-partner, which includes solely the right to receive distributions and excludes all management rights.

Kovacik v. Reed Rule

The legal exception to default capital loss sharing providing that when one party contributes only monetary capital and the other contributes only labor, the service-only partner is not required to contribute $50\%$ to monetary capital losses.

Statement of Dissociation (RUPA § 704)

A formal filing with the Secretary of State that cuts off a dissociated partner's $2\text{-year}$ lingering apparent authority risk by imputing constructive notice to third parties $90\,\text{days}$ after filing.

Limited Liability Partnership (LLP)

A partnership form created by filing with the Secretary of State that shields all partners from personal liability for general partnership debts while maintaining personal liability for their own wrongful acts.

Ultra Vires Doctrine

A doctrine holding corporate acts outside the express or implied powers of the corporate charter void, applied in modern law only where the certificate of incorporation states an explicit limitation.

Internal Affairs Doctrine

A conflict-of-laws doctrine dictating that the internal governance, fiduciary duties, and institutional relationships of a corporation are governed by the law of its state of incorporation.

Non-Divestment Rule (DGCL § 109)

The statutory rule stating that even if a corporate charter confers bylaw amendment authority on the board of directors, that grant does not divest or restrict the stockholders' ultimate concurrent authority to adopt, amend, or repeal bylaws.

Promoter Liability

The pre-incorporation personal liability of business organizers for contracts entered into on behalf of a future corporation, which remains intact until the entity is formed, adopts the agreement, and the parties execute a release or novation.

Alter Ego Doctrine (Vertical Veil Piercing)

An equitable standard permitting a court to disregard limited liability and reach a shareholder or parent when there is unity of interest and ownership (domination and control) and refusing to pierce would sanction fraud or promote injustice.

Enterprise Liability (Horizontal Veil Piercing)

An equitable doctrine piercing liability horizontally when affiliated sister corporations integrate resources, assets, and management to pursue a single enterprise without respecting operational boundaries, often isolating liabilities in a hollow sister company.

Walkovszky v. Carlton Capitalization Standard

The rule establishing that a business meeting statutory minimum liability insurance or capital requirements set by the legislature is considered adequately capitalized as a matter of law in tort veil-piercing inquiries.

Preferred Stock

A class of equity security carrying specific contractual preferences set forth in the certificate of incorporation (such as dividend or liquidation priorities), where the board's primary fiduciary duties remain owed to common stockholders as long as the firm is solvent.

Business Judgment Rule (BJR)

A rebuttable judicial presumption that corporate directors made a business decision on an informed basis, in good faith, and with the honest belief that the action taken was in the best interests of the corporation.

Corporate Waste

A transaction whose terms are so disproportionate and one-sided that no business person of ordinary, sound judgment could conclude that the corporation received adequate consideration.

Smith v. Van Gorkom Ruling

A Delaware Supreme Court decision holding directors grossly negligent for breaching their duty of care by approving a major corporate merger without adequate valuation inquiry, without reviewing draft agreements, and following only two hours of deliberation.

DGCL § 102(b)(7)

A statutory charter provision permitting corporations to exculpate directors and officers from personal monetary liability for duty of care breaches, while explicitly excluding duty of loyalty breaches, bad faith acts, intentional misconduct, and unlawful distributions.

Entire Fairness Standard

A heightened standard of judicial review applied to interested transactions requiring the interested fiduciary to demonstrate both fair dealing (process, timing, negotiation, and disclosures) and fair price (economic terms equal to an arm's-length transaction).

DGCL § 144 Safe Harbor

A Delaware statute protecting interested director and officer transactions from automatic invalidation if authorized in good faith by a majority of disinterested directors, approved by disinterested stockholders, or shown to be objectively fair.

Corporate Opportunity Doctrine

A duty of loyalty framework prohibiting corporate fiduciaries from appropriating new business ventures if the entity is financially able to undertake them, the opportunity falls within its line of business, and the firm holds an interest or expectancy in it.

Caremark Duty

A fiduciary duty of loyalty requirement obligating directors to make a good-faith effort to ensure that corporate information and reporting systems exist, and to consciously monitor and respond to known red flags.

Mission-Critical Risk Oversight

The heightened Caremark oversight requirement established in Marchand v. Barnhill and In Re Boeing requiring boards to implement formal board-level reporting protocols and monitoring systems for their essential, core regulatory and operational risks.

Shareholder Primacy

The corporate law doctrine established in Dodge v. Ford Motor Co. holding that a for-profit corporation exists primarily to maximize profits and economic returns for its shareholders, limiting the board's ability to prioritize non-shareholder interests over profits.

Delaware Public Benefit Corporation (PBC)

A corporate entity governed by DGCL § 365 that statutorily alters traditional shareholder wealth maximization by requiring directors to balance stockholder pecuniary interests with specific public benefits and stakeholder impacts.

Tooley Test

A Delaware legal test determining whether a claim is direct or derivative based strictly on: (1) who suffered the alleged harm (the corporation or stockholders individually), and (2) who would receive the benefit of any recovery.

Demand Futility

An exception excusing the pre-suit litigation demand requirement in derivative actions when plaintiffs plead particularized facts showing directors received a material personal benefit, face a substantial likelihood of liability, or lack independence.

Special Litigation Committee (SLC)

A committee composed of disinterested and independent board directors empowered by written resolution to investigate derivative claims and determine whether pursuing or dismissing the litigation serves the corporation's best interests.

Mandatory Indemnification (DGCL § 145(c))

A statutory obligation requiring a corporation to indemnify a current or former director or officer for expenses incurred when they are successful on the merits or otherwise in the defense of a legal proceeding.

Blasius Compelling Justification Standard

The standard of judicial review requiring a board of directors to demonstrate a compelling justification whenever it acts for the primary purpose of impeding, thwarting, or interfering with the shareholder franchise.