Business Associations (MEE) Long Outline

BUSINESS ASSOCIATIONS MASTER TREATISE OUTLINE (MEE)

Business Associations (also called Agency & Partnership, Corporations, or simply "Corporations and LLCs") is one of the most frequently tested and most rule-dense subjects on the Multistate Essay Examination. The NCBE tests this subject under a hornbook framework: agency law follows the Restatement (Third) of Agency; general partnerships and LLCs follow the Revised Uniform Partnership Act (RUPA, 1997) and the Uniform Limited Liability Company Act; corporations follow the Revised Model Business Corporation Act (RMBCA/MBCA). This treatise is organized to track the way the MEE actually examines the field — beginning with agency (the foundation that runs through every other entity), moving through the unincorporated entities (general partnerships, limited partnerships, LLPs, LLLPs, and LLCs), and culminating in the law of corporations and federal securities regulation. Throughout, the outline flags every majority/minority split and every common-law versus uniform-act divergence, because the MEE grader is looking for the examinee who recognizes that the answer can change depending on which body of law governs. Master the rules below, learn to spot which entity and which framework is in play, and you will be able to write a top-scoring answer on any Business Associations question the NCBE can produce.

I. AGENCY

Agency is the legal relationship that arises when one person (the principal) manifests assent that another person (the agent) shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act. Agency is the bedrock of all business associations: partners are agents of the partnership, officers and directors act through agency principles, and members or managers bind the LLC through agency authority. Mastering agency first makes every later entity easier.

A. Formation of the Agency Relationship

Rule: An agency relationship is formed when (1) the principal manifests assent that the agent act on the principal's behalf and subject to the principal's control, and (2) the agent consents to so act. No consideration is required — agency may be gratuitous. No writing is required (except where the equal dignities rule applies, discussed below). The parties need not subjectively intend to create an "agency"; the law looks to the objective manifestations.

Capacity: The principal must have contractual capacity, because the agent's acts bind the principal as though the principal acted personally. The agent need only have minimal capacity — even a minor can serve as an agent, because the agent is merely a conduit for the principal's legal acts. A corporation can be a principal but, lacking natural personhood, must always act through agents.

The equal dignities rule: When the underlying transaction the agent is to perform must itself be in writing under the Statute of Frauds (e.g., a contract for the sale of land), the agent's authority must also be in writing in many jurisdictions.

EXAMPLE: Owner tells Broker, "Find me a buyer for my warehouse and you may sign the sale contract on my behalf." Because a land sale contract falls under the Statute of Frauds, in an equal-dignities jurisdiction Owner's grant of authority to Broker must be in writing for Broker's signature to bind Owner.

ESSAY WRITING TIP: Begin every agency essay by stating the formation rule and concluding that an agency relationship exists (or does not). Many examinees skip this step and jump straight to authority — but the grader's rubric almost always awards points for expressly identifying the principal, the agent, and the basis of the relationship. Spend two sentences here before moving to authority.

MEE TIP: The NCBE loves to test the distinction between an agent and a non-agent. Watch for facts where a party is an independent contractor, a mere supplier, a buyer-seller, or a creditor — these are NOT agency relationships unless the principal retains a right to control the manner and means of performance. The right to control is the touchstone.

B. Actual Authority — Express and Implied

Rule: Actual authority exists when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, based on the principal's manifestations to the agent, that the principal wishes the agent so to act. Actual authority runs from the principal to the agent and is measured by the agent's reasonable interpretation of the principal's communications.

Express actual authority is conferred by the principal's words — oral or written — explicitly directing the agent to act. Implied actual authority is authority the agent reasonably believes he has as a result of the principal's conduct, including authority to do whatever is reasonably necessary to accomplish the expressly authorized task, authority arising from custom and usage in the trade, and authority arising from prior dealings between the parties.

EXAMPLE: Principal expressly authorizes Manager to "run the store." Manager has express authority to operate the store and implied actual authority to order inventory, hire clerks, pay utility bills, and do everything reasonably incidental to running a retail business, even though none of those specific tasks was mentioned.

ESSAY WRITING TIP: Always analyze actual authority before apparent authority. Structure your analysis as a cascade: actual express, then actual implied, then apparent, then ratification, then inherent. If actual authority exists, the principal is bound and you need not reach apparent authority — but write a sentence acknowledging the alternative theories anyway, because the facts are often ambiguous and the grader wants to see you can run each theory.

MEE TIP: A classic NCBE trap: the principal privately instructs the agent to limit a transaction (e.g., "don't pay more than $5,000"), the agent violates the instruction, and a third party sues the principal. Secret limitations on authority destroy actual authority but do NOT defeat apparent authority, because the third party never saw the limitation. Spot this and analyze both theories.

C. Apparent Authority

Rule: Apparent authority arises when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to a manifestation of the principal to the third party. The key distinction from actual authority is the direction of the communication: actual authority flows from principal to agent; apparent authority flows from principal to the third party. The agent's own statements cannot create apparent authority — the principal must be the source of the third party's reasonable belief.

Lingering apparent authority: Even after actual authority terminates, apparent authority can linger if the third party is unaware of the termination and the principal previously cloaked the agent with the appearance of authority. The principal can cut off lingering apparent authority by giving notice to third parties.

Apparent authority by position: When a principal appoints a person to a position (e.g., treasurer, general manager), the principal is held to have manifested that the person has the authority customarily held by persons in that position.

EXAMPLE: Principal fires Agent but Agent, still holding company letterhead and business cards, signs a contract with a long-time supplier who has dealt with Agent for years and has no notice of the firing. The supplier may hold Principal to the contract under lingering apparent authority because Principal's prior conduct cloaked Agent with apparent authority and Principal failed to notify the supplier.

ESSAY WRITING TIP: When you reach apparent authority, expressly identify the principal's manifestation to the third party. Graders deduct when an examinee asserts apparent authority without pinpointing the principal's conduct that created the appearance. Say it: "Here, Principal's manifestation was [appointing Agent as store manager / supplying Agent with company letterhead / prior course of dealing], which led the third party reasonably to believe..."

MEE TIP: Apparent authority is the single most heavily tested agency concept on the MEE. If contract liability is at issue and actual authority is doubtful, apparent authority is almost always the intended path to liability. Never write an agency contract-liability essay without analyzing apparent authority.

D. Ratification

Rule: Ratification occurs when a principal, with knowledge of the material facts, affirms a prior act that was done (or purportedly done) on the principal's behalf, thereby giving the act effect as if originally authorized. Ratification requires: (1) the agent purported to act on the principal's behalf; (2) the principal has knowledge of all material facts at the time of ratification; (3) the principal manifests assent (expressly or by conduct, such as accepting the benefits of the transaction); and (4) the principal had capacity and the ability to ratify. Ratification relates back to the time of the original act and is effective for the entire transaction — a principal cannot ratify the favorable parts and reject the rest.

Limitations: The principal must have existed and had capacity at the time of the original act (a corporation cannot ratify a pre-incorporation contract — it must instead adopt it). Ratification cannot occur if it would prejudice the rights of intervening third parties.

EXAMPLE: Agent, without authority, buys a delivery truck "for Principal." When Principal learns of the purchase and the truck's condition, Principal begins using the truck in the business. By accepting the benefits with knowledge of the material facts, Principal has ratified the purchase and is bound to pay the seller.

ESSAY WRITING TIP: Ratification is the principal's affirmative tool to create liability where none existed, but the examinee should note that it requires full knowledge of material facts. If the fact pattern shows the principal accepted benefits while ignorant of a key fact, ratification fails — emphasize the knowledge requirement.

MEE TIP: Ratification frequently appears as the principal's fallback when actual and apparent authority both fail. If the fact pattern shows the principal taking the benefit of an unauthorized deal after the fact, the grader wants ratification analysis. Tie ratification to the "accepts the benefits with knowledge" trigger.

E. Inherent Authority and Estoppel

Rule: Inherent authority (recognized under the Restatement (Second) and useful as a catch-all) imposes liability on a principal for an agent's acts that are not actually or apparently authorized, in order to protect third parties who deal with the agent, particularly where the agent's act is one that agents in that position usually perform. The Restatement (Third) largely subsumes inherent authority into apparent authority and estoppel, but the MEE may still reward an examinee who recognizes that a general agent who exceeds authority can bind an undisclosed principal under inherent-authority principles. Agency by estoppel binds a person who intentionally or carelessly causes a third party to believe another is his agent, and the third party detrimentally relies.

EXAMPLE: An undisclosed principal employs a general manager to run a business. The manager makes a purchase of a type usual for such a business but contrary to the principal's secret instructions and beyond apparent authority (because the third party did not know of any principal). Under inherent authority, the undisclosed principal may still be bound to protect the reasonable expectations of third parties.

ESSAY WRITING TIP: Reserve inherent authority for the rare fact pattern involving an undisclosed principal or a general agent who deviates from instructions. Do not lead with it. Use it as a closing alternative theory after you have analyzed actual, apparent, and ratification.

MEE TIP: Inherent authority and estoppel are low-frequency on the MEE but high-value when they appear — usually with an undisclosed principal. If the facts hide the principal's existence from the third party, apparent authority is impossible (no manifestation reached the third party), so inherent authority or estoppel becomes the only contract-liability path.

F. Liability in Contract — Disclosed, Partially Disclosed, and Undisclosed Principals

Rule: Where the agent acts with authority, the contract liability of the principal and agent depends on disclosure. A disclosed principal (the third party knows of the principal's existence and identity) is bound and the agent is not personally liable. With a partially disclosed (unidentified) principal (third party knows there is a principal but not the identity), both the principal and the agent are liable. With an undisclosed principal (third party believes the agent is the sole party), both the undisclosed principal and the agent are liable, and the third party may elect to hold either once the principal is revealed.

EXAMPLE: Agent signs a supply contract "Agent, as agent for an undisclosed principal" — actually partially disclosed. The supplier may recover from both Agent and Principal because the supplier did not know Principal's identity at the time of contracting.

ESSAY WRITING TIP: Memorize the disclosed/partially disclosed/undisclosed matrix cold and apply it whenever the question asks whether the agent is personally liable on a contract. State the third party's knowledge expressly, then place the facts into the correct category and announce the liability outcome for both parties.

MEE TIP: The disclosure question is the classic "is the agent personally liable" hook. The NCBE expects you to recognize that the answer turns entirely on what the third party knew about the principal's existence and identity at the moment of contracting.

G. Tort Liability — Respondeat Superior, Scope of Employment, and Frolic and Detour

Rule: Under respondeat superior, a master/employer is vicariously liable for the torts of a servant/employee committed within the scope of employment. An act is within the scope of employment if it is of the kind the employee was hired to perform, occurs substantially within authorized time and space limits, and is motivated at least in part to serve the employer. The employer's liability is in addition to the employee's own liability — both are jointly liable, and the injured plaintiff may sue either.

Frolic and detour: A minor deviation from the employer's business (a detour) remains within the scope of employment, so the employer remains liable. A substantial deviation for the employee's own purposes (a frolic) takes the employee outside the scope, relieving the employer until the employee returns to the route or resumes the employer's business.

Intentional torts: Generally outside the scope of employment, because they are usually not motivated to serve the employer. Exceptions: where force is inherent in the work (e.g., a bouncer), where the employee is furthering the employer's business (a debt collector), or where the employer authorized or ratified the tort.

EXAMPLE: A delivery driver leaves his route to drive ten miles in the opposite direction to visit a friend and negligently causes a collision en route. This substantial personal deviation is a frolic; the employer is not vicariously liable. Had the driver merely stopped for coffee a block off the route, that minor detour would remain within the scope and the employer would be liable.

ESSAY WRITING TIP: For any tort question, first determine whether the tortfeasor is an employee or an independent contractor, because respondeat superior applies only to employees. Then run the scope-of-employment test element by element, and if the facts show a deviation, expressly characterize it as a frolic or a detour and explain why.

MEE TIP: The NCBE often combines partnership and agency: each partner is an agent of the partnership, so the partnership (and co-partners, jointly and severally) is liable for a partner's torts committed in the ordinary course of partnership business — apply respondeat-superior reasoning within the partnership context.

H. Independent Contractors and Nondelegable Duties

Rule: A principal is generally not vicariously liable for the torts of an independent contractor, because the principal lacks the right to control the manner and means of the contractor's work. The distinction between an employee and an independent contractor turns on the right of control, considered along with factors such as the skill required, who supplies the tools and place of work, the method of payment (by time versus by the job), the length of the relationship, and whether the work is part of the principal's regular business.

Exceptions (principal liable despite independent-contractor status): (1) inherently dangerous activities (e.g., blasting, crop dusting); (2) nondelegable duties imposed by law or public policy (e.g., a landowner's duty to keep premises safe for invitees, duties to maintain safe instrumentalities); and (3) where the principal negligently selects or supervises the contractor.

EXAMPLE: A store hires an independent demolition contractor to use explosives. Even though the contractor controls the means of the work, blasting is inherently dangerous, so the store remains liable for resulting injuries under the inherently-dangerous-activity exception.

ESSAY WRITING TIP: When the facts label someone an "independent contractor," do not stop there — analyze the right-of-control factors yourself, because the label is not dispositive, and then check for the inherently-dangerous and nondelegable-duty exceptions.

MEE TIP: The independent-contractor exceptions are favorite traps. If the facts involve blasting, demolition, transporting hazardous materials, or a duty owed to the public (premises safety), the grader expects you to override the no-liability default with an exception.

I. Duties of Agent to Principal and Principal to Agent

Rule (agent's duties): The agent owes the principal a duty of loyalty (act solely for the principal's benefit; no self-dealing, no usurping the principal's opportunities, no secret profits, no competing with the principal, no using confidential information for the agent's own benefit) and a duty of care (act with the care, competence, and diligence normally exercised by agents in similar circumstances), as well as duties of obedience (follow reasonable instructions) and to account. A gratuitous agent owes the same duty of loyalty but a duty of care measured by the lesser standard appropriate to an unpaid agent.

Rule (principal's duties): The principal owes the agent duties to compensate as agreed, to reimburse and indemnify the agent for authorized expenses and liabilities incurred in carrying out the agency, to cooperate and not unreasonably interfere, and to deal fairly and in good faith.

Remedies for breach: A principal whose agent breaches the duty of loyalty may recover damages, may obtain disgorgement of the agent's secret profits (the agent must account for profits), and may seek to impose a constructive trust on property the agent wrongfully acquired.

EXAMPLE: A purchasing agent for a company secretly accepts kickbacks from a supplier. The agent has breached the duty of loyalty (secret profit) and must disgorge the kickbacks to the principal, regardless of whether the principal suffered any out-of-pocket loss.

ESSAY WRITING TIP: When an agent profits secretly, emphasize that disgorgement is available even without proof of harm to the principal — the wrong is the breach of loyalty itself. This is a high-value point that many examinees miss.

MEE TIP: Fiduciary-duty concepts learned here carry directly into partnership and corporate law. The agent's duty of loyalty is the conceptual ancestor of the partner's and director's duty of loyalty; flag the parallel when the question spans entities.

J. Termination of Agency

Rule: Actual authority terminates upon: (1) the agreed time or completion of the task; (2) a change of circumstances; (3) the agent's breach of fiduciary duty; (4) either party's manifestation of revocation (by the principal) or renunciation (by the agent) — note the principal generally has the power to revoke even if doing so breaches the contract (creating liability for breach, but ending authority); (5) death or loss of capacity of either party (though under the Restatement (Third), the principal's death does not end the agent's actual authority until the agent has notice); or (6) by operation of law (bankruptcy, illegality).

Power coupled with an interest: An agency coupled with an interest (where the agent holds a security or property interest in the subject matter) is irrevocable and not terminated by the principal's death or incapacity.

EXAMPLE: A borrower grants a lender a power of attorney to sell pledged stock to satisfy the debt. Because the power is coupled with the lender's security interest, the principal cannot revoke it and it survives the principal's death.

ESSAY WRITING TIP: After termination, remember lingering apparent authority — actual authority may be gone, but the principal can still be bound to third parties who lack notice. Always pair termination analysis with a lingering-apparent-authority check.

MEE TIP: The "power coupled with an interest" is a tested exception. If the agent has a genuine property or security interest in the subject matter (not merely an interest in earning a commission), the agency is irrevocable — spot the distinction.

II. GENERAL PARTNERSHIPS

A general partnership is the default form of business association for two or more persons who carry on a business for profit without filing organizational documents. Under RUPA (1997), the partnership is an entity distinct from its partners. The MEE tests partnerships under RUPA but expects awareness of common-law (aggregate-theory) divergences.

A. Formation — No Formalities and the Profit-Sharing Presumption

Rule: A general partnership is "an association of two or more persons to carry on as co-owners a business for profit," whether or not the persons intend to form a partnership (RUPA § 202). No writing, filing, or formality is required — a partnership can arise by conduct. The single most important formation rule: the receipt of a share of the profits of a business creates a presumption that the recipient is a partner, unless the profits were received in payment of a debt, as wages or compensation to an employee or independent contractor, as rent, as an annuity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business. Sharing of gross returns alone does not create a partnership; sharing of net profits raises the presumption.

EXAMPLE: Two friends operate a food truck, split the net profits 50/50, jointly decide menu and pricing, and share losses. Even with no written agreement and no intent to "form a partnership," they are partners because they are co-owners carrying on a business for profit and share profits.

EXAMPLE (negating the presumption): A lender receives 10% of a restaurant's monthly profits as repayment of a loan. This profit share is in payment of a debt, so it does not raise the partnership presumption — the lender is a creditor, not a partner.

ESSAY WRITING TIP: When the question asks whether a partnership exists, march through the RUPA § 202 definition and then apply the profit-sharing presumption, expressly checking each statutory exception. Conclude clearly, because the existence of a partnership is the gateway to every downstream issue (liability, fiduciary duty, dissolution).

MEE TIP: Partnership-formation questions are a perennial MEE favorite, often paired with a creditor or employee who claims (or denies) partner status. The grader rewards careful application of the profit-sharing presumption and its exceptions. Always name the exception that applies.

B. Partnership by Estoppel

Rule: Partnership by estoppel (RUPA § 308) arises when a person, by words or conduct, represents himself — or consents to being represented — as a partner, and a third party reasonably relies on that representation in extending credit. The purported partner is liable to the relying third party as if a partner in fact, even though no actual partnership exists. Likewise, a person who holds another out as a partner may be bound by that person's acts.

EXAMPLE: A retiring partner allows the firm to keep using his name and to introduce him to a new lender as "a partner." The lender extends credit in reliance. The retired person is liable by estoppel as a partner to that lender, despite having no actual partnership interest.

ESSAY WRITING TIP: Partnership by estoppel is the fallback when no actual partnership exists but a third party reasonably relied on the appearance of one. Tie liability tightly to the third party's reliance — without reliance there is no estoppel.

MEE TIP: Estoppel liability is limited to the particular third party who relied. It does not make the person a partner for all purposes. Note this limitation expressly to earn full credit.

C. Partnership Property and the Entity Theory

Rule: Under RUPA's entity theory, the partnership owns partnership property in its own name, and an individual partner has no transferable interest in specific partnership property. Property is partnership property if acquired in the partnership's name or in a partner's name where the instrument indicates the person's capacity as a partner or the existence of a partnership. Property purchased with partnership funds is presumed to be partnership property. A partner's only transferable interest is the partner's economic interest — the right to share in profits and distributions.

EXAMPLE: A partner uses partnership funds to buy a warehouse but takes title in her own name. RUPA presumes the warehouse is partnership property because partnership funds purchased it; the partner cannot treat it as her personal asset.

ESSAY WRITING TIP: Distinguish sharply between partnership property (owned by the entity) and a partner's transferable interest (a personal asset that can be assigned or reached by creditors). The MEE rewards examinees who keep this distinction clean, especially in dissolution and creditor questions.

MEE TIP: A partner's creditor cannot seize specific partnership property; the creditor's remedy is a charging order against the partner's transferable economic interest. State the charging order as the exclusive remedy.

D. Rights of Partners — Management, Profits, Losses, Salary, and Records

Rule: Absent a contrary agreement, RUPA's default rules govern: (1) each partner has equal rights in management regardless of capital contribution, and ordinary business decisions are decided by a majority of the partners, while matters outside the ordinary course or amendments to the partnership agreement require unanimous consent; (2) profits are shared equally, and losses follow profits (so equal profit-sharing means equal loss-sharing) regardless of unequal capital contributions; (3) a partner is not entitled to remuneration (salary) for services to the partnership, except reasonable compensation for services in winding up; (4) every partner has the right to inspect and copy the partnership books and records, which must be kept at the chief executive office.

EXAMPLE: Partner A contributes $90,000 and Partner B contributes $10,000, with no agreement on profit-sharing. Under RUPA's default, they share profits equally — 50/50 — and losses equally as well, because the default does not track capital contributions. To change this, the partners must agree otherwise.

ESSAY WRITING TIP: Always begin partner-rights analysis with "absent an agreement to the contrary," because RUPA's rules are default rules the partners may vary. Then state the default. Many fact patterns hinge on the partners' failure to agree, which triggers the surprising equal-sharing defaults.

MEE TIP: The equal-management-vote and equal-profit-sharing defaults are heavily tested precisely because they are counterintuitive when contributions are unequal. Watch for the "no salary" rule too — a partner who works full time while others are passive is still not entitled to a salary absent agreement.

E. Fiduciary Duties of Partners

Rule: Under RUPA § 404, each partner owes the partnership and the other partners the duty of loyalty and the duty of care, and must discharge all duties and exercise rights consistently with the obligation of good faith and fair dealing. The duty of loyalty is limited to: (1) accounting to the partnership for any benefit derived from partnership business or use of partnership property (no secret profits); (2) refraining from dealing with the partnership as an adverse party; and (3) refraining from competing with the partnership. The duty of care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or knowing violations of law — ordinary negligence does not breach the duty of care.

EXAMPLE: A partner secretly buys real estate that the partnership had been negotiating to acquire, then resells it to the partnership at a profit. The partner has breached the duty of loyalty by usurping a partnership opportunity and dealing as an adverse party; she must disgorge the profit.

ESSAY WRITING TIP: Note the gross-negligence floor for the duty of care — an examinee who says a partner breached the duty of care by being merely negligent will lose points. RUPA tolerates ordinary negligence; only gross negligence, recklessness, intentional misconduct, or knowing legal violations breach the care duty.

MEE TIP: RUPA permits the partnership agreement to modify but not eliminate the duty of loyalty, and the agreement may not eliminate the obligation of good faith and fair dealing. If a fact pattern shows an agreement purporting to waive all fiduciary duties, flag that such a wholesale waiver is unenforceable.

F. Partner as Agent and Partner Liability

Rule: Each partner is an agent of the partnership for the purpose of its business (RUPA § 301). A partner's act for apparently carrying on in the ordinary course the partnership business binds the partnership, unless the partner lacked authority and the third party knew or had received notification of the lack of authority. All partners are jointly and severally liable for all obligations of the partnership, whether arising in contract or tort (RUPA § 306). However, a judgment creditor generally must first exhaust partnership assets before reaching a partner's personal assets (the exhaustion rule).

Incoming partner: A person admitted as a new partner is liable for partnership obligations incurred before admission only to the extent of that partner's capital contribution — the incoming partner's personal assets are not at risk for pre-admission debts (RUPA § 306(b)).

Dissociating (outgoing) partner: A dissociated partner remains liable for partnership obligations incurred before dissociation, and can remain liable for obligations incurred within two years after dissociation if the other party reasonably believed the dissociated person was still a partner and lacked notice of the dissociation. The partnership can cut off this lingering liability by filing a statement of dissociation, which is deemed to give notice 90 days after filing.

EXAMPLE: New partner joins a firm that already owes a bank $200,000. The bank cannot reach New partner's personal assets for that pre-existing debt; New partner risks only her capital contribution. But for a $50,000 debt the firm incurs after she joins, New partner is jointly and severally liable to the full extent of her personal assets.

ESSAY WRITING TIP: When liability is at issue, separate the timeline: debts before admission, debts during membership, and debts after dissociation each carry different liability consequences. Draw the timeline explicitly in your analysis.

MEE TIP: The incoming-partner and dissociating-partner liability rules are tested almost every cycle that partnerships appear. Memorize: incoming partner — capital contribution only for prior debts; outgoing partner — liable for pre-dissociation debts plus up to two years for apparent-authority debts unless notice is given.

G. Transfer of Partnership Interest

Rule: A partner may transfer the partner's transferable economic interest (the right to receive distributions) without the consent of the other partners, but the transferee does not become a partner and acquires no management or information rights — admission of a new partner requires the unanimous consent of the existing partners. The transfer does not by itself cause dissociation or dissolution.

EXAMPLE: A partner assigns her right to partnership distributions to a creditor. The creditor receives the distributions but cannot vote, inspect the books, or participate in management, and the partner remains a partner.

ESSAY WRITING TIP: Distinguish transferring the economic interest (permitted, automatic) from admitting a new partner (requires unanimous consent). Examinees routinely conflate the two; keeping them separate earns easy points.

MEE TIP: The pick-your-partner principle underlies this rule: partners get to choose their co-partners, so an assignee can take the money but not the seat. Connect this to the unanimous-consent requirement for admission.

H. Dissociation, Dissolution, and Winding Up

Rule — dissociation: A partner is dissociated from the partnership upon events listed in RUPA § 601, including the partner's express will to withdraw, expulsion, bankruptcy, death, or incapacity. Dissociation does not necessarily dissolve the partnership. A wrongful dissociation occurs when dissociation breaches an express provision of the agreement or, in a term partnership, when a partner withdraws before the end of the term; a wrongfully dissociating partner is liable to the partnership for damages.

Rule — buyout: When a partner dissociates and the partnership is not dissolved, the partnership must buy out the dissociated partner's interest at the greater of liquidation value or going-concern value as of the date of dissociation, less damages for any wrongful dissociation (RUPA § 701).

Rule — dissolution: Certain events cause dissolution and trigger winding up (RUPA § 801): in an at-will partnership, a partner's notice of express will to withdraw causes dissolution; in a term partnership, dissolution occurs on expiration of the term, completion of the undertaking, or the express will of all partners; dissolution also occurs upon an event making continuation unlawful, or by judicial decree. After dissolution, the partnership continues only for the purpose of winding up.

Rule — distribution priority: On winding up, partnership assets are applied in this order (RUPA § 807): (1) to creditors, including partners who are creditors, are paid first; (2) the remaining surplus is distributed to partners in settlement of their accounts. Each partner's account is credited with contributions and the partner's share of profits and charged with distributions and the partner's share of losses. If assets are insufficient, partners must contribute to cover the deficiency in their loss-sharing proportions.

Apparent authority after dissolution: After dissolution, a partner can still bind the partnership through acts appropriate for winding up, and even through other acts that would have bound the partnership before dissolution if the other party did not have notice of dissolution. The partnership can limit this lingering authority by filing a statement of dissolution, effective as to third parties 90 days after filing.

EXAMPLE: Three partners wind up a partnership with $120,000 in assets and a $50,000 bank loan. The bank is paid first ($50,000), leaving $70,000 to settle the partners' accounts according to their capital and profit/loss shares. If the partnership instead had $30,000 in assets and the $50,000 loan, the partners must contribute the $20,000 shortfall in their loss-sharing proportions.

ESSAY WRITING TIP: Distinguish dissociation (one partner leaves) from dissolution (the whole partnership winds up) — they are not synonyms and trigger different consequences. If the partnership continues after a partner leaves, analyze buyout; if it terminates, analyze winding up and the § 807 distribution waterfall.

MEE TIP: The distribution waterfall is frequently tested with a deficiency. Remember that under RUPA, partners who lent money to the partnership are paid as creditors, and the old common-law distinction giving outside creditors priority over partner-creditors has been abolished. State the order: outside and inside creditors first, then partner capital accounts.

III. LIMITED PARTNERSHIPS, LLPs, AND LLLPs

Limited partnerships and the various limited-liability variants overlay liability shields on the partnership framework. The MEE tests the formation formalities and the liability shields, especially the limited partner's control rule and the partner shields under the LLP and LLLP forms.

A. Limited Partnerships — Formation and Certificate

Rule: A limited partnership (LP) is a partnership with at least one general partner and at least one limited partner. Unlike a general partnership, an LP requires a filing: a certificate of limited partnership must be filed with the state. The general partner manages the business and has unlimited personal liability for partnership obligations; the limited partner is a passive investor whose liability is limited to the amount of the limited partner's contribution.

EXAMPLE: An investor contributes $100,000 as a limited partner and takes no role in management. The investor's downside is capped at the $100,000 contribution; the general partner, by contrast, is personally liable for all LP debts.

ESSAY WRITING TIP: Note that the LP, unlike the general partnership, cannot arise by conduct — it requires a filed certificate. If the facts show no filing, there is no valid LP, and the would-be limited partners may be exposed as general partners.

MEE TIP: Watch for which uniform act governs. The older RULPA (1976/85) and the modern ULPA (2001) differ on key points, including the control rule below. The MEE typically signals the governing act; apply the one indicated and note the divergence.

B. Limited Partner Liability Shield and the Control Rule

Rule: Under the older RULPA, a limited partner who participates in the control of the business loses the liability shield and becomes liable as a general partner — but only to persons who reasonably believed, based on the limited partner's conduct, that the limited partner was a general partner (the "control rule"). RULPA provides a list of safe-harbor activities (e.g., consulting, acting as an agent or employee, voting on major matters) that do not constitute participation in control. Under the modern ULPA (2001), the control rule is abolished: a limited partner is not personally liable for LP obligations even if the limited partner participates in management — the shield is "full."

EXAMPLE: A limited partner under RULPA begins directing day-to-day operations and signing contracts; a creditor who reasonably believed she was a general partner may hold her personally liable under the control rule. Under ULPA (2001), the same conduct would not strip her shield.

ESSAY WRITING TIP: Identify the governing statute before analyzing the control rule, because the outcome flips. Under RULPA, run the control rule and safe harbors; under ULPA (2001), state that the control rule has been abolished and the limited partner retains full protection.

MEE TIP: The control rule is a signature LP issue. If the facts show a limited partner getting involved in management, the grader is testing whether you know that RULPA penalizes control (subject to reliance) while ULPA (2001) does not. Name both regimes.

C. LLPs and LLLPs

Rule: A limited liability partnership (LLP) is a general partnership that has filed a statement of qualification to obtain a liability shield. In an LLP, no partner is personally liable for the partnership's obligations (whether in contract or tort) solely by reason of being a partner — partners remain liable for their own personal misconduct. A limited liability limited partnership (LLLP) is a limited partnership that has elected LLP status, thereby extending the liability shield to the general partner, who would otherwise have unlimited liability.

EXAMPLE: A law firm organized as an LLP incurs a malpractice judgment caused by Partner X. The firm's assets are at risk and Partner X is personally liable for her own malpractice, but the other partners are shielded from personal liability for the firm's obligation — a key advantage of the LLP over the general partnership.

ESSAY WRITING TIP: Emphasize that the LLP shield protects partners from vicarious liability for the partnership's and other partners' obligations, but never shields a partner from liability for that partner's own wrongful conduct. This nuance is commonly tested.

MEE TIP: Remember the formalities: LLP status requires filing a statement of qualification, and most states require the name to include "LLP" or "Registered Limited Liability Partnership." Without the filing, the firm is an ordinary general partnership with joint and several liability.

IV. LIMITED LIABILITY COMPANIES (LLCs)

The LLC is a hybrid combining the limited liability of a corporation with the pass-through flexibility of a partnership. The MEE tests LLCs under the Uniform Limited Liability Company Act framework, focusing on management structure, the liability shield and veil piercing, fiduciary duties, and dissociation/dissolution.

A. Formation and the Operating Agreement

Rule: An LLC is formed by filing articles of organization (sometimes called a certificate of organization) with the state. The owners are members. The operating agreement — which may be oral or written — governs the internal affairs of the LLC: management structure, distributions, voting, and members' rights and duties. The operating agreement controls over the default statutory rules on most matters, though it cannot eliminate certain core protections (e.g., it cannot eliminate the duty of loyalty in its entirety or the obligation of good faith and fair dealing, though it may identify specific permitted activities).

EXAMPLE: Three members form an LLC and adopt an operating agreement allocating profits 50/30/20 and requiring unanimous consent for borrowing. The agreement displaces the statutory default of equal sharing; courts will enforce the members' bargain.

ESSAY WRITING TIP: Begin LLC analysis by asking whether an operating agreement addresses the issue, because the agreement almost always controls. Only if the agreement is silent do you apply the statutory defaults. State this hierarchy explicitly.

MEE TIP: The LLC is increasingly tested as the NCBE modernizes. Know that the operating agreement need not be written and that it is the primary source of governance — many fact patterns turn on an oral understanding among members.

B. Management — Member-Managed vs. Manager-Managed

Rule: An LLC is member-managed by default unless the articles or operating agreement provide that it is manager-managed. In a member-managed LLC, each member has equal rights in management, ordinary decisions are made by majority of the members, and each member is an agent of the LLC with authority to bind it in the ordinary course (analogous to a partner). In a manager-managed LLC, only the managers manage and have agency authority to bind the LLC; non-manager members do not have the power to bind the LLC merely by virtue of membership and do not owe management-based fiduciary duties.

EXAMPLE: A member of a manager-managed LLC, who is not a manager, signs a large supply contract. Because non-manager members lack agency authority in a manager-managed LLC, the LLC is bound only if the manager had actual or apparent authority or the LLC ratifies — the member's signature alone does not bind it.

ESSAY WRITING TIP: Always classify the LLC as member-managed or manager-managed at the outset, because this classification determines who has agency authority and who owes fiduciary duties. Default is member-managed; manager-management requires an election.

MEE TIP: Under the modern uniform act, statutory apparent authority by status was narrowed — a member's status alone does not automatically confer apparent authority to bind the LLC; authority turns on agency-law principles. Note this if the facts hinge on a third party's reasonable belief.

C. Limited Liability and Veil Piercing

Rule: Members and managers are not personally liable for the debts, obligations, or liabilities of the LLC solely by reason of being a member or manager — their downside is limited to their investment. However, courts will pierce the LLC veil on essentially the same grounds used for corporations: where members disregard the entity's separateness (commingling funds, ignoring formalities, treating LLC assets as personal assets — the alter ego theory), where the LLC is undercapitalized, or where the LLC is used to perpetrate fraud or injustice. A member always remains liable for the member's own torts.

EXAMPLE: A sole member runs personal expenses through the LLC bank account, never maintains separate records, and leaves the LLC grossly undercapitalized. A creditor may pierce the veil and reach the member's personal assets under the alter-ego and undercapitalization theories.

ESSAY WRITING TIP: Veil-piercing analysis is essentially identical for LLCs and corporations; cite the same factors (commingling, undercapitalization, failure to observe formalities, fraud). But note that LLCs are subject to fewer formalities by design, so courts give less weight to "failure to follow formalities" for an LLC than for a corporation.

MEE TIP: Veil piercing is the hook whenever a fact pattern shows an owner abusing the entity to dodge creditors. Whether the entity is an LLC or a corporation, list the factors and apply them; the conclusion usually depends on commingling plus undercapitalization plus inequity.

D. Fiduciary Duties, Dissociation, Dissolution, and Transferability

Rule (fiduciary duties): In a member-managed LLC, members owe the duties of loyalty and care (the care duty again limited to refraining from gross negligence, recklessness, intentional misconduct, and knowing violations of law) and the obligation of good faith and fair dealing — mirroring RUPA. In a manager-managed LLC, these duties are owed by the managers, not by non-manager members.

Rule (transferability): Like a partnership interest, an LLC membership interest is split into a transferable (economic) interest and management/governance rights. A member may transfer the economic interest, but the transferee does not become a member or gain management rights without the consent of the other members (default: unanimous or as the operating agreement provides). A creditor's remedy against a member's interest is a charging order.

Rule (dissociation/dissolution): A member may dissociate, but under the modern act dissociation does not automatically dissolve the LLC; the dissociated member loses management rights and becomes a mere transferee of the economic interest (and there is generally no automatic buyout right, in contrast to some partnership rules). The LLC dissolves on events specified in the operating agreement, the consent of all members, the passage of 90 consecutive days with no members, or judicial dissolution. On dissolution, assets are applied first to creditors (including member-creditors), then to members.

EXAMPLE: A member of an LLC wishes to cash out. Unless the operating agreement grants a buyout right, the member may dissociate and assign her economic interest, but she cannot compel the LLC to purchase her stake — a meaningful difference from a RUPA at-will general partnership, where dissociation triggers a buyout.

ESSAY WRITING TIP: Flag the buyout difference: a dissociating LLC member generally has no automatic right to be bought out (absent agreement), whereas a dissociating partner under RUPA does. This contrast is a high-value distinction the grader looks for.

MEE TIP: When the question crosses entity lines, build a comparison: LLCs and partnerships share the economic-interest/charging-order framework and the gross-negligence care standard, but differ on buyout-on-dissociation and on the formality of formation. Drawing these parallels and distinctions earns analytical credit.

V. CORPORATIONS — FORMATION AND PROMOTERS

Corporations are tested under the RMBCA/MBCA. A corporation is a separate legal entity, owned by shareholders, managed by a board of directors, and run day-to-day by officers. This section addresses how corporations come into existence and the special problems of promoters and pre-incorporation contracts.

A. Formation — Incorporators, Articles, and De Jure Status

Rule: A corporation is formed when one or more incorporators file articles of incorporation with the state and the secretary of state accepts the filing. The articles must include the corporate name (with a corporate indicator like "Inc." or "Corp."), the number of authorized shares, the name and address of the registered agent and registered office, and the name and address of each incorporator. A corporation that has satisfied all mandatory statutory requirements is a de jure corporation, whose existence cannot be challenged by the state or third parties. The owners of a de jure corporation enjoy limited liability.

EXAMPLE: Incorporators file conforming articles naming "Acme Widgets, Inc.," authorizing 10,000 shares, and designating a registered agent. Upon the state's acceptance, Acme is a de jure corporation and its shareholders are shielded from personal liability.

ESSAY WRITING TIP: When testing formation, list the mandatory contents of the articles and check each against the facts. If a required element is missing, the corporation may not be de jure, opening the door to de facto and estoppel theories below.

MEE TIP: Distinguish the articles (the public charter) from the bylaws (the internal operating rules adopted by the board or shareholders, not filed with the state). The MEE sometimes tests which document controls a given governance question — the articles control over conflicting bylaws.

B. De Facto Corporation and Corporation by Estoppel

Rule: If incorporators fail to achieve de jure status, two doctrines may still shield owners from personal liability. The de facto corporation doctrine applies where there is a valid incorporation statute, a good-faith colorable attempt to comply with it, and some actual use of the corporate form; the entity is treated as a corporation against everyone except the state (which alone may challenge its existence by quo warranto). The corporation by estoppel doctrine prevents a party who dealt with the business as though it were a corporation from later denying its corporate status to reach the owners personally — and conversely prevents the business from denying its corporate status. Note that the MBCA imposes personal liability on persons who purport to act as or on behalf of a corporation knowing there was no incorporation; some authorities view the MBCA as having abolished or narrowed the de facto and estoppel doctrines.

EXAMPLE: Owners attempt in good faith to incorporate but the filing is rejected for a clerical defect of which they are unaware; they conduct business as a corporation. A contract creditor who dealt with the business as a corporation is estopped from reaching the owners personally, and the de facto doctrine likewise protects them — but a creditor could pursue personal liability if the owners knew there was no valid incorporation.

ESSAY WRITING TIP: Apply de facto and estoppel only after concluding the corporation is not de jure. State the elements of each and note the MBCA's knowledge-based personal-liability provision, which can override these protections where the owners knew there was no incorporation.

MEE TIP: The examiners reward recognition that these are defensive doctrines invoked to avoid personal liability. The pivotal fact is usually the owners' knowledge — good-faith ignorance supports protection; actual knowledge of non-incorporation supports personal liability under the MBCA.

C. Promoter Liability and Pre-Incorporation Contracts

Rule: A promoter is one who acts on behalf of a corporation not yet formed. A promoter who enters a contract on behalf of a corporation that does not yet exist is personally liable on that contract, and remains liable even after the corporation forms, unless there is a novation — an agreement among the promoter, the corporation, and the third party to substitute the corporation for the promoter. The corporation is not automatically liable on pre-incorporation contracts; it becomes liable only if, after formation, it adopts the contract (expressly or by knowingly accepting its benefits). Adoption makes the corporation liable but does not release the promoter — only a novation releases the promoter. Promoters also owe fiduciary duties to the corporation and to each other, prohibiting secret profits on transactions with the corporation.

EXAMPLE: A promoter signs a lease "for Newco, a corporation to be formed." Newco later incorporates and moves in, accepting the lease's benefits. Newco has adopted the lease and is now liable, but the promoter remains personally liable too — the landlord can pursue both unless a novation releases the promoter.

ESSAY WRITING TIP: Keep the trio of concepts distinct: adoption (corporation becomes liable, promoter still liable), novation (corporation substituted, promoter released), and the default of continuing promoter personal liability. Examinees lose points by assuming the corporation's later adoption automatically frees the promoter — it does not.

MEE TIP: Promoter liability is a recurring MEE topic. The decisive question is almost always whether a novation occurred. Absent a three-party agreement releasing the promoter, the promoter stays on the hook even after the corporation adopts the contract.

D. Ultra Vires

Rule: A corporation generally has the power to engage in any lawful business. Where the articles limit the corporation's purpose, acts beyond that purpose are ultra vires. Under the MBCA, ultra vires is not a defense to enforcement of a contract; instead, ultra vires may be raised only in three narrow situations: (1) a shareholder suit to enjoin the act; (2) a suit by the corporation against the directors or officers who authorized the act; or (3) a proceeding by the state to dissolve the corporation.

EXAMPLE: A corporation whose articles limit it to "operating restaurants" guarantees an unrelated friend's personal loan. A shareholder may sue to enjoin the guarantee as ultra vires, but the corporation cannot use ultra vires to escape the obligation to the lender after the fact.

ESSAY WRITING TIP: Stress that ultra vires is no longer a shield against contract liability under modern law; it survives only as a sword in the three enumerated proceedings. State all three to show command of the rule.

MEE TIP: Ultra vires is low-frequency but easy to spot — look for a purpose clause in the articles that the corporation's act exceeds. The grader wants the three permitted uses of the doctrine and the rejection of ultra vires as a contract defense.

VI. ISSUANCE OF STOCK AND SHAREHOLDER CONTRIBUTIONS

This section addresses how a corporation raises equity capital — subscriptions, the consideration required for shares, par value and watered stock, and the preemptive rights that protect existing shareholders from dilution.

A. Subscriptions and Consideration

Rule: A stock subscription is an offer to buy shares. Under the MBCA, a pre-incorporation subscription is irrevocable for six months unless the subscription provides otherwise or all subscribers consent to revocation. Post-incorporation subscriptions are revocable until accepted by the corporation. Shares may be issued for any tangible or intangible property or benefit to the corporation, including cash, property, services already performed, promissory notes, and contracts for future services (the MBCA validates promissory notes and future-services contracts as consideration, a liberalization of older law that barred them). The board's good-faith determination of the adequacy of consideration is conclusive.

EXAMPLE: An investor subscribes to 1,000 shares before incorporation, then tries to back out after three months. Under the MBCA, the subscription is irrevocable for six months, so the investor cannot revoke without the other subscribers' consent.

ESSAY WRITING TIP: Note the six-month irrevocability rule for pre-incorporation subscriptions and the liberalized consideration rules — older bar outlines barred promissory notes and future services, but the MBCA permits them. Apply the modern rule unless told otherwise.

MEE TIP: The board's good-faith valuation of non-cash consideration is conclusive on adequacy. If the facts show the board accepting property or services in good faith, do not second-guess the valuation; the issue instead becomes par value and watered stock below.

B. Par Value, Watered Stock, and Preemptive Rights

Rule (watered stock): Par value is the minimum issue price for a share. If shares with a par value are issued for less than par, the stock is watered, and the shareholder (and sometimes the directors who knowingly authorized the issuance) may be liable to the corporation or its creditors for the "water" — the difference between par and the consideration actually paid. Modern statutes increasingly permit shares to be issued without par value, eliminating the watered-stock problem.

Rule (preemptive rights): Preemptive rights give existing shareholders the option to purchase newly issued shares in proportion to their current holdings, to protect against dilution of their ownership percentage. Under the MBCA, preemptive rights do not exist unless the articles expressly provide for them ("opt-in"). Even where they exist, preemptive rights typically do not apply to shares issued for non-cash consideration, shares issued within a defined period after incorporation, or treasury shares, depending on the statute.

EXAMPLE: A shareholder owning 30% of a corporation learns the board plans to issue new shares to a third party that would reduce her stake to 15%. If the articles grant preemptive rights, she may buy enough of the new shares to maintain her 30%; if the articles are silent, under the MBCA she has no preemptive rights and cannot prevent the dilution.

ESSAY WRITING TIP: For preemptive rights, your first move is to check whether the articles opt in — under the MBCA, no preemptive rights exist by default. Examinees who assume automatic preemptive rights apply the wrong default and lose the issue.

MEE TIP: Watered stock is tested when shares are issued for inadequate consideration. Remember the liability runs to the corporation or its creditors for the difference between par and what was paid, and that directors who knowingly authorize a watered issuance can share that liability.

VII. DIRECTORS AND OFFICERS

The board of directors manages or oversees the management of the corporation; officers carry out day-to-day operations as agents. This section covers board mechanics and the central fiduciary duties of care, loyalty, and good faith, along with director liability, exculpation, indemnification, and officer authority.

A. Board Powers, Meetings, Quorum, and Committees

Rule: All corporate powers are exercised by or under the authority of the board of directors, which manages or oversees the business and affairs of the corporation. Directors must act as a board — generally at a duly called meeting with a quorum present (a majority of the directors, unless the articles or bylaws set a higher or lower number, but not below one-third), and action is approved by a majority of the directors present. Directors may also act by unanimous written consent without a meeting. Directors generally may not vote by proxy and must exercise independent judgment. The board may delegate authority to committees of one or more directors, but certain fundamental actions (e.g., declaring distributions in some statutes, filling board vacancies, amending bylaws) cannot be delegated to a committee.

EXAMPLE: A five-member board needs three directors for a quorum. With three present, a vote of two of them (a majority of those present) approves an ordinary resolution. If only two directors attend, there is no quorum and no valid board action can be taken.

ESSAY WRITING TIP: When a board action's validity is questioned, verify both quorum and the required vote. A common error is to count only the affirmative votes without confirming a quorum was present — both are required for valid board action.

MEE TIP: Note that directors cannot vote by proxy (unlike shareholders) and that a director's presence is required for quorum. The MEE often tests the difference between director governance (must act collectively, no proxies) and shareholder governance (may act by proxy).

B. Duty of Care and the Business Judgment Rule

Rule: A director owes the corporation a duty of care: to act in good faith, with the care that a person in a like position would reasonably believe appropriate under the circumstances, and in a manner the director reasonably believes to be in the corporation's best interests. Director decisions are protected by the business judgment rule (BJR), a presumption that in making a business decision the directors acted on an informed basis, in good faith, and in the honest belief that the action was in the corporation's best interests. Courts will not second-guess the substance of an informed, good-faith, disinterested decision even if it turns out badly. The BJR is rebutted by a showing of gross negligence (a failure to become reasonably informed), bad faith, fraud, or a conflict of interest. Directors are entitled to rely in good faith on information, reports, and opinions prepared by officers, employees, legal counsel, accountants, and board committees within their competence (the reliance defense).

EXAMPLE: A board approves an acquisition after reviewing management's reports and an investment banker's fairness opinion. The deal later sours. Under the BJR, the directors are not liable because they were reasonably informed, acted in good faith, and had no conflict — the court will not second-guess the business decision.

ESSAY WRITING TIP: Lead duty-of-care analysis with the BJR presumption, then ask whether the plaintiff has rebutted it (uninformed/grossly negligent process, bad faith, or conflict). Frame the question as process, not outcome — the BJR protects the decision-making process, not the wisdom of the result.

MEE TIP: The reliance defense is frequently dispositive. If the facts show directors relying on management reports, auditor opinions, or counsel's advice in good faith, the duty of care is satisfied. Name the reliance defense explicitly.

C. Duty of Loyalty — Self-Dealing, Corporate Opportunity, and Competition

Rule: The duty of loyalty requires directors to act in the corporation's best interest and not their own. The business judgment rule does not protect loyalty violations. Three recurring loyalty problems:

(1) Interested (self-dealing) director transactions: A transaction between the corporation and a director (or an entity in which the director has a material interest) is voidable for conflict of interest unless the director satisfies a safe harbor: (a) disclosure of the material facts and approval by a majority of disinterested directors; (b) disclosure of the material facts and approval by a majority of disinterested shareholders; or (c) the transaction was fair to the corporation at the time it was entered. Satisfying any one of these defeats the conflict-of-interest challenge.

(2) Corporate opportunity doctrine: A director may not usurp a business opportunity that belongs to the corporation without first disclosing it and offering it to the corporation. An opportunity "belongs" to the corporation if it is in the corporation's line of business, the corporation has an interest or expectancy in it, or it was offered to the director in the director's corporate capacity. If the corporation rejects the opportunity (after full disclosure) or is financially unable to take it, the director may pursue it personally.

(3) Competing with the corporation: A director who competes directly with the corporation breaches the duty of loyalty and may be liable for resulting harm or required to disgorge profits.

EXAMPLE: A director learns, in her corporate capacity, that a key supplier is for sale — an acquisition squarely in the corporation's line of business. She buys it herself without telling the board. She has usurped a corporate opportunity and must offer it to the corporation or disgorge her profit; her purchase is a loyalty breach unprotected by the BJR.

ESSAY WRITING TIP: For self-dealing, walk through all three safe harbors in order and apply the facts to each — disinterested director approval, disinterested shareholder approval, or fairness. Satisfying any one cures the conflict. For corporate opportunity, the decisive move is whether the director disclosed and offered the opportunity first.

MEE TIP: The duty of loyalty is the most heavily tested corporate fiduciary topic. Remember the BJR does not apply when a director has a conflict — say so explicitly, then run the safe harbors. The grader wants the "fairness" alternative noted even where director/shareholder approval is absent.

D. Duty of Good Faith and the Duty of Oversight (Caremark)

Rule: Directors must act in good faith. A failure to act in good faith — including intentionally acting with a purpose other than advancing the corporation's interests, acting with intent to violate law, or intentionally failing to act in the face of a known duty (conscious disregard) — is a breach. The duty of oversight, articulated in Caremark, requires directors to make a good-faith effort to implement and monitor a reasonable information-and-reporting (compliance) system. Oversight liability arises only on a showing that the directors utterly failed to implement any reporting system or controls, or, having implemented one, consciously failed to monitor it — a demanding standard requiring scienter (bad faith), not mere negligence.

EXAMPLE: A board never adopts any compliance or reporting system, and as a result systematic legal violations by employees go undetected, harming the corporation. The directors may face Caremark oversight liability because they utterly failed to implement any monitoring system, evidencing bad faith.

ESSAY WRITING TIP: Frame oversight liability as a subset of the duty of good faith (and thus loyalty), and stress the high bar: plaintiffs must show a sustained or systematic failure amounting to conscious disregard, not ordinary negligence. This distinction earns analytical credit.

MEE TIP: Caremark oversight claims are increasingly tested. The key is bad faith — directors are not liable for failing to detect wrongdoing if they made a good-faith effort to establish monitoring systems. Look for a total absence of any compliance system as the trigger.

E. Director Liability, Exculpation, Indemnification, and Officers

Rule (exculpation): The articles may include an exculpation provision eliminating or limiting directors' personal liability for money damages for breaches of the duty of care. Such provisions may not exculpate liability for breaches of the duty of loyalty, acts not in good faith, intentional misconduct, knowing violations of law, or transactions from which the director derived an improper personal benefit.

Rule (indemnification): A corporation must indemnify a director who is wholly successful on the merits in defending a proceeding brought by reason of being a director (mandatory indemnification). A corporation may (permissive) indemnify a director who acted in good faith and reasonably believed the conduct was in (or not opposed to) the corporation's best interests — but may not indemnify a director held liable to the corporation itself or found to have received an improper personal benefit. Corporations may also purchase D&O insurance covering liabilities even where indemnification would be unavailable.

Rule (officers): Officers are agents of the corporation and bind it under ordinary agency principles (actual and apparent authority). Officers owe the same fiduciary duties of care and loyalty as directors. The president/CEO typically has apparent authority to bind the corporation in ordinary-course transactions; extraordinary matters require board authorization.

EXAMPLE: A director is sued for a care breach and the articles contain an exculpation clause. The director cannot be held liable for money damages on the care claim. But if the same director engaged in self-dealing (a loyalty breach), exculpation does not apply and the director remains exposed.

ESSAY WRITING TIP: When liability is at stake, layer the protections: BJR/reliance (to defeat the breach), then exculpation (to bar care-based damages), then indemnification and insurance (to shift the cost). Note that none of these protect a disloyal or bad-faith director.

MEE TIP: The mandatory-vs-permissive indemnification distinction is tested. Memorize: mandatory only when the director is wholly successful on the merits; permissive when the good-faith standard is met; prohibited when the director is held liable to the corporation or received an improper benefit.

VIII. SHAREHOLDERS

Shareholders own the corporation but generally do not manage it. Their powers are exercised through voting, and their protections include inspection rights, fiduciary protections in close corporations, veil-piercing exposure of dominant shareholders, and derivative litigation. This section covers each.

A. Shareholder Voting, Meetings, Proxies, and Cumulative Voting

Rule: Shareholders vote to elect and remove directors and to approve fundamental changes. Voting eligibility is fixed by a record date (set by the board, typically not more than 70 days before the meeting). A quorum for a shareholder meeting is a majority of the shares entitled to vote, unless the articles provide otherwise; once a quorum is present, directors are elected by a plurality, and most other matters pass if votes cast in favor exceed votes against. Shareholders may vote by proxy (a written, signed authorization, generally valid for 11 months unless it states otherwise); a proxy is revocable unless it is coupled with an interest and states it is irrevocable. Voting agreements (binding contracts among shareholders on how to vote) and voting trusts (legal title to shares transferred to a trustee who votes them, typically limited to 10 years) are valid devices. Cumulative voting, if provided in the articles, allows a shareholder to multiply shares by the number of directors being elected and cast all those votes for a single candidate, helping minority shareholders elect representation.

EXAMPLE: With cumulative voting and 100 shares electing five directors, a shareholder casts 500 votes (100 × 5) and may pile all 500 on one nominee, improving the odds of electing at least one minority-favored director — impossible under straight voting.

ESSAY WRITING TIP: For voting questions, establish the record date, confirm a quorum, then apply the correct vote threshold (plurality for director elections, majority of votes cast for most other matters). For minority-protection issues, raise cumulative voting if the articles provide for it.

MEE TIP: Proxies and voting trusts are tested as control devices. Remember the 11-month default proxy duration, the irrevocability requirement (coupled with an interest plus a statement), and the 10-year voting-trust limit. Distinguish voting agreements (no transfer of title) from voting trusts (title transferred to trustee).

B. Inspection Rights, Controlling Shareholders, and Close Corporations

Rule (inspection): A shareholder has the right to inspect and copy corporate records. For routine records (articles, bylaws, minutes of shareholder meetings, annual reports), inspection is essentially automatic on proper notice. For other records (accounting records, board minutes, shareholder lists), the shareholder must make a written demand in good faith and for a proper purpose — one reasonably related to the person's interest as a shareholder (e.g., valuing shares, investigating mismanagement). A purpose to harass, or to obtain a list for purposes unrelated to the shareholder's interest, is improper.

Rule (controlling shareholders): A controlling shareholder owes fiduciary duties to the corporation and to minority shareholders when exercising control — for example, in selling control to a looter, in a freeze-out merger, or in causing the corporation to enter transactions that benefit the controller at the minority's expense. Such transactions are scrutinized for entire fairness (fair dealing and fair price).

Rule (close corporations and oppression): A close corporation has few shareholders, no public market for its shares, and substantial shareholder participation in management. Courts impose heightened fiduciary duties (often partnership-like duties of utmost good faith) among shareholders in close corporations. A minority shareholder subjected to oppression — such as a "freeze-out" denying employment, dividends, or a voice in management — may seek remedies including a court-ordered buyout or, in extreme cases, involuntary dissolution.

EXAMPLE: In a close corporation, the majority fires the minority shareholder-employee, stops paying dividends, and refuses to buy back his shares, leaving him with an illiquid investment and no return — a classic freeze-out. A court may find oppression and order a buyout or dissolution.

ESSAY WRITING TIP: For inspection, the dispositive issue is almost always whether the demand states a proper purpose; analyze the purpose explicitly. For close corporations, invoke the heightened, partnership-like fiduciary duties and frame minority mistreatment as oppression with buyout/dissolution remedies.

MEE TIP: Close-corporation oppression is a favorite essay. The grader wants recognition that minority shareholders lack a market exit, that majority conduct is judged by heightened good-faith duties, and that the remedy is often a buyout. Tie the freeze-out facts to the oppression standard.

C. Piercing the Corporate Veil

Rule: Courts pierce the corporate veil to hold shareholders personally liable for corporate obligations where the corporate form is abused. The principal grounds are: (1) the alter ego theory — the shareholder so dominates and disregards the corporate entity (commingling personal and corporate funds, ignoring corporate formalities, using corporate assets for personal use) that the corporation has no separate existence; (2) undercapitalization — the corporation was deliberately starved of capital adequate for its foreseeable obligations; and (3) fraud or injustice — the corporate form was used to perpetrate a fraud or evade an obligation. Courts pierce more readily for involuntary (tort) creditors than for voluntary (contract) creditors who could have protected themselves by bargaining.

EXAMPLE: A sole shareholder forms a corporation with token capital, commingles funds, observes no formalities, and uses the corporation to incur tort liabilities it cannot pay. A tort victim may pierce the veil based on alter ego plus undercapitalization, reaching the shareholder's personal assets.

ESSAY WRITING TIP: List the veil-piercing factors and apply them; no single factor is dispositive — courts look to the totality. Note the tort/contract creditor distinction, because piercing is easier for tort victims who could not bargain for protection.

MEE TIP: Veil piercing recurs across corporations and LLCs. The exam usually supplies several abuse facts (commingling, no formalities, undercapitalization, fraud). Marshal them all, weigh them, and conclude — a checklist application earns full credit.

D. Derivative vs. Direct Suits, Demand, and the Special Litigation Committee

Rule: A direct suit redresses an injury to the shareholder personally (e.g., denial of voting or dividend rights owed to that shareholder). A derivative suit is brought by a shareholder on behalf of the corporation to redress a wrong to the corporation (e.g., a breach of fiduciary duty by directors); any recovery generally belongs to the corporation. To bring a derivative suit, the plaintiff must (1) have been a shareholder at the time of the wrong (contemporaneous ownership) and remain one, and (2) fairly and adequately represent the corporation's interests.

Demand requirement: Under the MBCA's universal demand rule, a shareholder must make a written demand on the board to take suitable action and then wait 90 days before filing (unless irreparable injury would result), regardless of whether demand would be futile. Under Delaware law, by contrast, demand may be excused as futile if the plaintiff pleads particularized facts raising a reasonable doubt that the directors are disinterested and independent or that the challenged transaction was a valid exercise of business judgment.

Board response and SLC: If demand is made (or required), the board may move to dismiss if a majority of disinterested directors determines in good faith, after reasonable inquiry, that the suit is not in the corporation's best interest. Where a majority of the board is interested, the board may appoint a special litigation committee (SLC) of independent directors to investigate and recommend dismissal; courts review the SLC's independence, good faith, and the reasonableness of its investigation (and, in Delaware, may apply their own independent business judgment).

EXAMPLE: A shareholder believes the directors approved a wasteful related-party deal. The claim belongs to the corporation, so it is derivative. Under the MBCA, the shareholder must first demand that the board sue and wait 90 days; under Delaware law, the shareholder might plead demand futility by alleging particularized facts that a majority of directors were interested in the deal.

ESSAY WRITING TIP: First classify the suit as direct or derivative, because the procedural hurdles (demand, SLC) apply only to derivative suits. Then, crucially, state which regime governs the demand requirement — MBCA universal demand (always required, 90-day wait) versus Delaware demand-futility — and apply it. Naming both regimes signals mastery.

MEE TIP: The direct/derivative distinction and the demand requirement are tested together almost every time derivative litigation appears. The single most common error is treating a corporate injury as a direct claim. Remember: harm to the corporation (diminished value shared by all shareholders) is derivative; harm to the individual shareholder's distinct rights is direct.

IX. FUNDAMENTAL CHANGES

Certain extraordinary transactions — mergers, share exchanges, sales of substantially all assets, dissolution, and amendments to the articles — fall outside the board's ordinary authority and require shareholder approval, often coupled with appraisal rights for dissenters.

A. Mergers, Asset Sales, Dissolution, and Amendments

Rule: A fundamental change generally requires (1) board adoption of a resolution recommending the change, and (2) approval by the shareholders. Under the MBCA, shareholder approval requires a majority of votes cast (older statutes and many fact patterns require a majority of shares entitled to vote) at a meeting where notice of the proposed change was given. Fundamental changes include: mergers and share exchanges; the sale, lease, or exchange of all or substantially all of the corporation's assets outside the ordinary course of business (which requires shareholder approval of the selling corporation but not the buyer); voluntary dissolution; and amendments to the articles of incorporation. Routine asset sales in the ordinary course do not require shareholder approval.

Short-form merger: A parent corporation owning at least 90% of the stock of a subsidiary may merge the subsidiary into the parent without a vote of the subsidiary's shareholders or board (a short-form merger); the minority shareholders' remedy is appraisal.

De facto merger doctrine: Some courts apply the de facto merger doctrine to treat a transaction structured as an asset sale as if it were a merger (triggering merger protections such as appraisal) where the substance is a combination of the two enterprises, preventing parties from evading merger safeguards through form.

EXAMPLE: A parent owns 95% of a subsidiary and wishes to absorb it. The parent may effect a short-form merger without any vote by the subsidiary's minority; the minority's exclusive protection is the appraisal remedy.

ESSAY WRITING TIP: For any extraordinary transaction, determine whether it is a fundamental change requiring shareholder approval, then identify which corporation's shareholders must approve (e.g., in an asset sale, only the seller's). Flag short-form mergers when the parent owns 90% or more.

MEE TIP: A favorite trap: a "sale of substantially all assets" requires the seller's shareholders to approve but does not require approval by the buyer's shareholders. Likewise, only the selling corporation's dissenters get appraisal in an asset sale. Keep straight whose vote and whose appraisal rights are triggered.

B. Appraisal (Dissenters') Rights

Rule: Appraisal (dissenters') rights allow a shareholder who objects to certain fundamental changes to demand that the corporation buy the shareholder's shares at their fair value (the value immediately before the corporate action, excluding any appreciation or depreciation in anticipation of the action). Appraisal is typically available for mergers, share exchanges, sales of substantially all assets, and certain amendments that adversely affect the shareholder's rights. To perfect appraisal, the shareholder generally must: (1) deliver written notice of intent to demand payment before the vote, (2) not vote in favor of the action, and (3) make a timely written demand for payment after the action is approved. Appraisal is often the shareholder's exclusive remedy for the financial fairness of a transaction (the "market-out" exception may eliminate appraisal where a liquid public market exists).

EXAMPLE: A minority shareholder opposes a merger she considers underpriced. She gives notice before the vote, votes against the merger, and demands payment afterward. The corporation must pay her the fair value of her shares as determined (if disputed) by a court in an appraisal proceeding.

ESSAY WRITING TIP: When a shareholder objects to a fundamental change, walk through the appraisal-perfection steps in order, because failure at any step forfeits the remedy. Note that appraisal is frequently the exclusive remedy, foreclosing other challenges to the transaction's price.

MEE TIP: The perfection requirements are tested precisely because shareholders so often forfeit appraisal by voting for the deal or missing a deadline. Memorize the three steps — pre-vote notice, no vote in favor, post-approval demand — and apply them mechanically.

X. FEDERAL SECURITIES REGULATION

The MEE tests two federal anti-fraud and anti-abuse provisions overlaid on state corporate law: Rule 10b-5 (securities fraud and insider trading) and Section 16(b) (short-swing profit recovery), with a note on Sarbanes-Oxley.

A. Rule 10b-5 — Securities Fraud and Insider Trading

Rule (elements): Rule 10b-5, promulgated under § 10(b) of the Securities Exchange Act of 1934, makes it unlawful to use any manipulative or deceptive device in connection with the purchase or sale of any security. A private plaintiff must prove: (1) a material misrepresentation or omission (or other deceptive/manipulative conduct); (2) scienter (intent to deceive or recklessness — mere negligence is insufficient); (3) in connection with the purchase or sale of a security (the plaintiff must be an actual purchaser or seller); (4) reliance (presumed under the fraud-on-the-market theory for publicly traded securities, or via the Affiliated Ute presumption for omissions); (5) economic loss; and (6) loss causation. Materiality means there is a substantial likelihood a reasonable investor would consider the fact important in making an investment decision.

Insider trading — classical theory: A corporate insider (director, officer, controlling shareholder, or a constructive insider such as an outside lawyer or accountant given confidential information for corporate purposes) who trades on material nonpublic information in breach of a fiduciary duty to the corporation's shareholders violates 10b-5 ("disclose or abstain").

Insider trading — misappropriation theory: A person who misappropriates confidential information in breach of a duty owed to the source of the information (e.g., an employee trading on his employer's confidential plans about another company) and trades on it violates 10b-5, even though the trader owes no duty to the company whose securities are traded.

Tipper/tippee liability (Dirks): A tippee is liable for trading on a tip only if (1) the tipper breached a fiduciary duty by disclosing the information for a personal benefit, and (2) the tippee knew or should have known of the tipper's breach. The personal benefit may be a pecuniary gain, a reputational benefit, or a gift of confidential information to a trading relative or friend.

EXAMPLE (classical): A CFO learns the company will miss earnings badly and sells her shares before the news is public. She has breached her duty to shareholders by trading on material nonpublic information — a classical insider-trading violation.

EXAMPLE (misappropriation): A lawyer at a firm representing an acquirer learns of a pending tender offer and buys the target's stock. He owes no duty to the target's shareholders, but he misappropriated confidential information in breach of a duty to his firm/client — a misappropriation violation.

EXAMPLE (tipper/tippee): A director tips his brother about an impending merger as a gift; the brother trades. The director (tipper) breached his duty for a personal benefit (a gift to a relative), and the brother (tippee) knew the information was confidential — both are liable under Dirks.

ESSAY WRITING TIP: For 10b-5, march through the elements, but recognize the heart of most MEE problems is insider trading — identify whether the defendant is an insider (classical) or an outsider who misappropriated (misappropriation), and for tips, apply the Dirks personal-benefit test. State the "disclose or abstain" duty expressly.

MEE TIP: Materiality and scienter are the two elements most often dispositive. Define materiality (substantial likelihood a reasonable investor would consider it important) and note that scienter requires intent or recklessness, never mere negligence. For tippees, the personal-benefit-to-the-tipper requirement is the frequent sticking point — no breach by the tipper means no tippee liability.

B. Section 16(b) Short-Swing Profits and Sarbanes-Oxley

Rule (§ 16(b)): Section 16(b) of the 1934 Act requires statutory insiders of a reporting company (one with securities registered under the Act) — namely directors, officers, and shareholders owning more than 10% of a class of equity — to disgorge to the corporation any profit realized from a purchase and sale (or sale and purchase) of the company's equity securities within any six-month period. Section 16(b) is a strict-liability, prophylactic rule: it does not require proof of actual use of inside information; the profit is recoverable automatically. Profit is computed by matching the lowest purchase price with the highest sale price within the six months to maximize recoverable profit. (For the 10% holder, the person must own more than 10% at both ends of the matched transactions.)

Rule (Sarbanes-Oxley note): The Sarbanes-Oxley Act of 2002 imposes corporate-governance and disclosure reforms on public companies, including CEO/CFO certification of financial statements, enhanced internal-control requirements (§ 404), restrictions on loans to executives, and clawback of certain executive compensation following accounting restatements. SOX is typically a flag-and-note item on the MEE rather than the core of an essay.

EXAMPLE: A director buys 1,000 shares in January at $10 and sells them in April at $15. Within six months, this is a matched purchase-and-sale; the director must disgorge the $5,000 profit to the corporation under § 16(b), regardless of whether she used any inside information.

ESSAY WRITING TIP: Contrast § 16(b) with 10b-5 expressly: § 16(b) is strict liability (no scienter, no inside information needed, automatic disgorgement to the corporation), while 10b-5 requires materiality, scienter, and a deceptive device. Naming the contrast shows you understand both regimes operate independently.

MEE TIP: Section 16(b) applies only to reporting (public) companies and only to the enumerated statutory insiders. Watch the 10%-shareholder nuance: the holder must exceed 10% both when buying and when selling for the transaction to be matched. The corporation (or a shareholder derivatively) recovers the profit.

XI. DISTRIBUTIONS AND DIVIDENDS

Distributions transfer corporate assets to shareholders. The board has broad discretion to declare them, subject to statutory solvency constraints designed to protect creditors.

A. When Distributions Are Payable, Solvency Limits, and Liability

Rule: A distribution (including a cash or property dividend, a repurchase or redemption of shares, or other transfer to shareholders in respect of their shares) is declared in the discretion of the board of directors. Shareholders generally have no right to compel a dividend; the decision is protected by the business judgment rule and will be ordered by a court only on a showing of bad faith or abuse of discretion (more readily found in close-corporation oppression cases). Once a dividend is lawfully declared, the shareholders become creditors of the corporation for the amount.

Solvency limits: Under the MBCA, a corporation may not make a distribution if, after giving it effect, either (1) the corporation would be unable to pay its debts as they become due in the ordinary course of business (the equity insolvency test), or (2) the corporation's total assets would be less than its total liabilities plus (unless the articles permit otherwise) the amount needed to satisfy the preferential rights of senior shares on dissolution (the balance-sheet test). Older statutes restrict distributions to earned surplus or other capital-based measures.

Liability for improper distributions: A director who votes for or assents to an unlawful distribution (one that violates the solvency limits or the articles) is personally liable to the corporation for the amount that exceeds what could lawfully have been distributed, unless the director acted in good faith reliance on financial statements or a proper valuation. A director held liable is entitled to contribution from other liable directors and from shareholders who knowingly accepted an unlawful distribution.

EXAMPLE: A board declares a large dividend that leaves the corporation unable to pay its trade creditors as bills come due. The distribution violates the equity-insolvency test; the directors who approved it are personally liable for the unlawful portion, with a right of contribution against shareholders who knew the distribution was unlawful.

ESSAY WRITING TIP: For distribution questions, apply both solvency tests — equity insolvency and balance sheet — because a distribution is unlawful if it fails either. Then turn to director liability and the good-faith-reliance defense. Note that shareholders cannot ordinarily force a dividend; frame any "we want our dividend" claim as a BJR/oppression issue.

MEE TIP: The two solvency tests are the testable core. Memorize them: cannot pay debts as they come due (equity), or assets less than liabilities plus liquidation preferences (balance sheet). Director liability for the unlawful excess, subject to the reliance defense, is the natural follow-on. In a close corporation, link a refusal to declare dividends to the oppression doctrine and buyout remedy.

XII. THE BUSINESS ASSOCIATIONS ATTACK PLAN

1. Identify the entity. Determine which business association is in play — agency relationship, general partnership, limited partnership, LLP/LLLP, LLC, or corporation. The entity dictates which body of law (Restatement of Agency, RUPA, ULPA/RULPA, the LLC act, or the RMBCA) governs. If a partnership or LLC arose without formalities, prove its existence first (RUPA § 202 definition and the profit-sharing presumption; LLC articles filing).

2. For any contract-liability question, run the agency cascade. Analyze actual express authority, actual implied authority, apparent authority, ratification, and (rarely) inherent authority/estoppel, in that order. Then resolve agent-versus-principal liability using the disclosed/partially disclosed/undisclosed matrix.

3. For any tort-liability question, classify the actor. Employee or independent contractor? Apply respondeat superior (scope of employment; frolic versus detour) for employees; apply the independent-contractor default and its exceptions (inherently dangerous activities, nondelegable duties) for contractors.

4. Sort out internal governance and partner/member rights. Check the partnership or operating agreement first; apply default rules (equal management vote, equal profit/loss sharing, no salary, inspection rights) only where the agreement is silent.

5. Analyze fiduciary duties. For agents, partners, members, directors, officers, and controlling shareholders, run duty of loyalty (no self-dealing, no usurping opportunities, no secret profits, no competing) and duty of care (gross-negligence floor for partners/members; BJR and reliance defense for directors), plus good faith and the Caremark oversight duty for directors.

6. For corporate fiduciary problems, apply the right framework. Use the BJR presumption for care; run the three self-dealing safe harbors (disinterested directors, disinterested shareholders, or fairness) for loyalty; apply the corporate-opportunity disclose-first rule. Remember exculpation bars care damages but not loyalty/bad-faith damages.

7. Trace liability across the timeline. Incoming partners (capital only for prior debts), dissociating/outgoing partners (pre-dissociation debts plus two-year apparent-authority window unless notice), promoters (personal liability until novation), and new directors all carry distinct liability rules keyed to when the obligation arose.

8. Distinguish dissociation from dissolution. Decide whether the entity continues (buyout of the departing owner) or winds up (apply the distribution waterfall: creditors first, then owners' capital accounts; partners contribute to cover deficiencies). Check lingering apparent authority post-dissolution unless a statement was filed.

9. For shareholder disputes, classify the suit. Direct (individual injury) versus derivative (corporate injury). For derivative suits, apply the demand rule — MBCA universal demand (always required, 90-day wait) or Delaware demand-futility — and address SLC dismissal.

10. For extraordinary transactions, run the fundamental-change checklist. Board resolution plus shareholder approval; identify whose shareholders must approve (e.g., seller only in an asset sale); flag short-form mergers (90% parent); and perfect appraisal rights (pre-vote notice, no vote in favor, post-approval demand) for dissenters.

11. Overlay federal securities law where public companies and trading appear. Run Rule 10b-5 (elements; classical versus misappropriation insider trading; Dirks tipper/tippee personal-benefit test) and § 16(b) strict-liability short-swing-profit disgorgement; note Sarbanes-Oxley.

12. For payouts, test distributions for legality. Apply the equity-insolvency and balance-sheet solvency tests; impose director liability for unlawful distributions subject to the good-faith-reliance defense; in close corporations, frame a dividend refusal as potential oppression supporting a buyout.

13. Always name the split. Where common law diverges from RUPA/RMBCA, or majority from minority, or RULPA from ULPA (2001), or MBCA universal demand from Delaware futility, identify the divergence and apply the framework the question signals. The examinee who spots and resolves the split writes the top-scoring answer.

Related

➡ Business Associations One-Page Cheat Sheet