Shareholder and member litigation - Next Generation Bar Exam

1. Under the MBCA, what must a shareholder do to inspect books and records beyond the basic corporate documents?

   Give five business days' written notice, show a good-faith proper purpose, and describe the records with particularity. The records sought must be directly connected to the stated purpose.

2. Under the Delaware test, how is a shareholder claim classified as direct or derivative?

   By asking who suffered the alleged harm and who would receive the benefit of any recovery. If the corporation suffered the harm and would receive the recovery, the claim is derivative.

3. Under current Delaware law, when is demand on the board excused as futile?

   When particularized facts create a reasonable doubt that a majority of the board could impartially consider the demand. The analysis asks, director by director, about personal benefit, liability exposure, and independence.

4. A shareholder sues the directors for approving excessive compensation that wasted corporate assets. How is the claim classified?

   Derivative. The harm falls on the corporation, which would receive any recovery.

5. Under the MBCA's universal demand rule, what must a shareholder do before filing a derivative suit?

   Make written demand on the corporation and wait 90 days, unless the demand is rejected sooner or irreparable injury would result. The MBCA does not excuse demand as futile.

6. Under the MBCA, when must a court dismiss a derivative suit on the recommendation of independent directors?

   When they determine in good faith, after reasonable inquiry, that the suit is not in the corporation's best interests. The determination may be made by a majority of qualified directors or by a committee of them.

7. Under ULLCA (2013), when may a member bring a derivative action on behalf of an LLC?

   After demanding action from the members or managers without success, or when demand would be futile. Unlike the MBCA, ULLCA (2013) retains a futility exception.

8. Who receives the recovery in a successful derivative suit?

   The corporation. The shareholder sues on the corporation's behalf to enforce the corporation's own claim.

9. Under the MBCA, when may the court order the corporation to pay a successful derivative plaintiff's expenses?

   When the proceeding has resulted in a substantial benefit to the corporation. Fee-shifting rewards shareholders who confer a benefit on the corporation.

10. Under the MBCA, what ownership requirement must a derivative plaintiff satisfy?

    Being a shareholder when the challenged act occurred and throughout the litigation. The plaintiff must also fairly and adequately represent the corporation's interests.

11. What approval does the settlement or discontinuance of a derivative suit require?

    Approval of the court. Court approval protects absent shareholders from collusive settlements.

12. A shareholder sues because the corporation refused to count her votes at the annual meeting. How is the claim classified?

    Direct. The injury is to the shareholder's individual voting right, not to the corporation.

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