Most Commonly Tested Corporations Issues

Fact patterns are built around a board that did something questionable and shareholders who are angry about it. That structure forces the same issues over and over: was the decision protected by the business judgment rule, was a fiduciary on both sides of it, can the plaintiff even bring the suit without the board's blessing, and does anyone face securities liability for what was said or traded on.

Which body of law you apply varies by school, and it drives everything. Delaware-centered courses test DGCL sections and Chancery doctrine; MBCA courses test the statutory safe harbors in §§ 8.60-8.63, the derivative rules in §§ 7.40-7.47, and the distribution tests in § 6.40. Ask your professor early which one controls, and if the exam does not say, write the Delaware rule and flag the MBCA difference in one sentence. Cite statutes as Del. Code Ann. tit. 8, § 102(b)(7) or Model Bus. Corp. Act § 8.30.

Start with the presumption: directors are presumed to have acted on an informed basis, in good faith, and in the honest belief the action was in the corporation's best interests (Aronson v. Lewis, 473 A.2d 805 (Del. 1984)). The plaintiff must rebut it. Because the substantive standard is gross negligence, care claims almost always turn on process, not outcome — how long the board met, what materials it read, whether it hired an expert. Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), is the canonical process failure, and it is the case your professor expects you to name.

Then kill the claim with the exculpation charter provision. Del. Code Ann. tit. 8, § 102(b)(7) lets a corporation eliminate director monetary liability for care violations but not for loyalty breaches, bad faith, intentional misconduct, or improper personal benefit; Delaware extended similar protection to officers in 2022. The examiner's payoff is usually this: the care claim is exculpated, so the plaintiff must plead loyalty or bad faith to get money damages. Say that out loud in your answer. Also note reliance protection on experts and reports (DGCL § 141(e)).

Sort the loyalty problem into one of three boxes. First, self-dealing or interested-director transactions: the deal survives if approved by informed disinterested directors, ratified by disinterested shareholders, or shown to be entirely fair (DGCL § 144; MBCA §§ 8.60-8.63). Entire fairness means fair dealing plus fair price, with the burden on the defendant (Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983)). Delaware's 2024 amendments to § 144 added statutory safe harbors, including for controller transactions — check whether your casebook covers them.

Second, corporate opportunity: apply the line of business, interest-or-expectancy, and fairness factors from Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939), and the fiduciary's ability to take it if the corporation is financially unable or the opportunity came to him personally (Broz v. Cellular Information Systems, Inc., 673 A.2d 148 (Del. 1996)). The clean answer is that the fiduciary should have offered it to the board first.

Third, oversight. In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), and Stone v. Ritter, 911 A.2d 362 (Del. 2006), require either an utter failure to implement any reporting system or conscious disregard of red flags; bad faith is a subset of loyalty, so it is not exculpable. Marchand v. Barnhill, 212 A.3d 805 (Del. 2019), is the modern example — no board-level system for monitoring a mission-critical risk.

Always characterize the claim first. Direct claims belong to the shareholder (voting rights, dividends declared but unpaid, dilution of a specific holder); derivative claims belong to the corporation (waste, mismanagement, breach of fiduciary duty causing corporate loss). Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004), supplies the test: who suffered the harm, and who would receive the recovery.

Then run standing (contemporaneous ownership, continuous ownership, adequate representation) and demand. Delaware excuses demand as futile; the MBCA requires universal demand plus a 90-day wait. Delaware now uses a three-part, director-by-director test from United Food & Commercial Workers Union v. Zuckerberg, 262 A.3d 1034 (Del. 2021): whether the director received a material personal benefit, faces a substantial likelihood of liability, or lacks independence from someone who does. Demand is excused if half or more of the board fails. Aronson and Rales v. Blasband, 634 A.2d 927 (Del. 1993), still frame the analysis. If demand was made and refused, the refusal gets business judgment deference; if a special litigation committee moves to dismiss, apply Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981) — independence and good faith, plus the court's own business judgment.

Most Corporations courses test Rule 10b-5 and § 16(b), not the 1933 Act. Recite the 10b-5 elements: material misrepresentation or omission, scienter, in connection with the purchase or sale of a security (purchaser-seller standing), reliance, damages, and loss causation. Materiality is the substantial-likelihood-of-importance test from TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), applied to contingent events under Basic Inc. v. Levinson, 485 U.S. 224 (1988). Scienter requires more than negligence (Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)). Basic also supplies the fraud-on-the-market reliance presumption, and Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977), means pure breach of fiduciary duty without deception is not a 10b-5 claim.

For insider trading, identify the theory. Classical: an insider or constructive insider breaches a duty to shareholders by trading on material nonpublic information (Chiarella v. United States, 445 U.S. 222 (1980); Dirks v. SEC, 463 U.S. 646 (1983)). Misappropriation: a fiduciary of the source trades on the source's confidential information (United States v. O'Hagan, 521 U.S. 642 (1997)). Tippee liability requires a tipper breach for personal benefit, which a gift to a trading relative satisfies (Salman v. United States, 580 U.S. 39 (2016)). Section 16(b) is the easy points: strict liability, officers, directors, and 10% beneficial owners of a registered class, disgorging profits from any purchase and sale within six months.

Merger mechanics are quick points: board approval plus shareholder approval, with dissenters' appraisal rights (DGCL § 262; MBCA § 13.02) and the market-out exception. Asset sales require shareholder approval when substantially all assets are sold (DGCL § 271), and de facto merger doctrine may sweep in an asset deal structured to avoid a vote. Successor liability follows in fraud, mere-continuation, and de facto merger situations.

For contested control, use Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), for defensive measures (reasonable grounds to believe a threat exists plus proportionality) and Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), for the shift to getting the best price once a sale or breakup is inevitable. Controlling-shareholder squeeze-outs default to entire fairness unless the deal is conditioned from the start on both an empowered independent special committee and a majority-of-the-minority vote (Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014)). Sinclair Oil Corp. v. Levien, 280 A.2d 717 (Del. 1971), distinguishes parent self-dealing from ordinary business decisions.

These are two-to-four sentence issues that appear as sub-facts. Blow through them fast and spend your time on fiduciary duty.

Watch the transition language in the fact pattern. A sentence about a shareholder writing a letter to the board is demand; a sentence about a shareholder asking for the stock ledger is a § 220 inspection issue; a sentence about a corporation paying a dividend when it is nearly insolvent is a distribution issue.

Weight by what your professor spent class time on, not by what a commercial outline emphasizes. Look at how many weeks went to fiduciary duty versus securities; most courses give three or four weeks to duty of care and loyalty and one or two to 10b-5. If your professor wrote a law review article on Caremark or on controllers, expect that issue in a big-point essay.

Structurally, name the plaintiff and the defendant for each claim before you analyze it, because standing and demand are separate points from the merits. Then order every fiduciary analysis the same way: standard of review first (business judgment rule, enhanced scrutiny, or entire fairness), then who bears the burden, then the facts, then remedies and exculpation. Professors award points for correctly selecting the standard of review even when your conclusion on the merits differs from theirs.

If you are studying for the MEE rather than a final, note the difference in emphasis: bar examiners favor formation defects, promoter liability, piercing, basic fiduciary duty, derivative standing, and the interested-transaction safe harbor under MBCA rules, and rarely go deep on Unocal or Revlon.