Directors’ rights, duties, and liabilities

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                        (2)Note--dir must still establish that he acted in good faith, honesty, and fairness

                 2)Domination of subsidiary by parent--courts look at the transaction to see if self-dealing has occurred. Example (Sinclair Oil):

                     I)declaration of dividends shared pro rata was NOT self-dealing; BJR applies

                     ii)contract between parent and sub was self-dealing; apply intrinsic fairness test

                 3)Manager’s compensation:

                     I)Ordinary corporations--conflicts are inevitable but all firms need to set compensation. The burden of proof is placed on challengers as a matter of convenience.

                     ii)Close corporations--the income generated by the firm may be diverted to salaries, so there is an option for self-dealing by the parties in control to take tax-advantaged compensation in the form of salaries (taxed once) as opposed to dividends (taxed twice).

              d)Statutory Duties and Liabilities--in addition to general duty of care, federal and state laws also impose certain duties and liabilities, e.g., registration requirements under the Securities Act of 1933, liability for rule 10b-5 violations, liability for illegal dividends. Some statutes also impose criminal liability on corporate managers for unlawful corporate actions.

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