Practice Problems:

Corporations (Duty of Loyalty)

BACKGROUND FACTS: Assume a jurisdiction that has adopted the Model Business Corporations Act (2016) as its corporation's statute. The Coliseum, Inc., is a closely held corporation, and is a concert promoter for singers and other entertainers.

The Coliseum's Board of Directors and shareholders are the following:

• The board members are Jupiter, Neptune, Vesta, and Vulcan.
• Jupiter and Vulcan have been friends for years.
• The four directors, plus Mars, are the only shareholders.
• Each shareholder holds 20% of The Coliseum's outstanding shares.

Conflict of Interest Problems

The Coliseum hires a marketing firm to promote its services. This marketing firm, Pantheon Marketing Incorporated, is owned, but not managed, by the four directors of The Coliseum. Mars contests the decision to hire Pantheon, and files suit against the board for breach of its duty of loyalty.

#1: Is there a conflict of interest in this transaction?

#2: Is the marketing contract a "director's conflicting interest transaction" under MBCA 8.60(1)? If so, what affect does that characterization have on the transaction?

#3: The Coliseum is considering merging with Tiberius, Inc., which is another concert promoter. Jupiter owns 25% of this company. His roommate owns 50% of the company. Jupiter fully discloses his ownership interest to the board, as he believes he must. Jupiter does not, though, disclose his roommate's ownership interest. Has Jupiter provided the "required disclosure" to the board regarding the transaction under MBCA 8.60(7)?

Usurping Corporate Opportunity Problems

The Coliseum is interested in expanding its core business. It also is interested in diversifying into other areas in order to ensure more stable growth in the future. The corporation is doing well, but it has almost no cash reserves. And, its access to loans is limited given the current economic downturn where few commercial lenders are lending money.

#1: The office building next to The Coliseum's corporate headquarters goes up for sale. In addition to serving as a director of The Coliseum, Vesta is a real estate investor. She buys the office building. Has she violated her duty of loyalty under the MBCA, ALI or Delaware common law?