DE Bar DE Bar Business Organizations 1 — Questions and Answers
Question 1: Under the Delaware General Corporation Law (DGCL), what is the default standard of judicial review for decisions made by a corporation's board of directors?
- Entire fairness
- Business judgment rule (Correct answer)
- Enhanced scrutiny
- Strict liability
Correct answer: Business judgment rule
Under the DGCL, courts apply the business judgment rule, presuming directors acted on an informed basis, in good faith, and in the honest belief the action was in the corporation's best interests.
Question 2: Under the Delaware LLC Act, what document governs the internal affairs of a limited liability company?
- Certificate of incorporation
- Partnership agreement
- Limited liability company agreement (Correct answer)
- Articles of organization
Correct answer: Limited liability company agreement
The LLC agreement (operating agreement) governs the internal affairs of a Delaware LLC under 6 Del. C. § 18-101 et seq.
Question 3: Under the DGCL, which standard applies when the board of a Delaware corporation adopts a shareholder rights plan (poison pill)?
- Business judgment rule
- Entire fairness
- Unocal enhanced scrutiny (Correct answer)
- Per se invalid
Correct answer: Unocal enhanced scrutiny
Defensive measures such as shareholder rights plans are subject to Unocal enhanced scrutiny, requiring the board to show a reasonable threat and proportionate response.
Question 4: In Delaware, which court has exclusive jurisdiction over corporate internal affairs disputes?
- Superior Court
- Court of Common Pleas
- Court of Chancery (Correct answer)
- Federal District Court
Correct answer: Court of Chancery
The Delaware Court of Chancery has exclusive jurisdiction over most corporate internal affairs matters, including fiduciary duty claims and disputes under the DGCL.
Question 5: Under the DGCL, what vote is required to approve a merger of a Delaware corporation (absent a supermajority provision)?
- Unanimous consent of shareholders
- Two-thirds of outstanding shares
- Majority of outstanding shares entitled to vote (Correct answer)
- Simple majority of a quorum present
Correct answer: Majority of outstanding shares entitled to vote
DGCL § 251 requires approval by a majority of the outstanding shares entitled to vote, not merely a majority of a quorum, for a merger.
Question 6: Under the Delaware Revised Uniform Limited Partnership Act, what is the liability of a limited partner for the partnership's debts?
- Unlimited personal liability
- Liability limited to capital contribution (Correct answer)
- Liability capped at twice the capital contribution
- No liability of any kind
Correct answer: Liability limited to capital contribution
A Delaware limited partner's liability for partnership obligations is generally limited to the amount of the partner's capital contribution under 6 Del. C. § 17-303.
DE Bar DE Bar Business Organizations 1
Under the Delaware General Corporation Law (DGCL), what is the default standard of judicial review for decisions made by a corporation's board of directors?