Corporations on the MEE: Fiduciary Duties, the Business Judgment Rule, and Piercing the Veil

Corporations questions on the MEE are built around a manageable set of core rules. Most MEE jurisdictions follow the Model Business Corporation Act (MBCA) as the framework for these questions. Here are the rules you'll use most.

Directors' duty of care

Directors must act in good faith and with the care a person in a like position would reasonably believe appropriate under similar circumstances. They must be reasonably informed.

Directors can rely on information, reports, and opinions from officers, employees, and experts they reasonably believe to be reliable and competent.

The business judgment rule

Courts presume that directors acted in good faith, on an informed basis, and in the honest belief that the decision was in the corporation's best interests. A plaintiff who challenges a business decision must overcome that presumption, for example by showing bad faith, a failure to become informed, or a conflict of interest.

On an essay, the pattern is common: a decision turned out badly, and a shareholder sues. If the directors were informed, acted in good faith, and had no conflict, the business judgment rule protects them even if the decision was a mistake.

Directors' duty of loyalty

Directors must act in the corporation's best interests, not their own. Two issues come up often:

Conflicting interest transactions. A transaction between the corporation and a director (or an entity the director is interested in) isn't automatically void. Under the MBCA safe harbor, it's protected if it was approved by a majority of informed, disinterested directors after full disclosure, or by a majority of disinterested shareholders after full disclosure, or if it was fair to the corporation when entered into.

Corporate opportunities. A director can't take a business opportunity that belongs to the corporation without first offering it to the corporation. Courts look at whether the opportunity is in the corporation's line of business and whether the director learned of it in their corporate capacity.

Officers and controlling shareholders

Officers owe similar duties of care and loyalty. Controlling shareholders may owe fiduciary duties to minority shareholders, especially in closely held corporations, where courts may look for oppression.

Shareholder derivative suits

When a shareholder sues on behalf of the corporation, the procedural requirements matter. Under the MBCA, the shareholder must make a written demand on the board and wait 90 days, unless the demand is rejected earlier or irreparable injury would result. The shareholder must also have owned stock at the time of the wrong and fairly and adequately represent the corporation's interests.

Piercing the corporate veil

Shareholders generally aren't personally liable for corporate debts. Courts may pierce the veil and hold shareholders liable when the corporation is essentially the shareholder's alter ego and respecting the separate entity would promote fraud or injustice. Factors include:

• Commingling of personal and corporate funds.
• Failure to follow corporate formalities.
• Undercapitalization at formation.
• Using the corporation to perpetrate fraud.

Courts are more willing to pierce for tort creditors than contract creditors, and much more willing with closely held corporations.

Where Lexora Prep fits

Corporations rules have precise conditions, like the three routes to protect a conflicting interest transaction or the derivative suit demand rule. Lexora Prep is a Black Letter Law rule-training platform where you practice rules like these from memory in five modes, including element identification and ordering. It tracks what you miss and brings weak rules back, and its Essay Practice section lets you write full Business Associations answers with feedback on your analysis.

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About Lexora Prep

Lexora Prep is a Black Letter Law rule-training and essay practice platform for bar exam candidates. It gives you 700+ concise rules across 8 bar-tested subjects and trains recall through five modes: Typing, Fill Blank, Rule Elements, Ordering, and Flashcards. Lexora tracks the elements you miss, brings weak rules back for review, and organizes study around your weak areas, review history, and exam date. Essay Practice adds 120+ original essays you write in the platform, with detailed feedback on issue spotting, rule accuracy, application, conclusions, and organization.

Use it alongside your main bar course to make sure the rules you need come out complete and precise on exam day.

Start practicing free → The Free plan includes a rule-practice preview and 3 Essay Practice questions. BLL Monthly ($29.99/mo) and Premium ($39.99/mo, unlimited Essay Practice) are available when you're ready for more.

Lexora Prep is a supplemental study tool, not a full bar review course, and it does not guarantee exam results. Lexora Prep is not affiliated with NCBE or any state board of bar examiners. Confirm exam formats, dates, and rules with NCBE and your jurisdiction.