1-6 Characteristics

Question 1

Who are shareholders?

Answer 1

Shareholders or stockholders are the owners of the corporation.

Question 2

Who is the board of directors?

Answer 2

The group in change of the management of the corporation.

Question 3

who are the offers?

Answer 3

the agents of the corporation appointed to carry out the corporation’s policy

Question 4

C corporation

Answer 4

A corporation is taxed as an entity distinct from its owners. The corporate tax rate generally is lower than the personal tax rate, and so this arrangement can be advantageous to persons who want to delay the realization of income. Comes at the price of double taxation.

Question 5

S corporation

Answer 5

Certain corporations elect to be taxed like partnerships and yet retain the other advantages of the corporate form. Partnerships and S coporations are NOT subject to double taxation - profits and losses flow through the entity to the owners.

Question 6

to create a de jure corporation we need:

Answer 6

a person, a paper, and an act

Question 7

To form a corporation, the articles of incorporation must include:

Answer 7

• the name of the corporation
• the name and address of each incorporator
• a registered agent and the street address of the registered office
• info about the corporation’s stock

Question 8

are bylaws filed with the state?

Answer 8

no.

Question 9

if a corporation’s bylaws and articles conflict, which governs?

Answer 9

the articles

Question 10

who can amend or repeal the bylaws or adopt new ones?

Answer 10

the board or shareholders

Question 11

internal affairs doctrine

Answer 11

under the internal affairs doctrine, the internal affairs of a corporation are governed by the law of the state of incorporation.

Question 12

what is a promoter?

Answer 12

A person acting on behalf of a corporation not yet formed.

Before a corporation is formed, promoters procure commitments for capital and other instrumentalities that will be used by the corporation after its formation.

Question 13

Can a promoter be liable for fraud?

Answer 13

May be liable if plaintiff can show that they were damaged by the promoters’ fraudulent misrepresentations or fraudulent failure to disclose all material facts.

Question 14

Let’s say we are in State A. Is a corporation formed in State B considered “foreign?”

Answer 14

Yes, anything outside of A is foreign.

Question 15

What is a debt security?

Answer 15

When the corporation borrows money, it issues a debt security, which is usually called a bond. A bond is a promise that the coporation will repay the loan with interest. If the loan is unsecured by corporate assets, it may be called debenture. Importantly, the holder of debt securities is a creditor, but not an owner, of the corporation.

Question 16

What is an issuance of stock?

Answer 16

When the corporation sells its own stock.

Question 17

What are subscriptions?

Answer 17

Written offers to buy stock from a corporation. One issue may be whether such an offer may be revoked.

Question 18

Is an individual director an agent of the corporation?

Answer 18

No, individual directors have no authority to speak for or bind the corporation.

Question 19

How may directors act as a group?

Answer 19

• unanimous agreement in writing; or
• at a meeting, which must satisfy the quorum and voting requirements.

Question 20

Can directors give proxies or enter voting agreements for how they will vote as directors?

Answer 20

No.

Question 21

what is a quorum?

Answer 21

A majority of all directors unless the bylaws say otherwise. Without quorum, board cannot act.

Question 22

If quorum present at a meeting, passing a resolution requires only:

Answer 22

a majority of those present. So if there are 9 directors, at least 5 must be at the meeting to be quorum, if 5 directors attend, at least 3 must vote in favor for the resolution to pass.

Question 23

Can a quorum be broken?

Answer 23

Yes, if people leave.

Question 24

Can corporations make a loan to a director?

Answer 24

Yes, if it is reasonably expected to benefit the corporation.

Question 25

Are officers agents of the corporation?

Answer 25

Yes. The corporation is the principal and officers are the agents. Agency law determines the powers of officers.

Question 26

What are the three categories of indemnification?

Answer 26

1. no indemnification
2. mandatory indemnification
3. permissive indemnification

Question 27

Category 1: No indemnification

Answer 27

A corporation cannot indemnify a director who is
(1) held liable to the corporation or
(2) held to have received an improper benefit

Question 28

Category 2: Mandatory indemnification

Answer 28

Unless limited by articles, corporation MUST indemnify a director or officer who was successful in defending a proceeding on the merits or otherwise against the officer or director for reasonable expenses.

Some states, director or officer must win whole case, in other states, entitled to indemnification “to the extent” that they win case.

Question 29

Category 3: Permissive Indemnification

Answer 29

Corporation MAY indemnify a director for reasonable litigation expenses incurred in unsuccessfully defending a suit brought against the director on account of the director;s position if the director:
(1) acted in good faith, and
(2) believed that their conduct was in best interests of corporation.

Question 30

The business judgment rule is a presumption that a director’s decision may not be challenged if the director:

Answer 30

(1) acted in good faith,
(2) with the care someone would exercise in a like position, and
(3) in a manner the director reasonably believed to be in the best interests for the corporation.

Question 31

Does corporate law generally allow directors to rely on the opinions of experts and corporate insiders?

Answer 31

Yes.

Question 32

Would a reasonable person rely on the opinion of a person with a personal interest in the transaction?

Answer 32

No.

Question 33

A transaction cannot be set aside just because a director has a person interest IF

(in other words a transaction can have a director’s personal interests if)

Answer 33

(1) the director disclosed the material facts of the transaction to disinterested members of the board (or shareholders), who approved transaction, OR
(2) the transaction was fair to the corporation.

Question 34

May a corporation’s articles of incorporation limit or elimintate directors’ personal liability for money damages to the shareholders or corporation?

Answer 34

Yes.

Question 35

Director liability for money damages cannot be eliminated to the extent that director

(directors cannot contract out of…)

Answer 35

(1) received a benefit to which he was not entitled
(2) intentionally inflicted harm on the shareholders or corporation
(3) approved unlawful distributions, or
(4) intentionally committed a crime