Alternative Business Forms Flashcards
Is it valid for shareholders to agree to eliminate corporate formalities?
Yes–if you are a non-public corporation, the shareholders may agree (in AOI or bylaws) to run the corporation in any manner they desire
What is the effect if SHs agree to eliminate corporate formalities?
(1) Courts will NOT pierce the corporate veil
(2) May become an S Corp and elect to be taxed as a partnership (thus avoiding corporation’s double-taxation)
How do you become an “S Corp?”
May have no more than 100 SHs and must only have one class of stock
What is an LLC?
A business form that gives its owners limited liability of a corporation but the tax treatment of a partnership
What are the requirements to form an LLC?
(1) Must file AOI AND
(2) May adopt an operating agreement
* Members (same liabilities as stockholders in corporation) may control company or may delegate to a team of managers (who have same rights and liabilities as board members in corporation)
(3) Must have a limited life (i.e., on consent or death of all members) unless otherwise in AOI
(4) Full membership interest may not be transferred without consent of all members or majority of managers (if manager-managed) unless AOI or operating agreement says otherwise
Limited liability, limited life, limited liquidity, limited tax
Waht is a business trust?
Business association that functions like a corporation
* Beneficiaries of the trust have rights, including limited liability, similar to SHs
* Interests represented by transferable shares
* Trust may sue and be sued and is not terminated by death or withdrawal of beneficiary
* Trustees function in a manner similar to directors of C
What are the requirements to formation of a business trust?
Must file articles of trust with SCC to create trust (including trustee and beneficial owners)
What are the beneficial owners’ liability?
Owners may exercise control over direction of the business trust without causing themselves personal liability (i.e., corporate veil will not be pierced due to their exercise of control)
What is a Benefit (“B”) Corporation?
A for-profit corporate entity that intends to benefit the public and the environment in addition to its shareholders
How is a “B” corporation formed?
(1) Must file articles of incorporation which state that it is a benefit corporation
(2) Must prepare annual benefit report disclosing to SHs how B corp pursued and created benefits to the public
What are the liabilities of D/O in B corps?
Generally the same, but may consider the impact of their actions on stakeholders other than stockholders in carrying out their fiduciary obligations (e.g., effect on environment, employees, creditors, etc.)
What are the fundamental corporate changes you need to know?
- Merger
- Consolidation
- Share exchange
- Dissolution
- Fundamental amendment of the articles
- Sale (not purchase) of substantially all assets
What is the standard procedure for making fundamental changes?
(1) Board must adopt a resolution at a valid meeting
(2) Special notice must be given to SHs (25 to 60 days before the meeting)
(3) SHs must approve by more than two-thirds of all shares entitled to vote (UNLESS directors require greater vote or AOI privde for different percentage, which may not be less than a majority)
(4) File notice of change with the SCC
What is the dissenting shareholder’s right of appraisal?
Where hsareholders are dissatisfied with the terms of the fundamental corporate change, the SHs are permitted to compel corporation to buy shares at fair value
What is the proper procedure to perfect shareholder’s right of appraisal?
(1) Before the vote, file notice in writing of the intent to object and be bought out
(2) At vote, do not vote for change (at least abstain)
(3) After vote, file notice in writing of your intent to maintain and be bought out
