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Corp MEE > Basics > Flashcards

Basics Flashcards

1
Q

Secret Profit Rule

A

Promoter can’t make secret profits on dealings with corporation. If she does, she’s liable and must account for profit. If profit is disclosed to corporation it’s allowed.

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2
Q

Promoter’s compensation

A

A promoter can seek compensation/reimbursement for related expenses, but can’t compel corp to pay bc acts weren’t undertaken at corporation’s direction

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3
Q

Ultra vires action

A

If corporation acts beyond scope of articles, SH can
(1) seek injunction, or
(2) Corp can sue responsible officers/directors and are liable for losses, or
(3) state can dissolve.

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4
Q

Articles of Incorporation

A

Needs
1) corp name and
2) to be filed with the state.

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5
Q

De jure corporation

A

If all statutory requirements for incorporation are satisfied, corp is liable for corporate activities

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6
Q

De facto corporation

A

Corp makes good-faith effort to comply with the incorporation requirements and operates corp without knowing the requirements were not met

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7
Q

Common stock

A

Basic ownership interest that lets owner vote on corporate governance matters

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8
Q

preferred stock

A

has preference over other stock with regards to distributions

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9
Q

stock authorization

A

must be by BOD and/or SH

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10
Q

stock consideration

A

if adequate, the stock is deemed fully paid and non-assessable

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11
Q

SH preemptive rights

A

Right of a SH to buy newly issued shares to maintain their proportional ownership share under articles.

Waiver of preemptive rights in writing is irrevocable

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12
Q

securities registration

A

Required for public offerings of stocks; corp must file a registration with SEC and give buyer with a prospectus

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13
Q

SH suit to compel distribution

A

SH can sue to enforce his right by proving the existence of funds legally available to pay a distribution and D’s bad faith for refusing to pay distribution

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14
Q

Bylaws

A

Lawful provisions to manage and regulate a corporations business affairs, not inconsistent with the articles

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15
Q

SH Meeting Notice Requirement

A

Voting SHs must get notice of time/date/place in a timely manner (no less than 10 days and no more than 60 days) before the meeting; SH may waive notice in writing or by attending the meeting

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16
Q

SH Resolutions

A

submitted for SH action at SH meeting; cannot bind corp or BOD
unless amending bylaws; can regulate political expenditures

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17
Q

Voting eligibility

A

generally, only record owners of voting stock can vote; an owner
of voting stock by the end of day on the record date has the right to vote; corp cannot vote its own stock

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18
Q

Quorum requirements

A

a majority of the votes entitled to be cast on a matter

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19
Q

Cumulative voting for Directors

A

SHs can cumulate votes to allow minority SHs to elect representatives to BOD

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20
Q

Proxy voting

A

must be in writing and delivered to corp or its agent

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21
Q

Record inspection

A

a SH with a proper purpose (relates to SH’s interest) has the right
to inspect and copy corporate records upon five days’ written notice

22
Q

Direct action

A

an action to enforce SH rights for breach of fiduciary duty by Director or Officer, based on grounds unrelated to SH’s status

23
Q

Derivative Action

A

SH sues on behalf of corp for harm suffered by corp. Requirements:
1. P needs standing at time of wrong, when action is filed, and during litigation.
2, Written demand on BOD unless futile.
3. Can be dismissed if a quorum decide in good faith after reasonable inquiry action isn’t in corp’s best interest

24
Q

Piercing the corporate veil

A

SH isn’t personally liable for corporate debts and obligations, but court can “pierce the corporate veil” to hold SH liable

Courts will pierce the corp veil if:
i. SH is acting as the alter ego of corp & injustice results;
ii. Inadequate capitalization at formation, OR
iii. Fraud, avoidance of existing obligations or evasion of statutory provisions.

Liability will be Joint and several.

25
Q

BOD composition

A

At least one director; must be a natural person and not a
Corp; Selected at the annual SH meeting. Compensation is allowed.

26
Q

BOD Term

A

Typically one year, but may serve longer if terms are staggered; Directorss can be removed by SHs with or without cause unless the articles provide otherwise; Director may resign at any time with
written notice to the BOD, its chair, or Corp

27
Q

BOD Meeting requirements

A

BOD needs 2 days’ notice of date, time, and place of special meetings; regular meetings may be held without notice. BOD can act by unanimous written consent without holding a meeting

28
Q

BOD Voting requirements

A
  1. Assent of majority of BOD present is usually necessary for board approval
  2. Agreements bw BOD as to how to vote (pooling) is unenforceable
  3. BOD may not vote by proxy
29
Q

BOD Duty of care

A

Director must act with the care that a person in a like position would reasonably believe appropriate under similar circumstances (objective standard),
and is required to use any additional knowledge and special skills he possesses when deciding how to act

30
Q

Business Judgment Rule

A

a rebuttable presumption that the director reasonably believed his actions were in the
best interest of Corp; does not apply when D engages in a conflict-of-interest
transaction with Corp

31
Q

How do you over come the Business judgement Rule

A

Must show:
1. D did not act in good faith;
2. D was not informed to the extent he reasonably believed was necessary;
3. D had material interests in challenged conduct and was not objective;
4. D failed to devote attention to C’s affairs;
5. D failed to timely investigate matters of material concern; or
6. D received financial benefits to which he was not entitled

32
Q

BOD Duty of Loyalty

A

D must act in away he believes is in best interest of C

  1. No self dealing
  2. Can’t usurp corp opp
33
Q

Merger

A

Requires BOD and SH approval by a majority vote at a meeting with a quorum (at least a majority of the shares entitled to vote) present for each corp; required documents must be filed
with the state

34
Q

Stock acquisition

A

a Corp can acquire stock in another Corp to acquire control of that Corp without
doing a merger by exchanging its own stock for that stock or by paying cash or other property
for the stock

35
Q

S corp

A

avoids double taxation by passing income and expenses through to its SHs,
who are then taxed directly

36
Q

LLC

A

enjoys the pass-through tax advantage of a partnership and
the limited liability of a corporation

37
Q

How is an LLC formed?

A

by filing articles of organization with the state, including the LLC’s name,
mailing address, and, if there are no members upon filing, a statement to that effect; does not come into existence until it has at least one member

38
Q

What is an LLC’s operating agreement

A

to govern business; agreement can be oral, in a record, or implied by conduct; statutory default provisions apply when the operating agreement is silent; default management arrangement is member-manager

39
Q

LLC Membership

A

minimum one member, no maximum; to become a new member requires
the consent of all other LLC members (a transfer of a membership interest also requires consent of all members)

40
Q

Transfer of LLC membership

A

the transferee only acquires the transferor’s right to share
in the LLC’s profits and losses, not a right to participate in the LLC’s management

41
Q

Termination of LLC Membership

A

does not automatically trigger a dissolution of the LLC; LLC may elect to liquidate the fair value of that person’s interests

42
Q

Allocation of profits/losses in LLC

A

—unless determined by an operating agreement,
allocations are made according to each member’s contributions to the LLC

43
Q

Mere instrumentality test

A

(i) members dominated the entity such that the LLC had no will of its own,
(ii) members used that domination to commit a fraud or wrong, and
(iii) the control and wrongful action proximately caused an injury

44
Q

Unity of interest and ownership test

A

the LLC did not have an existence
independent of the members because there was such a unity of interest and
ownership between the entity and the members that the failure to pierce the veil
would be unjust or inequitable

45
Q

LLC Member duties

A
  • Duty of care to LLC is subject to BJR; not liable for simple negligence
  • Fiduciary waivers are recognized in LLCs; may agree to specific activities that do not
    violate the duty of loyalty, as long as the agreement is not manifestly unreasonable
46
Q

LLC Dissociation

A
  • Member can withdraw whenever w/o notice
  • Withdrawal doesn’t necessarily trigger dissolution and winding up
47
Q

LLC Dissolution

A

an LLC may merge with another LLC or other business entity; may dissolve upon
the occurrence of various events (mutual consent of members, lack of members for 90 consecutive days, court order, or events provided in the operating agreement)

48
Q

Winding up LLC

A

the LLC must:
(i) discharge the LLC’s debts, obligations, or other liabilities; and
(ii) settle and close the LLC’s activities, and distribute the LLC’s assets; may perform acts necessary or appropriate to the winding up

49
Q

When can BOD amend articles of incorp?

A

BOD can amend the articles if no stock has been issued.

If stock has been issued, then BOD adopts amendments and submits them to SHs for majority approval

50
Q

Promoter

A

enters into contracts securing capital to bring the corporation into existence

51
Q

Promoter liability

A

Personally liable for a contract entered into pre-incorporation, even after the
corporation comes into existence

Corp MEE (3 decks)

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