BE (CORPORATIONS) Flashcards
De Jure vs De Facto Corporation
formed in accordance with law = De Jure
laws not followed = De Facto
LBCA
Louisiana Business Corporation Act
Ultra Vires Acts
corporation includes a narrow business purpose, activities beyond the scope of the stated business purpose are Ultra Vires
can be raised by
1. Shareholder
2. Corporation
3. The State
Formation of Corporation
incorporators must file ARTICLES OF INCORPORATION and an affidavit of acceptance of the corporation’s registered agent with the secretary of state
Articles of inorporation Requirements
must contain:
1. The name of the corporation
2. number of shares that corporation is authorized to issue
3. Name and Address of registered agent
4. name and address of each incorporator
May also include any other provision regarding operation of the corporation that is not inconsistent with the law
Existence of Corporation
Begins upon filing by the state
Post Filing of Articles
there will be an organizational meeting to:
- elect directors
- appoint officers
- adopt bylaws
Bylaws
generally adopted by directors, but may be modified or repealed by majority vote of either the directors or shareholders
Piercing the Corporate Veil
- business not conducted in proper form (no shareholder or board meetings, acting outside duty)
- assets are commingled
- corporation is undercapitalized
- Thinly capitalized
Creditors may pierce the veil
Equity Securities (shares)
shares that have been sold = issued and outstanding
reacquired by corporation = authorized but unissued
Share Certificates
unless specific exception
shares must be represented by a certificate:
1. name of issuing corporation and organized under this state’s law
2. name of person to who it is issued
3. number and class of shares and designation of series if any
4. must be signed by president and secretary OR 2 officers designated
no certificate if = Direct Registration System of the Depository Trust & Clearing Corporation (public corporations)
Classification of Shares
Common Shares = equal ownership right
Classes or series within a class = varying ownership rights
MUST be described in articles of incorporation
Stock Subscriptions
promises to buy stock in corporation
Preincorporation = Under LCBA irrevocable for 6 months unless provided
Payment = upon demand by the board failure to pay may be penalized by state
Consideration for Shares
LCBA states may be paid with any tangible or intangible property or benefit to the corporation
Promoters
before corporation is formed promoters procure commitments for capital and other instrumentalities
Promoters in relation to each other
Absent an agreement, promoters are joint venturers who occupy a fiduciary relationship with each other
Breached if they pursue personal gain at the expense of their fellow promoters
Promoters Relationship with Corporation
fiduciary duty to the corporation is one of fair disclosure and good faith
Promoters Relationship with 3ps
personally liable for preincorporation contract with 3p if promoter knew the corporation had not yet come into existence
Corporation is liable (Promoters)
if it ratifies or adopts the contract after coming into existence either explicitly or implicitly
Immovable Property and Preincorporation
property acquired by anyone acting on behalf of a corporation that is not yet incorporated, but becomes incorporated later, corporate existence will be retroactively to date of acquisition of that property
FOR PURPOSES of establishing the corporation’s ownership of the property DOES NOT prejudice rights of 3ps acquired in the interim
De Facto Corporation Doctrine
promoter will NOT be personally liable if in good faith to incorporate exercised corporate authority
Corporation by Estoppel Doctrine
party signing contract may not enforce it against the promoter if that party had relied only on the corporation’s name and assets and NOT the promoters
Shareholder’s Meeting
Corporation’s MUST hold annual shareholders’ meetings
if no meeting period of 18 months, any shareholder may by notice to secretary demand that the secretary call a meeting at corporation’s principal office OR if none its registered office
secretary MUST call meeting and provide notice within 30 days after shareholder’s demand
Special Meetings
may be called by the board of directors, holders of 1/10 or more of all shares entitled to be cast at the meeting, or other persons authorized in articles or bylaws
Place of meetings
held within or outside the state
Notice for Meetings
Shareholders MUST be notified NOT LESS than 10 or MORE than 60 days before the meeting
must state date, time, and place
for special meetings must also state the purpose
Notice may be waived by writing or by attendance
Eligibility to Vote
shareholders of record on the record date may vote at the meeting
record date is fixed by the board MAY NOT BE more than 70 days before the meeting
If no record date deemed to be the day the notice of the meeting is mailed to the shareholders
Power of Vote
unless otherwise provided each share is entitled to one vote
Proxies
shareholder may vote in person or by proxy (EXECUTED IN WRITING)
valid for 11 months unless provided otherwise
generally revocable by shareholder and revoked by shareholder attending meeting in person to vote themselves
only irrevocable if stated so and coupled with an interest or given as security
Quorum
usually a majority of OUTSTANDING SHARES ENTITLED TO VOTE
unless articles require different number (CANNOT be less than 25% of shares entitled to vote)
once quorum is present cannot be broken by withdrawal of shares from the meeting
Less than a quorum may adjourn the meeting
Passing Vote
if quorum is present shareholders will be deemed to have approved a matter if votes cast in favor EXCEED THE VOTES CAST AGAINST
UNLESS articles require a greater proportion
Director Elections
unless provided otherwise elected by a plurality of the votes cast
Cumulative Voting
each shareholder is entitled to a number of votes EQUAL to number of his voting shares multiplied by number of directors to be elected
May divided among the candidates or cast all for one
Class Voting on Article Amendments
if amendment affects only one class of stock, that class has a right to vote EVEN if they don’t otherwise have voting rights
Shareholders Act w/o meeeting
May take action without a meeting by the unanimous written consent of ALL shareholders entitled to vote on the action
Voting Trust
written agreement of shareholders under which all of the shares owned by parties are transferred to a trustee
trustee votes the shares and distributes the dividends in accordance with the agreement
copy of trust, names and addresses of beneficial owners MUST be given to the corporation
Voting Agreement
written and signed agreement providing manner in which they will vote their shares
specifically enforceable (unless provided otherwise)
does not need to be filed with corporation
Unanimous Governance Agreements
agreement amongst shareholders regarding almost any aspect of the exercise of corporate power
must be set forth in the articles or bylaws and must be set forth in a written agreement approved by all persons who are shareholders at time of adoption
valid for 20 years (unless provided otherwise) terminate if listed on public trading market
Restriction on Transfer of Stock
must be reasonable
3p is bound
1. restrictions existence is conspicuously noted on the certificate OR
2. 3p had knowledge of the restriction at time of purchase
Shareholder’s Qualified Right for Inspection
Under LBCA shareholder may inspect corporation’s books, papers, accounting records, shareholder records
with 5 days written notice stating a proper purpose for the inspection
may send attorney or accountant or other agent to inspect
Shareholder’s Unqualified Right for Certain Records
LBCA includes an exception to the general rule any shareholder may inspect the following records REGARDLESS of purpose:
- corporations articles and bylaws
- board resolutions regarding classification of shares
- Minutes of shareholder’s meetings from past three years
- communications sent by corporation to shareholders over past three years
- list of the names and business addresses of current director’s and officers
- Copy of the corporations most recent annual report
Preemptive Rights
LBCA states shareholders do NOT have a preemptive right to newly issued shares to maintain proportional ownership unless provided in articles
even IF articles provide, no preemptive right if shares issued for:
1. consideration other than cash
2. within 6 months after incorporation
3. without voting rights but having a distribution preference
Direct Actions
may be brought for breach of fiduciary duty owed to the shareholder by an officer or director
Distinguishing between duty to corporation and duty to shareholder (direct actions)
- who suffers the most immediate and direct damage
- whom did the defendant’s duty run
any recovery is for the benefit of the individual shareholder
Derivative Actions
shareholder asserting the corporation’s rights (corporation is named as D)
Derivative Action - Standing
Must be shareholder at time of wrong
Derivative Action - Demand Requirements
written demand to take action
proceeding must wait 90 days from demand unless:
1) shareholder has earlier been notified corporation rejected the demand OR
2) irreparable injury to the corporation if waiting 90 days
Derivative Action - Corporation’s Best interest
dismissed if found not in best interest of corporation
majority of directors (at least two) have no personal interest in controversy find in GOOD FAITH after REASONABLE INQUIRY suit is not in best interest may bring motion to dismiss
BOP shareholder unless majority directors had a personal interest in the controversy
Derivative Action - Settlement/Discontinuance
Requires court approval
Derivative Action - Order Payment
upon termination court may order the corporation pay Ps reasonable expenses if it finds action resulted in substantial benefit to corporation
If brought or maintained w/o reasonable cause or improper purpose may order P to pay reasonable expenses
Distributions
dividends, redemptions of shares, repurchases of shares, distribution of assets upon liquidation
Rights of Distributions
at least one class of stock MUST have a right to receive the corporations net assets on dissolution
beyond this it is discretionary
Authorization to Declare Distributions
even if articles authorize distributions, solely within directors’ discretion subject to solvency limitations
Solvency Limitations
distribution NOT permitted if either:
1. corporation would NOT be able to pay its debts as they become due in usual course of business; OR
2. Total assets would be less that the sum of its total liabilities
Distribution Restrictions in Articles
may restrict boards rights to declare dividends (prohibit payment of distributions unless earns certain amount of profits)
Share Dividends
distribution of corporation’s own shares (“share dividends” or “stock dividends”) to shareholders are excluded from definition of “distribution”
Contractual Rights - Distributions
May be divided into classes with varying rights
once declared, shareholders are treated as creditors (can be revoked if in violation of limitations, articles, or superior preference right)
Who May Receive Dividends
shareholders of record on record date
Liability for Unlawful Distributions
shareholder who received in excess authorized will be personally liable to corporation or creditors or both
director who votes or assents to distribution in violation is personally liable to corporation
When Director is NOT liable for distributions in violation
in good faith
1. based on financial statements, or other valuation; OR
2. relied on information from officers, employees, legal counsel, accountants, committee of the board of which director is not a member
Director held liable for unlawful distributions is entitled to:
1. contribution from every other director who could be held liable for the distribution (voted in favor)
2. indemnity from each shareholder for amount accepted while knowing distribution was improper
Shareholders’ Liabilities
No fiduciary duty
limited to unpaid stock, pierced corporate veil, receipt of unlawful distributions, or absence of de facto corporation
managing shareholders by agreement have liability of director with same power
Directors’ Powers
responsible for management of the business and affairs of the corporation
Directors’ Qualifications
need NOT be shareholders
Number of, Election, and term of office - Directors
need only be 1, but articles or bylaws may require as many as desired
elected at each annual shareholder’s meeting, subject to contrary provisions in articles
May be divided into equal class sizes with terms expiring in staggered years from 1-3
Vacancies may be filled by shareholders or directors
Removal of Directors
by shareholders with or without cause
director elected by cumulative voting cant be removed if votes cast against removal would be sufficient to elect if cumulatively voted at an election
director elected by voting group of shares can be removed ONLY by that class
Directors Meetings
regular or special
regular meetings held without notice
special meetings require 48 hours written notice of date, time, place of the meeting attendance constitutes waiver of notice unless to protest lack of notice
Director’s Meeting - Quorum
majority of the board unless otherwise required by articles or bylaw
NO fewer than 1/3 of board members
Director’s Meeting - Approval of Action
quorum present, majority of directors present
action required to be taken at a formal meeting MAY be taken by unanimous consent in writing without a meeting
Directors Delegation of Authority
unless articles or bylaws provide otherwise, board may create one or more committees, with two or more members, and appoint members of the board of directors to serve on them
may also delegate authority to officers
Director’s Right to Inspect
right to inspect corporate books
Director’s Liabilities
unless provided in articles, Louisiana law eliminates director’s personal liability for money damages to corporation or shareholders for actions taken or for failure to take action
MAY NOT limit liability for financial benefits received by director not entitled, intentional harm on corporation or shareholders, unlawful distributions, intentional violation of criminal law
Director’s Duty of Care
to manage to the best of their ability
must discharge their duties:
1. in good faith
2. with care that a person in like position would reasonably believe appropriate under similar circumstances; AND
3. in a manner the directors reasonably believe to be in the best interests of the corporation
not liable for hindsight decisions
may rely on reports or other information
Director’s Duty to Disclose
disclose material corporate information to other members of the board
Director’s Duty of Loyalty
Conflicting Interest Transactions (self or related person is party or has financial interest)
must be:
1. approved by a majority of director’s (but at least two) without conflicting interest after all material facts have been disclosed
2. transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest after all material facts have been disclosed; OR
3. transaction was judged fair to the corporation
Voting on Conflicting Interest Transaction
qualified directors MUST have deliberated and voted OUTSIDE the presence of and without participation of any other director
Presence of INTERESTED PERSON does not affect the action
Voting on Conflicting Interest Transaction - Quorum Requirement
- At a director’s meeting, a MAJORITY of the directors without a conflicting interest (not less than two) AND
- at a shareholder’s meeting, MAJORITY of the votes entitled to be cast NOT including shares owned or controlled directly or beneficially by the director with conflicting interest
Remedies for Improper Conflicting Interest Transaction
enjoining transaction, setting transaction aside, damages, and similar
Officers Required
LBCA Requires a secretary
Officers’ Duties
secretary has authority and responsibility for preparing minutes of directors and shareholders’ meetings
other duties of other officers are set forth in bylaws
must carry out their duties in good faith with the care that a person in a like position would reasonably exercise under similar circumstances, and in a manner they believe to be in best interest of the corporation
Officers Powers
ordinary rules of mandate
Officers - Resignation and Removal
power to resign at any time by delivering notice to the corporation and the corporation has the power to remove an officer at any time WITH or WITHOUT cause
Mandatory Indemnification
corporation MUST indemnify a director or officer who was wholly successful, on the merits or otherwise in defending a proceeding against the officer or director
reasonably expenses, including attorney’s fees
Discretionary Indemnification
in unsuccessful defending of suit if:
- Good faith; AND
- believed conduct was in best interest of the corporation, not opposed to best interest, and not unlawful
EXCEPTIONS:
1. Defending Derivative Action when found liable to the corporation OR
2. an action charging that director received an improper benefit
Advances
Corporation may advance expenses to director defending action as long as director furnishes statement director believes he met the appropriate standard of conduct and that he will repay the advance if found he didnt meet it
Fundamental Changes
- board adopts a resolution
- Written notice to shareholders
- shareholders approve
- changes in the form of articles are filed with the state
Amendments to Articles of Incorporation
require approval by shareholders, except housekeeping amendments (deleting old names, changing number of authorized shares after a split)
Merger
merging corporation ceases to exist
Share exchange = one corporation purchases all of outstanding share of one or more classes on another corporation
conversion = business entity changes its form to another business entity
All shareholders have a right to approve these procedures
No significant change to surviving Corporation
approval of merger is not required if
- articles of incorporation will not differ
- each shareholder of the survivor whose shares were outstanding will hold same number, identical preferences, limitations and rights
- voting power of the shares issued as a result of merger will comprise NO MORE than 20% of the voting power of surviving corporation
Short Form Merger of Subsidiary
parent owns at least 90% of outstanding share of each class of subsidiary corporation may merge without approval
within 10 days of merger must notify each of the subsidiary shareholders
Disposition of property OUTSIDE regular course of business
all or substantially all (>75% assets accounting for at least 75% revenue)
must follow fundamental change procedure
purchaser not liable
Protections and Limitation on Fundamental Changes
right of appraisal =
dissenting shareholders have a right for corporation to purchase their shares
- Any shareholder entitled to vote on merger and shareholders of the subsidiary in short form merger
- Shareholders of corporation being acquired
- a shareholder who is entitled to vote on disposition of all or substantially all corporation’s property
Market-Out Exception
appraisal rights are not available to shareholders of PUBLICLY held corporations or corps with at least 2,000 shareholders and shares of the class or series have value at least $20m exclusive shares held by senior exec, directors and shareholders owning more than 10% shares
Dissenting Shareholders - Procedure
- corp must give SHs notice
- Shareholder must give notice of intent to demand payment
- Corporation must give dissenters notice within 10 days
- SHs must demand payment
- Corp must pay (they estimate fair value)
- Notice of dissatisfaction within 30 days
- Court action when corp doesnt want to pay SH demand price
Voluntary Dissolution
continues existence only to what is appropriate to winding up and liquidating affairs
Claims Against Dissolved Corporation
to the extend of corporation’s undisturbed assets
can be asserted at SHs if assets have been distributed for pro rata share
can cut short time to bring claim by notifying claimants in writing of dissolution giving deadline no less than 120 days to file claim…unknown claims can be limited to three years by publishing notice in newspaper in county where corporations known place of business is located
Revocation of Voluntary Dissolution
may revoke by using same procedure to approve dissolution
Administrative Termination
state bring action for reasons such as failure to pay fees or penalties, failure to file annual report, failure to maintain registered agent in the state.
May apply for reinstatement within three years after effective date of dissolution…related back to the date of termination and carry on as if it had never occurred
Judicial Dissolution
AG seeks action for fraudulently obtained articles or exceeding or abusing authority
SHs may seek for:
1. directors are deadlocked in management of affairs and irreparable injury is threatened or affairs cannot be conducted to SHs advantage
2. SHs deadlocked in voting power and have failed to elect one or more directors for a period that includes at least two consecutive annual meetings
3. corp has abandoned its business and failed to dissolve in reasonable time
Election to Purchase in Lieu of of Dissolution
may elect to purchase shares owned by petitioning SH at fair value
Action by Creditors - Dissolution
seek if:
1. creditors claim has been reduced to judgment, judgment returned unsatisfied, and corporation is insolvent; OR
2. corporation has admitted in writing creditor’s claim is due and owing and corp is insolvent
Court Supervision of Voluntary Dissolution
action by corp to have its voluntary dissolution continued under court supervision
Profession Corps
LA has special statutes allowing certain professionals to form corps
engage ONLY in business of profession
LA insulates shareholders from personal liability
