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BE (CORPORATIONS) Flashcards

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1
Q

De Jure vs De Facto Corporation

A

formed in accordance with law = De Jure

laws not followed = De Facto

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2
Q

LBCA

A

Louisiana Business Corporation Act

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3
Q

Ultra Vires Acts

A

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

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4
Q

Formation of Corporation

A

incorporators must file ARTICLES OF INCORPORATION and an affidavit of acceptance of the corporation’s registered agent with the secretary of state

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5
Q

Articles of inorporation Requirements

A

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

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6
Q

Existence of Corporation

A

Begins upon filing by the state

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7
Q

Post Filing of Articles

A

there will be an organizational meeting to:

  1. elect directors
  2. appoint officers
  3. adopt bylaws
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8
Q

Bylaws

A

generally adopted by directors, but may be modified or repealed by majority vote of either the directors or shareholders

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9
Q

Piercing the Corporate Veil

A
  1. business not conducted in proper form (no shareholder or board meetings, acting outside duty)
  2. assets are commingled
  3. corporation is undercapitalized
  4. Thinly capitalized

Creditors may pierce the veil

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10
Q

Equity Securities (shares)

A

shares that have been sold = issued and outstanding

reacquired by corporation = authorized but unissued

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11
Q

Share Certificates

A

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)

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12
Q

Classification of Shares

A

Common Shares = equal ownership right

Classes or series within a class = varying ownership rights

MUST be described in articles of incorporation

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13
Q

Stock Subscriptions

A

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

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14
Q

Consideration for Shares

A

LCBA states may be paid with any tangible or intangible property or benefit to the corporation

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15
Q

Promoters

A

before corporation is formed promoters procure commitments for capital and other instrumentalities

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16
Q

Promoters in relation to each other

A

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

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17
Q

Promoters Relationship with Corporation

A

fiduciary duty to the corporation is one of fair disclosure and good faith

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18
Q

Promoters Relationship with 3ps

A

personally liable for preincorporation contract with 3p if promoter knew the corporation had not yet come into existence

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19
Q

Corporation is liable (Promoters)

A

if it ratifies or adopts the contract after coming into existence either explicitly or implicitly

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20
Q

Immovable Property and Preincorporation

A

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

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21
Q

De Facto Corporation Doctrine

A

promoter will NOT be personally liable if in good faith to incorporate exercised corporate authority

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22
Q

Corporation by Estoppel Doctrine

A

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

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23
Q

Shareholder’s Meeting

A

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

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24
Q

Special Meetings

A

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

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25
Q

Place of meetings

A

held within or outside the state

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26
Q

Notice for Meetings

A

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

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27
Q

Eligibility to Vote

A

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

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28
Q

Power of Vote

A

unless otherwise provided each share is entitled to one vote

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29
Q

Proxies

A

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

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30
Q

Quorum

A

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

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31
Q

Passing Vote

A

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

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32
Q

Director Elections

A

unless provided otherwise elected by a plurality of the votes cast

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33
Q

Cumulative Voting

A

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

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34
Q

Class Voting on Article Amendments

A

if amendment affects only one class of stock, that class has a right to vote EVEN if they don’t otherwise have voting rights

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35
Q

Shareholders Act w/o meeeting

A

May take action without a meeting by the unanimous written consent of ALL shareholders entitled to vote on the action

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36
Q

Voting Trust

A

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

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37
Q

Voting Agreement

A

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

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38
Q

Unanimous Governance Agreements

A

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

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39
Q

Restriction on Transfer of Stock

A

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

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40
Q

Shareholder’s Qualified Right for Inspection

A

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

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41
Q

Shareholder’s Unqualified Right for Certain Records

A

LBCA includes an exception to the general rule any shareholder may inspect the following records REGARDLESS of purpose:

  1. corporations articles and bylaws
  2. board resolutions regarding classification of shares
  3. Minutes of shareholder’s meetings from past three years
  4. communications sent by corporation to shareholders over past three years
  5. list of the names and business addresses of current director’s and officers
  6. Copy of the corporations most recent annual report
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42
Q

Preemptive Rights

A

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

43
Q

Direct Actions

A

may be brought for breach of fiduciary duty owed to the shareholder by an officer or director

44
Q

Distinguishing between duty to corporation and duty to shareholder (direct actions)

A
  1. who suffers the most immediate and direct damage
  2. whom did the defendant’s duty run

any recovery is for the benefit of the individual shareholder

45
Q

Derivative Actions

A

shareholder asserting the corporation’s rights (corporation is named as D)

46
Q

Derivative Action - Standing

A

Must be shareholder at time of wrong

47
Q

Derivative Action - Demand Requirements

A

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

48
Q

Derivative Action - Corporation’s Best interest

A

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

49
Q

Derivative Action - Settlement/Discontinuance

A

Requires court approval

50
Q

Derivative Action - Order Payment

A

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

51
Q

Distributions

A

dividends, redemptions of shares, repurchases of shares, distribution of assets upon liquidation

52
Q

Rights of Distributions

A

at least one class of stock MUST have a right to receive the corporations net assets on dissolution

beyond this it is discretionary

53
Q

Authorization to Declare Distributions

A

even if articles authorize distributions, solely within directors’ discretion subject to solvency limitations

54
Q

Solvency Limitations

A

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

55
Q

Distribution Restrictions in Articles

A

may restrict boards rights to declare dividends (prohibit payment of distributions unless earns certain amount of profits)

56
Q

Share Dividends

A

distribution of corporation’s own shares (“share dividends” or “stock dividends”) to shareholders are excluded from definition of “distribution”

57
Q

Contractual Rights - Distributions

A

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)

58
Q

Who May Receive Dividends

A

shareholders of record on record date

59
Q

Liability for Unlawful Distributions

A

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

60
Q

When Director is NOT liable for distributions in violation

A

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

61
Q

Shareholders’ Liabilities

A

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

62
Q

Directors’ Powers

A

responsible for management of the business and affairs of the corporation

63
Q

Directors’ Qualifications

A

need NOT be shareholders

64
Q

Number of, Election, and term of office - Directors

A

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

65
Q

Removal of Directors

A

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

66
Q

Directors Meetings

A

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

67
Q

Director’s Meeting - Quorum

A

majority of the board unless otherwise required by articles or bylaw

NO fewer than 1/3 of board members

68
Q

Director’s Meeting - Approval of Action

A

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

69
Q

Directors Delegation of Authority

A

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

70
Q

Director’s Right to Inspect

A

right to inspect corporate books

71
Q

Director’s Liabilities

A

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

72
Q

Director’s Duty of Care

A

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

73
Q

Director’s Duty to Disclose

A

disclose material corporate information to other members of the board

74
Q

Director’s Duty of Loyalty

A

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

75
Q

Voting on Conflicting Interest Transaction

A

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

76
Q

Voting on Conflicting Interest Transaction - Quorum Requirement

A
  1. At a director’s meeting, a MAJORITY of the directors without a conflicting interest (not less than two) AND
  2. 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
77
Q

Remedies for Improper Conflicting Interest Transaction

A

enjoining transaction, setting transaction aside, damages, and similar

78
Q

Officers Required

A

LBCA Requires a secretary

79
Q

Officers’ Duties

A

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

80
Q

Officers Powers

A

ordinary rules of mandate

81
Q

Officers - Resignation and Removal

A

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

82
Q

Mandatory Indemnification

A

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

83
Q

Discretionary Indemnification

A

in unsuccessful defending of suit if:

  1. Good faith; AND
  2. 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

84
Q

Advances

A

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

85
Q

Fundamental Changes

A
  1. board adopts a resolution
  2. Written notice to shareholders
  3. shareholders approve
  4. changes in the form of articles are filed with the state
86
Q

Amendments to Articles of Incorporation

A

require approval by shareholders, except housekeeping amendments (deleting old names, changing number of authorized shares after a split)

87
Q

Merger

A

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

88
Q

No significant change to surviving Corporation

A

approval of merger is not required if

  1. articles of incorporation will not differ
  2. each shareholder of the survivor whose shares were outstanding will hold same number, identical preferences, limitations and rights
  3. voting power of the shares issued as a result of merger will comprise NO MORE than 20% of the voting power of surviving corporation
89
Q

Short Form Merger of Subsidiary

A

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

90
Q

Disposition of property OUTSIDE regular course of business

A

all or substantially all (>75% assets accounting for at least 75% revenue)

must follow fundamental change procedure

purchaser not liable

91
Q

Protections and Limitation on Fundamental Changes

A

right of appraisal =
dissenting shareholders have a right for corporation to purchase their shares

  1. Any shareholder entitled to vote on merger and shareholders of the subsidiary in short form merger
  2. Shareholders of corporation being acquired
  3. a shareholder who is entitled to vote on disposition of all or substantially all corporation’s property
92
Q

Market-Out Exception

A

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

93
Q

Dissenting Shareholders - Procedure

A
  1. corp must give SHs notice
  2. Shareholder must give notice of intent to demand payment
  3. Corporation must give dissenters notice within 10 days
  4. SHs must demand payment
  5. Corp must pay (they estimate fair value)
  6. Notice of dissatisfaction within 30 days
  7. Court action when corp doesnt want to pay SH demand price
94
Q

Voluntary Dissolution

A

continues existence only to what is appropriate to winding up and liquidating affairs

95
Q

Claims Against Dissolved Corporation

A

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

96
Q

Revocation of Voluntary Dissolution

A

may revoke by using same procedure to approve dissolution

97
Q

Administrative Termination

A

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

98
Q

Judicial Dissolution

A

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

99
Q

Election to Purchase in Lieu of of Dissolution

A

may elect to purchase shares owned by petitioning SH at fair value

100
Q

Action by Creditors - Dissolution

A

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

101
Q

Court Supervision of Voluntary Dissolution

A

action by corp to have its voluntary dissolution continued under court supervision

102
Q

Profession Corps

A

LA has special statutes allowing certain professionals to form corps

engage ONLY in business of profession

LA insulates shareholders from personal liability

103
Q
A

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