Biz Orgs Flashcards
Articles of Incorporation
“A PAIN”
The maximum # of shares that are allowed to be issued. If corp. wants to issue more they must amend.
2 types: 1) General and Perpetual = presumed if silent 2) Specific statement of purpose = apply Ultra Vires Rules
Ultra vires Rules = State can enjoin the activities and the corp. may sue its own directors and officers/shareholders for losses caused by the ultra vires activities.
Name and Address of person who is to rep. corp. for service of process.
Persons that sign and file the articles of incorp with the state.
Must include some indicia of corporate status.
De Facto Corp Doctrine
Business fails to get de jure corp status if organizers have 1) make good faith, colorable attempt to comply with corp formalities and 2) have no knowledge of lack of corp status
Stock Issuance - Consideration
Par value- the minimum issuance price. Acquiring prop with par value stock- must be equal in value to par value. No par- any consideration is valid if deemed adequate by Board. Treasury Stock- stock that was previously issued and has been re-acquired by corp. Can be re-sold and is considered no par.
Valid Meeting of BOD
- Unless all directors consent in writing to act without meeting, a meeting is required. 2. Notice of meeting can be set in bylaws. 3. Proxies and voting agreements are not allowed but conference calls are generally valid. 4. Quorum- must have majority of all directors to take action. 5. Vote- to pass a resolution, all that’s required is a majority vote of those present. 6. Each director is presumed to have concurred in Board action unless dissent r abstention is recorded in writing.
BJR
Under the BJR, directors are insulated form liability for the consequences of a business decision if they 1) exercised due care, 2) acted in GF, and 3) had a rational basis for the decision. PAs such, will not be liable for innocent mistakes of business judgment.
Duty of Loyalty
Director may not receive an unfair benefit to the detriment of the Corporation or its SH, unless there has been material disclosure and independent ratification.
Directors can be held personally liable for the losses sustained by the company.
Ratification
Directors can defend a claim by obtaining independent ratification through 1) a majority vote of independent directors, 2) majority vote of a committee of at least 2 independent directors or 3) majority vote of shares held by independent SH’s.
Derivative Suits
SH is suing to enforce corp.’s cause of action. A Derivative suit is proper only if the SH owns stock at the time the act complained of occurred and throughout litigation, and the SH made a demand on the directors to sue, which was refused in BF or shown to be futile.
Nb. In a derivative suit, any recovery of losses goes to the corporation, except the SH may recover reasonable expenses of litigation.
Req’s: 1) Contemporaneous stock ownership before, during and end of suit. 2) Adequacy- SH must fairly and adequately represent the corp.’s interest. 3) Must make demand on directors- to bring suit and demand must be rejected or at least 90 days have passed since demand was made
Involuntary Dissolution
While a court acting in equity has no inherent power to dissolve a corporation, most state laws provide that a corporation may be dissolved inherently by a SH’s action if 1) the directors become deadlocked in the management of the corporation, 2) the directors are committing fraud or illegal acts, OR 3) if the corporate assets are being wasted by the directors.
Dissolution is a harsh measure and should not be granted in the absence of other acts indicating oppressive or fraudulent conduct by the directors.
SH Proxy
Proxy is 1) writing, 2) signed by record SH, 3) send to secretary of corp, 4) authorizing another to vote and 5) valid for 11 months unless otherwise stated.
Generally revocable by the SH unless (1) it states conspicuously that it is irrevocable and (2) is coupled with an interest or given as security
Pooled or Block Voting Methods
Voting trusts- formal, written delegation of voting power to voting trustee for up to 10 years, unless extended by agreement of the parties. Copy of the trust agreement and the names/addresses of the beneficial owners of the trust must be given to the corp. SH get trust certificates. SH retains all right except for voting.
Voting Agreements- SHs enter into written & signed agreement proving for the manner in which they will vote their shares. The agreement will be specifically enforceable and can be perpetual.
Restrictions on Transfer of Stock- A 3P purchaser is bound by the provisions of an agreement restricting transfer of stock if 1) the restriction’s existence is conspicuously noted on the certificate OR 2) #P had knowledge of the restriction at the time of purchase.
Piercing the Corporate Veil
In some circumstances, even though the corporation has been validly formed, the courts will hold SHs personally liable for corporate debt. This is known as PCV. Avoid fraud or unfairness. Two ways:
1) Alter Ego- Corporation ignores corporate formalities such that it may be considered the alter ego of the SHs or another corporation. Arises when SHs treat corporate assets as their own, fail to observe corporate formalities, and some basic injustice results. OR
2) Undercapitalization- When the corporation is inadequately capitalized, so at the time of formation there us not enough unencumbered capital to reasonably cover prospective liabilities.
Nb. Equity courts are more willing to pierce for innocent tort victim and not against passive investors.
Nb. Where SHs are held liable; they are liable for he entire amount of the claim. Thus, each SH who took funds for their personal use, etc. will be jointly and severally liable for the entire debt owed to the corporation.
Fundamental Corporate Changes
Fundaments amendment of articles, Merger, Consolidation, Share Exchange, Dissolution, Sale of substantially all corp.’s assets
Procedure: 1) Resolution by Board at valid meeting. 2) Notice of special meeting (no less than 10 days before) to each SH of record. 3) Approval by majority of all shares entitled to vote, and by a majority of each voting group that is adversely affected by the change (supermajority). 4) Possibility of dissenting SH right of appraisal. 5) File notice with state.
Process to Perfect the Right to Get Corp to Buy
- Before SH vote, file written notice of objection and intent to demand payment. 2. Don’t vote in favor of the proposed change. 3. Make prompt written demand to be bought out. If can’t agree on fair value- court will appoint an appraiser who’s appraisal is binding
Fed Securities - 10(b)
It is unlawful for any person, directly or indirectly, by the use of any means of interstate commerce to 1) employ any scheme to defraud, 2) make any untrue statement of a material fact (or omit to state a material fact), OR 3) engage in any practice or course of business that would operate as a fraud, in connection with the purchase or sale of any security.
Req’s for Private P’s: (1) P must show D engaged in some fraudulent conduct [Materiality: if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision & Sicenter: D must have had an intended to defraud or deceive]; (2) In connection with the Actual purchase/ sale of a security; (3) Conduct must involve some use ISC [phone, mail, internet]; (4) P must prove that he relied on D’s fraudulent statement, omission, or conduct, and (4) D’s fraud caused the P Damages.
