Business Structures Flashcards
“Piercing the Corporate Veil”
and
Three Major Reasons
Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.
**Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Corp. veil pierce means courts can find DIRECTORS, officers, and s/h’s to be liable.
1) Shareholders commingle personal funds with corporate funds
2) Corp. inadequately capitalized at time of formation
3) Committing fraud on existing creditors (EG evading creditors using corp. as a shelter)
Merger?
Involves one or more corporations joining with another corporation. One corporation survives the merger and continues in existence, while the other merging corp CEASES to exist following merger.
B merges into A –> dissipates
A becomes liable for ALL obligations, liabilities etc. that B possessed before merger
Consolidation?
A+B=C
- each constituent corporation ceases to exist after new consolidation
- New Corp. liable for debts of old corp.
Share exchange?
One corp. acquires ALL O/S shares of one or more classes of stock from another corp.
Merger and Consolidations procedures and rules?
1) Board Resolution
2) Notice
3) Approval by majority of shares
4) Filing
**For Share Exchange – procedures only need to be followed by corp whose shares are BEING acquired. Plan
Merger into subsidiary or “short-form” merger rules?
Parent corp. owning 90% or more of a sub corp may merge the sub into PArent without s/H approval in EITHER corp, or subsidiary board approval.
*Parent must still mail a copy of the plan to each S/H who has not waived this right.
**ONLY s/h’s of subsidiary get dissenting rights here (not parent SH’s)
Corporation’s initial bylaws adopted by?
Incorporators or board of directors
4 Items included in Articles of Incorporation
sometimes called a Corporate Charter
1) Name of Corporation
2) Names and Addresses of the Corporation’s Registered Agents
3) Names and Addresses of each of the Incorporators
4) # of shares auth. to be Issued
Articles NEED NOT INCLUDE stmnt. in which corps. do business/have offices (tho intrastate commerce must be filed,) no names of directors or officers or terms of office necessary
amending involves shareholder votes, usually
Ultra Vires Acts?
In clause of articles, you can include the business purpose for which corp. was formed. Can be narrow (EG restaurant operations) or wide (EG conduct any lawful business.)
If corp has NARROW clause and attempts to act beyond scope, it is said to be “Ultra Vires” and any Director or Officer who authorizes may be personally liable to the corp for damages caused.
**Corp becomes subjectable to stockholders’ “Derivative Suit” as they seek remedy on behalf of corp. if corp. is not seeking this right
STOCK Dividend effect on corp. earning and profits?
None.
In accounting, the corp. is essentially merely diluting proportional ownership interest of existing shares.
NOT Defined as a distribution under RMBCA.
What is “Right of appraisal / Dissenting Right”?
This is the right of the S/h’s dissatisfied with merger/consolidation/sale of assets, to COMPEL corp. to buy back their shares at FMV
Acceptable reasons that a corp. stockholder would want to examine books?
1) Commence stockholder derivative suit
2) Solicit S’H’s to vote for change in B.O.D.
3) Investigate poss. management misconduct
Who needs to file with, and be approved by state in incorporation?
1) C-corps
2) S-corps
3) LLPs
4) LLCs
5) LPs
everyone but GP’s, partnerships, joint ventures, sole proprietorships
Business Judgment Rule?
- Applies to Officers and Directors (AKA management)
- If they act prudently/honestly/in good faith, they are generally not liable for damages caused to the corp by mistakes in judgment
Difference between equity holders and debt holders in a corp?
- Equity holders are considered to possess “ownership interest”
- Debt holders are considered CREDITORS of the corp!
