Characteristics and Formation of Corporation Flashcards
S Corp
- taxed like partnerships (not subject to double taxation) but retain advantages of corporate form
- stock can be held by no more than 100 persons
- can only be one class of stock
A corporation formed in accordance with law is a ________ corporation.
de jure
To create a de jure corporation, the incorporators must
file articles of incorporation with the secretary of state
The articles of incorporation must contain
the name of the corporation
the number of shares the corporation is authorized to issue
the name and address of the corporation’s registered agent
the name address of each incorporator
bylaws
- may contain any provision for managing the corporation that is not inconsistent with the articles or law
- adopted by directors, but can be modified or repealed by a majority vote of either directors or shareholders
de facto corporation
business that doesn’t fulfill filing formalities may nonetheless be treated as a corporation if organizers have made a good faith, colorable attempt to comply with the corporate formalities and have no knowledge of the lack of corporate status
piercing the corporate vail
- courts will disregard a corporate entity and hold individuals personally liable for corporate obligations
- occurs when SHs treat corporate assets as their own and fail to observe corporate formalities (alter ego)
- and at the time of formation there is not enough capital for foreseeable liabilities
- court more likely to pierce for tort victims than contracts
share options
right to purchase shares in the future under terms predetermined by the BOD
stock subscriptions
promises from subscribers to buy stock in the corporation
Preincorporation subscriptions are irrevocable for
six months.
notice for shareholders meetings
- not less than 10 or more than 60 days before mtg
- date, time, and place required; for special meetings, need purpose
- notice may be waived in writing or by attendance
Proxies are valid for ________ unless they provide otherwise.
11 months
A proxy will be irrevocable only if
it states that it is irrevocable and is coupled with an interest
quorum at shareholders’ meeting
a majority of outstanding shares entitled to vote
Directors are elected by a __________.
plurality of the votes cast
cumulative voting
each shareholder is entitled to a number of votes equal to the number of his voting shares multiplied by the number of directors to be elected
If a quorum is present, shareholders will be deemed to have approved a matter if
the votes cast in favor of the matter exceed the votes cast against the matter.
voting trust
a written agreement of shareholders under which all of the shares owned by the parties to the agreement are transferred to a trustee, who votes the shares and distributes the dividends in accordance with the provisions of the voting trust agreement
voting agreement
shareholders may enter into a written and signed agreement providing for the manner in which they will vote their shares
A shareholder may inspect the corporation’s books, papers, accounting records, shareholder records, etc. upon
5 days written notice stating a proper purpose for the inspection
To commence and maintain a derivative proceeding, a shareholder must have
been a shareholder at the time of the act or omission complained of or must have become a shareholder through transfer by operation of law from one who was a shareholder at that time.
board of directors
responsible for the management of the business and affairs of the corporation
Directors may be removed by the shareholders _______________.
with or without cause
notice for regular directors’ meetings
no notice required
notice for special directors’ meetings
at least 2 days written notice of time, date, and place of meeting
quorum at directors’ meeting
majority of board of directors (but can be no fewer than one-third of the board members)
___________ can break a quorum by withdrawing from a meeting; ___________ cannot.
directors; shareholders
approval of action at directors’ meeting
approved by a majority of directors present
Directors have a duty to manage to the best of their ability. They must discharge their duties:
(i) In good faith;
(ii) With the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and
(iii) In a manner the directors reasonably believe to be in the best interests of the corporation.
usurpation of a corporate opportunity
director must disclose business opportunity to corporation and give corporation a chance to accept or decline the opportunity before taking advantage of the opportunity for herself
The following procedure applies to fundamental changes:
(i) the board adopts a resolution;
(ii) written notice is given to the shareholders;
(iii) the shareholders approve the changes; and
(iv) the changes in the form of articles are filed with the state.
A sale, lease, exchange, or other disposition of _________________________ of a corporation’s property outside the usual course of business is a fundamental change (and therefore, must follow the fundamental change procedure).
all or substantially all (more than 75%)
The decision whether to declare a dividend is up to the sound discretion of the _________.
board
A controlling shareholder must refrain from using his control to obtain a special advantage or to cause the corporation to take action that
unfairly prejudices the minority shareholders.
In making business judgments, directors are generally entitled to rely on
the reports of professional persons within their areas of expertise and corporate officers and employees whom the director reasonably believes to be reliable and competent.
A director will be considered present at a meeting if
the director attends in person or through a remote communication device that allows each participant to simultaneously hear the other participants.
par value
minimum issuance price
treasury stock
stock previously issued and reacquired
A valid meetings is required for board of directors action unless
there is unanimous director consent in writing to act without meeting.
self dealing
director receives unfair benefit in transaction with corporation
usurping corporate opportunities
director receives unfair benefit by usurping an opportunity corporation would have pursued
A conflicting interest transaction will not be enjoined or give rise to an award of damages due to the director’s interest in the transaction if:
(i) The transaction was approved by a majority of the directors (but at least 2) without a conflicting interest after all material facts have been disclosed to the board;
(ii) The transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts have been disclosed to the shareholders (notice of the meeting must describe the conflicting interest transaction); or
(iii) The transaction, judged according to circumstances at the time of commitment, was fair to the corporation.
Unless limited by the articles, a corporation must indemnify a director or officer who
prevailed in defending a proceeding against the officer or director for reasonable expenses, including attorneys’ fees, incurred in connection with the proceeding.
A corporation may indemnify a director or officer who was unsuccessful in defending a suit if
director or officer shows action in good faith and conduct was in corporation’s best interest.
A corporation cannot indemnify a director of officer who is unsuccessful in defending
(i) a direct or derivative action in which the director is found liable to the corporation or (ii) an action charging that the director received an improper benefit.
appraisal rights
dissenting shareholder to a fundamental corporate change can force corporation to buy shares at fair value
