Co Flashcards
UNDER THE RMBCA, A CORPS EXISTENCE BEGINS ON THE DATE
THE ARTICLES OF INCORP ARE FILED W SEC OF STATE
(MED)
THE ARTICLES OF INCORP MUST CONTAIN
1) CORP NAME
2) NUMBER OF SHARES CORP IS AUTHORIZED TO ISSUE
3)ADDRESS OF CORP INITIAL REGISTERED OFFICE & NAME OF INITIAL REGISTERED AGENT
4)NAME AND ADDRESS OF EACH INCORPORATOR
(MED)
A LEGALLY FORMED CORP IS CALLED A
DE JURE CORP
(MED)
BYLAWS
GOVERN THE INTERNAL OPERATIONS AND MANAGEMENT OF CORP
UNDER THE RMBCA, THE BYLAWS MAY CONTAIN ANY PROVISION THT IS NOT INCONSISTENT W
A) ARTICLES OF INCORP
B) THE LAW OF JX
WHEN THERE IS A CONFLICT B/W ARTICLES OF INCORP AND BYLAWS
THE ARTICLES OF INCORP CONTROL
ARTICLES OF INCORP MAY GIVE CERTAIN POWERS ONLY TO THE
SHAREHOLDERS
A PROMOTER
PERSON WHO ACTS ON BEHALF OF A CORP THT HAS NOT YET BEEN FORMED
UNDER RMBCA, A PERSON IS PERSONALLY LIABLE FOR ANY LIABILITIES ARISING FROM THEIR CONDUCT WHEN
1) PURPORTS TO ACT ON BEHALF OF A CORP
2) KNOWING THT NO CORP WAS FORMED (ACTUAL KNOWLEDGE REQ’D)
IF MULTIPLE PROMOTERS ARE LIABLE THEN EACH WILL BE
JOINTLY AND SEVERALLY LIABLE
A PROMOTER REMAINS PERSONALLY LIABLE FOR PRE INCORP K’S EVEN IF
CORP SUBSEQUENTLY ADOPTS K
(BOTH CORP AND PROMOTER LIABLE)
A PROMOTER WILL NOT BE LIABLE IF
1) SUBSEQUENT NOVATION
2) K EXPLICITLY STATES PROMOTER HAS NO PERSONAL LIABILITY ON THE K
IF PROMOTER IS LIABLE TO 3RD, HE WILL BE ENTITLED TO
INDEMNIFICATION FROM CORP
(UNLESS VIOLATED A FIDUCIARY DUTY IN ENTERING THE K)
A CORP IS NOT LIABLE ON PRE INCORP K’S ENTERED INTO BY A PROMOTOR UNLESS
CORP EXPRESSLY OR IMPLIEDLY ADOPTS K POST-INCORP.
IMPLIED ADOPTION OCCURS WHEN CORP
1) HAS REASON TO KNOW OR KNOWS MATERIAL TERMS OF THE K
2) ACCEPTS SOME BENEFIT FROM THE K
DE FACTO CORP
1) MADE A GOOD FAITH ATTEMPT TO INCORPORATE
2) ELIGIBLE TO INCORPORATE
3) TOOK ACTION INDICATING THT IT CONSIDERED ITSELF A CORP
ONLY A PERSON WHO WAS ___ THT THE CORP WAS NOT PROPERLY FORMED MAY ASSERT DE FACTO CORP DOCTRINE
UNAWARE
UNDER RMBCA A PERSON IS ONLY PERSONALLY LIABLE FOR LIABILITIES ARISING FROM THEIR CONDUCT WHEN
1) PURPORTS TO ACT AS OR ON BEHALF OF CORP
2) KNOWING THT NO CORP WAS FORMED (ACTUAL KNOWLEDGE REQ’D)
INCORPORATION BY ESTOPPEL
ANY PERSON/ENTITY THT TREATED A BUSINESS AS A CORP MAY BE ESTOPPED FROM DENYING THT THE BUSINESS IS CORP,
EVEN IF VALID CORP WAS NOT FORMED.
INCORP BY ESTOPPEL APPLIES TO
A) THIRD PARTIES THT TREATED BUSINESS AS A CORP
B) AN ENTITY THT HELD ITSELF OUT AS CORP AND BENEFITTED FROM THT CLAIM
INCORP BY ESTOPPEL DOES NOT APPLY TO __ CLAIMS
TORT
SHAREHOLDERS, DIRECTORS, AND OFFICERS ARE _____ FOR THE LIABILITIES AND OBLIGATIONS OF THE CORP
NOT PERSONALLY LIABLE
A COURT WILL PIERCE THE CORPORATE VEIL AND HOLD THE SHAREHOLDERS PERSONALLY LIABLE WHEN:
1) CORP IS ACTING AS ALTER EGO OF SHAREHOLDERS
2) SHAREHOLDERS FAILED TO FOLLOW CORP FORMALITIES
3) CORP INADEQUATELY CAPITALIZED TO COVER DEBTS/ LIABILITIES
4) PREVENT FRAUD
**SAME FACTORS TO HOLD PARENT CO LIABLE FOR SUBSIDIARY
** SAME FACTORS FOR LLC (MINUS FORMALITIES)
CT MORE LIKELY TO PIERCE CORP VEIL FOR __ ACTIONS THAN ___ DISPUTES
TORT V CONTRACT
PASSIVE INVESTORS WHO DO NOT PARTICIPATE IN THE BUSINESS WILL
NOT BE HELD LIABLE, EVEN IF VEIL PIERCED
EVEN IF CT DOES NOT PIERCE VEIL, A PERSON IS ALWAYS PERSONALLY LIABLE FOR THEIR
OWN TORTS,
EVEN WHILE ACTING AS AN AGENT OR CORP OR ORG.
AUTHORIZED SHARES
MAX SHARES A CORP MAY ISSUE
SET FORTH IN ARTICLES OF INCORP
TO INCREASE NUMBER OF SHARES ALLOWED TO B ISSUED:
1) ARTICLES MUST B AMENDED
2) CHANGES MUST B ADOPTED BY BOARD
3) CHANGES MUST BE APPROVED BY MAJ VOTE OF SHAREHOLDERS
OUTSTANDING SHARES
TOTAL NUMBER OF SHARES ISSUED BY CORP AND HELD BY SHAREHOLDERS
EACH OUTSTANDING SHARE IS ENTITLED TO
ONE VOTE
UNLESS ARTICLES SAY OTHERWISE
REACQUIRED SHARES
AUTH SHARES, BUT ARE NOT OUTSTANDING SHARES OF CORP
NOT ALLOWED TO B VOTED AT A SHAREHOLDERS MEETING
DECLARE DIVIDENDS OR MAKE DISTRIBUTIONS TO SH’S ARE
W/IN DISCRETION OF BOARD
+
NORMALLY PROTECTED UNDER BUSINESS JUDG RULE
GENERALLY A SH DOES NOT HAVE RIGHT TO COMPEL CORP TO ISSUE A DISTRIBUTION UNLESS
ARTICLES EXPRESSLY GRANT
CT WILL INTERFERE W BOARDS DISCRETION AND ORDER A DIVIDEND/DISTRIBUTION WHEN:
1) BAD FAITH OR DISHONEST PURPOSE
&
2) THE FUNDS WERE AVAILABLE FOR DIVIDEND/DISTRIBUTION
ONLY SH THT ARE ___ ON RECORD DATE ARE ENTITLED TO VOTE AT SH MEETING
REGISTERED SH’S
BYLAWS MAY FIX OR PROVIDE METHOD OF FIXING RECORD DATE, BUT RECORD DATE CANNOT
BE MORE THAN 70 DAYS PRIOR TO THE SH MEETING
IF NOT OTHERWISE FIXED, THE RECORD DATE IS THE DAY
BEFORE THE FIRST NOTICE IS DELIVERED TO SH’S
SH MAY VOTE HER SHARES AT A SH’S MEETING W/O PHYSICALLY ATTENDING THE MEETING THRU THE USE OF
A PROXY
A VALID PROXY MUST BE SIGNED ON
A) AN APPOINTMENT FORM OR
B) AN ELECTRONIC TRANSMISSION
ORAL PROXY APPT IS
INVALID
A PROXY MUST B ACCEPTED IF ON ITS FACE THERE ARE
NO REASONABLE GROUNDS TO DENY ITS GENUINENESS AND AUTHENTICITY
A PROXY IS ONLY VALID FOR
11 MONTHS, UNLESS STATED OTHERWISE
PROXY AGREEMENTS ARE FREELY REVOCABLE BY THE SHAREHOLDER EVEN IF
PROXY STATES THT IT IS IRREVOCABLE
EXCEPTION TO PROXY REVOCABILITY
PROXY + COUPLED W AN INT OR LEGAL RIGHT
(IRREVOCABLE IF PROXY EXPRESSLY STATES)
PROXY APPTS COUPLED W AN INT INCLUDE
(1) a pledgee (a person who lends money
and accepts a pledge for the loan);
(2) a person who
purchased or agreed to purchase the shares;
(3) a creditor
of the corporation who extended it credit;
(4) an employee
of the corporation whose employment contract requires the
appointment; or
(5) a party to a voting agreement.
A ___ MUST BE PRESENT IN ORDER FOR THE SH’S TO TAKE ACTION AT A MEETING
QUORUM
UNLESS ARTICLES OF INCORP PROVIDE A GREATER NUMBER, A QUORUM EXISTS WHEN
A MAJORITY OF SHARES ENTITLED TO VOTE ARE PRESENT
IF QUORUM EXIST, ACTION ON A MATTER IS APPROVED IF A MAJORITY OF VOTES ARE CAST IN FAVOR UNLESS
ARTICLES PROVIDES OTHERWISE
A SH HAS AN UNQUALIFIED RIGHT TO INSPECT AND COPY THE FOLLOWING:
(DURING REG BUS HOURS AT PRINCIP OFFICE BY PROVIDING AT LEAST 5 DAYS WRITTEN NOTICE)
1) ARTICLES OF INCORP
2) BYLAWS
3) RESOLUTIONS BY BOARD CONCERNING CLASSIFICATION OF SHARES
4) MINUTES OF SH MEETINGS FOR PAST 3 YRS
5) WRITTEN COMM SENT TO SH FOR PAST 3 YRS
6) NAMES AND BUSINESS ADDRESS OF CURRENT DIRECTORS AND OFFICERS
7) MOST RECENT ANNUAL REPORT
shareholder has the right to 1) inspect and 2) copy accounting records
(annual financial statements
prepared for corporation for last three fiscal years
and
any audit/other reports with respect to such financial statements),
excerpts of the Board meeting minutes, and the record of shareholders ONLY IF:
1) INSPECT MADE DURING REG BUSINESS HOURS AT REAS LOCATION SPECIFIED BY CORP
2)5 DAY WRITTEN NOTICE
3) GOOD FAITH AND PROPER PURPOSE
4) PURP DESCRIBED W PARTICULARITY
5) RECORDS DIRECTLY CONNECTED W PURP
A PROPER PURPOSE IS
A PURPOSE REASONABLY RELEVANT TO SH’S INT AS A SH
FOLLOWING HAVE BEEN DEEMED PROPER PURPOSE
(a) determination of the value of shares;
(b) whether the corporation engaged in illegal conduct;
(c) to investigate wrongdoing or mismanagement; and/or
(d) to protect the shareholder’s financial interest in the
corporation,
the interest in voting or selling shares, or
bringing a lawsuit to protect those interests.
TO SHOW GOOD FAITH THE SH MUST PRESENT
EVIDENCE TO EST A CREDIBLE BASIS TO INFER POSSIBLE WRONGDOING
(MERE SUSP INSUFF)
A GOOD FAITH INT IN EXPOSING/ PREVENTING WRONGDOING IS SUFFICIENT
AN OFFICER HAS ACTUAL AUTHORITY TO ACT CONSISTENTLY W:
A) DUTIES OUTLINED IN THE BYLAWS
B) AS PROVIDED BY BOARD
AN OFFICER HAS APPARENT AUTHORITY TO BIND CORP WHEN
1) A 3RD PARTY REASONABLE BELIEVES THE PERSON/ENTITY HAS AUTHORITY TO ACT ON BEHALF OF CORP
2) BELIEF IS TRACEABLE TO CORPS MANIFESTATIONS
PRES OF CORP GENERALLY HAS IMPLIED AUTH TO BIND THE CORP FOR MATTERS W/IN ORD COURSE OF BUSINESS BUT DOES NOT HAVE AUTHORITY TO BIND CORP FOR ____
EXTRAORDINARY ACTS
AN ACT OR TRANS IS W/IN ORD COURSE OF BUSINESS IF ITS
NORMAL AND NECESSARY FOR MANAGING THE BUSINESS
NORMAL AND NECESSARY FOR MANAGING THE BUSINESS
ACT IS DIRECTLY AND NECESSARILY EMBRACED W/IN CORP BUSINESS
PROSECUTING A LAWSUIT IS NORMALLY W/IN ORD COURSE
THE ____ OF THE CORP NORMALLY HAS AUTH TO MAINTAIN AND AUTHENTICATE THE RECORDS OF THE CORP
SECRETARY
DIRECTORS ARE FIDUCIARIES OF A CORP AND AS SUCH OWE A DUTY OF CARE TO THE CORP
(BUSINESS JUDGMENT RULE)
1) IN GOOD FAITH
2) IN MANNER DIRECTOR REASONABLY BELIEVES TO BE IN BEST INT OF CORP
&
3) W THE CARE A PERSON IN LIKE POSITION WOULD REAS BELIEVE APP UNDER SIM CIRCUM.
**IF SATISFIED, DIRECTOR WILL NOT BE LIABLE FOR CORP DECISIONS THT RESULTED IN ADV CONSEQ
THE DUTY OF CARE REQ’S THT DIRECTORS BE REASONABLY INFORMED ON THE DECISIONS THEY MAKE
A DIRECTOR MAY RELY ON THE REASONABLE AVICE OF ADVISORS WHEN
1) SUCH RELIANCE WAS REASONABLE
2) THE ADVISOR OR COMMITTEE WAS QUALIFIED TO PROVIDE SUCH ADVICE
A CT WILL NOT DISTURB DECISIONS SUBJ TO THE BUSINESS JUDGMENT RULE IF A
RATIONAL BUSINESS PURPOSE EXISTS
BUSINESS JUDGMENT RULE DOES NOT APPLY OR PROTECT DIRECTORS
1) FINANCIALLY INTERESTED IN A TRANSACTION
2) NOT ACTING IN GOOD FAITH OR
3) ENGAGED IN FRAUD OR ILLEGALITY
IF A DIRECTOR BREACHES THE DUTY OF CARE HE MAY BE HELD
PERSONALLY LIABLE TO THE CORP FOR ANY LOSSES SUFFERED AS A RESULT
THE DUTY OF LOYALTY FORBIDS DIRECTORS FROM
1) ENTERING INTO CONFLICTING INTEREST TRANSACTIONS
2) USURPING A CORP OPP
3) COMPETING W THE CORP
4) TRADING ON INSIDE INFO
A CONFLICTING INTEREST TRANSACTION W THE CORP IS A BREACH OF THE DUTY OF LOYALTY UNLESS THE DIRECTOR SHOWS THT
A) IT WAS APPROVED BY A MAJORITY OF DISINTERESTED DIRECTORS AFTER FULL DISCLOSURE OF ALL RELEVANT MATERIAL FACTS
B) IT WAS APPROVED BY A MAJORITY OF DISINTERESTED SHAREHOLDERS AFTER FULL DISCLOSURE OF ALL RELEVANT MATERIAL FACTS OR
C) THE TRANSACTION AS A WHOLE WAS FAIR TO THE CORP AT THE TIME IT WAS ENTERED INTO
FAIRNESS EXIST WHEN
1) THE TERMS/ PRICE WERE COMPARABLE TO WHAT THE CORP WOULD RECEIVE IN AN ARMS LENGTH TRANSACTION
(FAIR PRICE)
2) THE TRANSACTION AS A WHOLE WAS BENEFICIAL TO THE CORP
(BENEFICIAL)
3) IT WAS FAIR IN TERMS OF THE DIRECTORS DEALINGS W THE CORP
(FAIR DEALING)
FULL DISCLOSURE OCCURS WHEN THE DIRECTOR
DISCLOSES ALL KNOWN FACTS CONCERNING THE TRANSACTION THT A REASONABLE PERSON WOULD BELIEVE NECESSARY TO MAKE A DECISION
A ____ MUST BE PRESENT TO VOTE ON A CONFLICTING INTEREST TRANSACTION
QUORUM
THIS EXISTS WHEN A MAJORITY OF DISINTERESTED DIRECTORS IS PRESENT (BUT THERE MUST BE AT LEAST 2 DISINTERESTED DIRECTORS TO VOTE)
A CONFLICT OF INTEREST OCCURS WHEN THE DIRECTOR/ OFFICER OR A FAMILY MEMBER EITHER
A) IS A PARTY TO THE TRANSACTION
B) HAS A BENEFICIAL INTEREST IN THE TRANSACTION OR IS CLOSELY LINKED TO IT THT THE DIRECTORS JUDGMENT MAY REASONABLY BE AFFECTED
C) INVOLVED W ANOTHER ENTITY THT IS CONDUCTING BUSINESS W THE CORP & THT TRANSACTION WOULD NORMALLY B BROUGHT BEFORE THE BOARD BC OF ITS IMPORTANCE TO CORP
THE BUSINESS JUDGMENT RULE _____ APPLY OR PROTECT DIRECTORS FINANCIALLY INTERESTED IN A TRANSACTION OR WHO ENGAGED IN FRAUD OR ILLEGALITY
DOES NOT
GENERALLY SH’S ___ OWE FIDUCIARY DUTIES TO FELLOW SH’S AND THEY CAN ACT IN THEIR OWN SELF INT
DO NOT OWE
CLOSE CORP EXCEPTION
CONTROLLING SH’S IN CLOSE CORP OWE FID DUTIES OF LOYALTY, GOOD FAITH N FAIR DEALING TO MINORITY SH’S
CONTROLLING SH’S GENERALLY OWE
FIDUCIARY DUTIES TO OTHER SH’S AND THEIR PARTIALLY OWED SUBSIDIARIES
DIRECT ACTION
INJURY OR BREACH OF DUTY OWED TO A SH
A SH MAY BRING A DIRECT ACTION AGAINST A DIRECTOR OR OFFICER BUT MUST PROVE AN
ACTUAL INJURY THT IS NOT SOLELY THE RESULT OF AN INJURY SUFFERED BY CORP
DERIVATIVE ACTION
shareholder is suing to enforce the corporation’s claim
must be suit in which corporation could have brought, and
has harmed the corporation in some way
(i.e. loss suffered to corp.’s share value due to misleading statements by directors/officers).
TO COMMENCE OR MAINTAIN A DERIVATIVE SUIT
PLAINTIFF/SH MUST MEET FOLLOWING REQ
(1) be a shareholder at the time of the act or omission or became a shareholder by operation of law from such a shareholder;
(2) be a shareholder through
entry of judgment;
(3) fairly and adequately represent the interests of the corporation; AND
(4) must make a written demand upon the corporation to take suitable action.
A derivative suit CANNOT be commenced until
90 days after a written demand UNLESS:
(a) corporation rejects the demand; OR
(b) corporation will suffer irreparable harm if forced to
wait.
Under the RMBCA, there is NO exception to the demand requirement for futility.
The damages awarded in a derivative action will be paid to
the corporation (not the shareholder), but the shareholder may
recover the reasonable cost of the litigation.
the Articles of Incorporation may
be amended at any time, BUT ONLY IF the following
procedures are followed:
(1) adoption by the Board;
(2) notice to each SH
(whether or not
entitled to vote) of a meeting to vote on the amendment –
the notice must
(a) state purpose of the meeting-
to consider the amendment, and
(b) provide copy of the
proposed amendment;
(3) adoption by the SH’S by
a majority vote (unless a greater number is required in the Articles or state law).
TWO EXCEPTIONS TO AMENDING ARTICLES
1) the Board have the authority to make general minor amendments to the Articles
without shareholder approval.
2) the Board (or its incorporators
if it has no board of directors) may adopt any amendment to the Articles without SH approval if corporation has not yet issued shares.
____ IS REQD IF THE AMENDMENT WOULD AFFECTS SHARES OF THE CLASS,
(INCLUDING A CHANGE OF ALL OR PART OF THE CLASS INTO A DIFF # OF SHARES OF THE SAME CLASS)
CLASS VOTING
A sale of all or substantially all of the corporation’s assets is
deemed a fundamental change if the sale is
NOT in the usual
and regular course of business.
Under the RMBCA, the following procedure MUST be
followed by the corporation for a fundamental change:
(1) adoption by the Board;
(2) notice to each
SH (whether or not entitled to vote) of a meeting to
vote on the proposal – the notice must state the purpose of the meeting;
(3) adoption by SH’S by majority vote (unless a greater number is required in the Articles or state law).
A dissenting shareholder is entitled to appraisal rights, and to obtain payment of the fair market value of his shares, for the following fundamental changes:
(1) when shareholder
has the right to vote on the merger plan;
(2) when he is a SH of the subsidiary in a short form merger;
(3)
when he is a SH of corporation whose shares are being acquired in a share exchange;
(4) when SH has the right to vote on the distribution of all or substantially all of the corporate assets; and
(5) when an amendment to the Articles materially and
adversely affects the shareholder’s rights.
APPRAISAL RIGHTS ARE NOT AVAILABLE TO SH’S OF
PUBLICLY TRADED CO’S
SH’S WHO DO NOT CONSENT TO A CORPORATE CHANGE MAY FORCE THE CORP TO PURCHASE THEIR SHARES IF
(1) the SH gave notice to corporation
of intent to demand payment if the change was
approved;
(2) notice was given before the vote was taken
on the fundamental change;
(3) the fundamental change is
effectuated; AND
(4) the SH did not vote in favor of the change.
If corporation and the dissenter cannot agree
on a fair price, the court will
resolve the issue.
Under the RMBCA, a corporation’s Board of Directors
may propose dissolution to the shareholders.
The following
procedure MUST be followed by the corporation for the
proposal to be adopted:
(1) adoption by the Board;
(2) notice to each SH
(whether or not
entitled to vote) of a meeting to vote on the proposal – the
notice must state the purpose of the meeting; AND
(3)
adoption by the SH’s by a majority vote (unless a
greater amount is required in the Articles or
state law).
