Coorporations Flashcards
De Facto Corporation Doctrine 1) Good \_\_\_\_\_, 2) colorable \_\_\_\_\_ 3) made to \_\_\_\_\_ with corporate \_\_\_\_\_\_\_ and 4) no knowledge of lack of \_\_\_\_\_\_status 5) will be treated as a \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
1) Good faith,
2) colorable attempt
3) made to comply with corporate formalities
and
4) no knowledge of lack of corporate status
5) will be treated as a corporation.
Estoppel
Parties who act as if there is a ________are ______from denying the ________in a _______dispute arising out of the ________.
Parties who act as if there is a corporation are estopped from denying the incorporation in a subsequent dispute arising out of the contract.
De Jure Formation
In corporators must file articles of incorporation with Sec. of State.
De Jure Formation REQUIREMENTS (A PAIN)
(1) Authorized share (max#)
(2) Purpose: (general & perpetual duration presumed) (
3) Agent: and address
(4) Incorporators; and
(5) Name: must contain some indicia of corp status.
Individuals (s/h active in operation) are not liable for…
Individuals (s/h active in operation) are not liable for debts of corporation UNLESS PCV.
FOREIGN CORPS
Corp incorporated ____ of state ___ file ____of ____with ___ __ ___that includes A PAIN
FOREIGN CORPS
Corp incorporated outside of state must file certificate of authority with SOS that includes A PAIN
ISSUANCE OF STOCK
What must the corporation receive when it issues stock?
ISSUANCE OF STOCK
What must the corporation receive when it issues stock? CONSIDERATION
i.
CONSIDERATION
i. Par Value
ii. No Par
CONSIDERATION
i. Par Value = minimum issuance price.
ii. No Par = no minimum issuance price.
CONSIDERATION
iii. Treasury Stock = no_____. Stock_______ ______, reacquired by __________ and ___________.
CONSIDERATION
iii. Treasury Stock = no par stock. Stock previously issued, reacquired by corp, and resold.
CONSIDERATION
iv. Director’s _________ _______ for authorizing sale ______ par.
CONSIDERATION
iv. D’s personally liable for authorizing sale below par.
v. Shareholder liable to pay full consideration.
CONSIDERATION
v. Shareholder _______ to pay full ________.
CONSIDERATION
v. Shareholder liable to pay full consideration.
PIERCING THE CORPORATE VEIL: the Three Is in veil piercing _________ the________ of PCV
PIERCING THE CORPORATE VEIL: the Three Is in veil piercing increase the risk of PCV:
PIERCING THE CORPORATE VEIL:
Corp is “___ ____” of person; separate _______ of corp and __________ no longer______.
PIERCING THE CORPORATE VEIL:
Corp is “alter ego” of person; separate personalities of corp and individual no longer exist.
h. PIERCING THE CORPORATE VEIL: the Three Is in veil piercing increase the risk of PCV:
i. Corp is “_____ ____” of _____; separate personalities of corp and i_____ no longer _____.
ii. I_____ i______ f_____: inadequate capital at time of formation to reas. cover foreseeable expenses
iii. I_____ f_____: failure to observe corp formalities
iv. I______: Avoid f____ or un_____.
h. PIERCING THE CORPORATE VEIL: the Three Is in veil piercing increase the risk of PCV:
i. Corp is “alter ego” of person; separate personalities of corp and individual no longer exist.
ii. Insufficient initial funding: inadequate capital at time of formation to reas. cover foreseeable expenses
iii. Ignored formalities: failure to observe corp formalities
iv. Injustice: Avoid fraud or unfairness.
h. PIERCING THE CORPORATE VEIL: the Three Is in veil piercing increase the risk of PCV:
1) ________ initial funding
2) ________formalities
3) ________: Avoid______ or ________
h. PIERCING THE CORPORATE VEIL: the Three Is in veil piercing increase the risk of PCV:
i. Corp is “alter ego” of person; separate personalities of corp and individual no longer exist.
ii. Insufficient initial funding: inadequate capital at time of formation to reas. cover foreseeable expenses
iii. Ignored formalities: failure to observe corp formalities
iv. Injustice: Avoid fraud or unfairness.
PREEMPTIVE RIGHTS – IF ______GRANTED IN _____
Existing ______ has right to maintain ownership ______ by buying _____ when there is a ___ ______ of stock for ____.
PREEMPTIVE RIGHTS – IF EXPRESSLY GRANTED IN ARTICLES
Existing s/h has right to maintain ownership percentage by buying stock when there is a new issuance of stock for cash.
EFFECT OF PIERCING CORP VEIL
Active _________will have personal ______ and _______ liability
EFFECT OF PIERCING CORP VEIL
Active shareholders will have personal joint and severable liability.
D & O’S – STATUTORY REQUIREMENTS
a. Statutory req’s:
i. 1+ ___ on _____
ii. s/h ____ _____
iii. s/h can _____ ______ _____ _____
iv. s/h or D ____ ______
D & O’S – STATUTORY REQUIREMENTS
a. Statutory req’s:
i. 1+ member on board
ii. s/h elect directors
iii. s/h can remove D w/o cause
iv. s/h or D fill vacancy
b. Effective board action (default rules unless _____ _____ _______ or ________) (MNoPQVE)
i. Meeting required unless
ii. Notice of directors’ meetings
iii. Proxies are ____ _____. Also, no _____ ______.
iv. Quorum – must have
v. Vote: to pass
vi. Each director presumed
Effective board action (default rules unless required by AOI or bylaws)
i. Meeting required unless all D consent in writing to act without a meeting
ii. Notice of directors’ meetings set in bylaws.
iii. Proxies are not allowed. Also, no voting agreements.
iv. Quorum – must have majority of all directors to take action (unless different % in bylaws)
v. Vote: to pass a resolution – majority vote of those present required.
vi. Each director presumed to concur unless dissent or abstention in writing.
b. Effective board action (default rules unless required by AOI or bylaws) (MNoPQVE)
Effective board action (default rules unless required by AOI or bylaws)
i. Meeting required
ii. Notice .
iii. Proxies
iv. Quorum
v. Vote
vi. Each director
LIABILITY OF DIRECTORS TO CORP AND SHAREHOLDERS
c. Duty to _____ – unless delegated.
d. Directors are ______ who owe LRG duties. L____, R_____ care, and G_____faith.
e. Duty of care
LIABILITY OF DIRECTORS TO CORP AND SHAREHOLDERS
c. Duty to manage – unless delegated.
d. Directors are fiduciaries who owe LRG duties. Loyalty, reasonable care, and good faith.
e. Duty of care: must perform their duties in good faith, with such care as an ordinarily prudent person in a like position would use under similar circumstances, in a manner reasonably believe to be in the best interests of the corporation.
LIABILITY OF DIRECTORS TO CORP AND SHAREHOLDERS
c. Duty to M\_\_\_\_\_
d. Duty of F\_\_\_\_\_
LRG duties.
e. Duty of C\_\_\_LIABILITY OF DIRECTORS TO CORP AND SHAREHOLDERS
c. Duty to manage – unless delegated.
d. Directors are fiduciaries who owe LRG duties. Loyalty, reasonable care, and good faith.
e. Duty of care
LIABILITY OF DIRECTORS TO CORP AND SHAREHOLDERS
e. Duty of care: must perform their duties in ___ ___, with such ____ as an _____ prudent person in a like ______ would use under ______ circumstances, in a manner ______believed to be in the ____interests of the ___________.
LIABILITY OF DIRECTORS TO CORP AND SHAREHOLDERS
e. Duty of care: must perform their duties in good faith, with such care as an ordinarily prudent person in a like position would use under similar circumstances, in a manner reasonably believe to be in the best interests of the corporation.
Business judgment rule: Business judgment presumed to be informed. Rebutted if…
- Un____ (un______, without ______research).
- In _____ negligence, in ____ _____, COI (______scrutinized), ______ or based on ______.
Business judgment rule: Business judgment presumed to be informed. Rebutted if…
- Unadvised (uninformed, without substantial research).
- In gross negligence, in bad faith, COI (strictly scrutinized), illegal or based on fraud
Duty of loyalty: To the \_\_\_\_\_\_\_. No C\_\_\_\_ of \_\_\_\_\_ No s\_\_\_-\_\_\_\_\_ No u\_\_\_\_\_ of corp \_\_\_\_\_\_\_ No un\_\_\_\_ \_\_\_\_\_\_\_
Duty of loyalty: to the corporation. No COI No self-dealing No usurp corp opportunity No unfair competition
Duty of loyalty: to the __________.
Forbids D/O’s from:
(1) entering into a _____ ______transaction;
(2) ________a corporate opportunity
(3) _________with the corporation; or
(4) trading on inside information.
Conflicting if:
D knows that he or related person is party to the transaction; had beneficial financial interest in; or is a D, partner, agent, or employee of another entity the corp is transacting with.
Duty of loyalty: to the corporation. Forbids D/O’s from (1) entering into a conflict interest tx; (2) usurping a corporate opportunity (3) competing with the corporation; or (4) trading on inside information.
Conflicting if: D knows that he or related person is party to the tx; had beneficial financial interest in; or is a D, partner, agent, or employee of another entity the corp is transacting with.
Duty of loyalty: to the corporation.
Conflicting if: D knows that he or _____ person is party to the _______; had _______ financial ______ in; or is a D, _____, agent, or ______ of another entity the ______ is transacting with.
Duty of loyalty: to the corporation.
Conflicting if: D knows that he or related person is party to the tx; had beneficial financial interest in; or is a D, partner, agent, or employee of another entity the corp is transacting with.
Directors liability–NO SUS activity.
Self-dealing: D may not _____ an ____ benefit to ____ of corp or its____ UNLESS there has been:
(1) ______disclosure; and
(2)_______ratification.
Directors liability–NO SUS activity.
Self-dealing: D may not receive an unfair benefit to detriment of corp or its s/h UNLESS there has been: (1) material disclosure; and
(2) independent ratification.
Duty of Loyalty breached by SUS
Self
Us
Sec
Duty of Loyalty breached by SUS
a) self-dealing: agent receives benefit to detriment of principal,
(b) usurping the principal’s authority, or
(c) secret profits.
SUS
a) engaging in ____-____: agent receives _____ to _____ of principal,
(b) usurping the principal’s _____, or
(c) _____profits.
SUS
a) engaging in self-dealing: agent receives benefit to detriment of principal, (b) usurping the principal’s authority, or (c) secret profits.
NO SUS activity.
Directors may defend a SELF DEALING claim by obtaining independent _______ through:
i. Majority vote of _______ directors;
ii. Majority vote of________ by 2+ ______ directors;
iii. Majority of_______ held by _______shareholders; OR
iv. Transaction was ____ and ______ to corp based on _______.
Remedies: recover profits, constructive trust (corp gets the usurped opportunity instead)
NO SUS activity.
Directors may defend a SELF DEALING claim by obtaining independent _______ through:
i. Majority vote of independent directors;
ii. Majority vote of committee by 2+ independent directors;
iii. Majority of shares held by independent shareholders; OR
iv. Tx was fair and reasonable to corp based on circumstances.
2. Remedies: recover profits, constructive trust (corp gets the usurped opportunity instead)
Directors liability–NO_____ activity.
____-____: D may not receive an_____ _____ to _____of corp or its s/h UNLESS there has been:
(1) M_______ D_____; and
(2) I ________R______
Directors liability–NO SUS activity.
Self-dealing: D may not receive an unfair benefit to detriment of corp or its s/h UNLESS there has been:
(1) material disclosure; and
(2) independent ratification.
Directors may defend a self- dealing claim by obtaining independent ratification through
i. Majority vote of _______ __________
ii. Majority vote of _____________by 2+ __________ ________;
iii. Majority of shares held by _______ _________; OR
iv. Transaction was ______ and _______to corp based on the __________.
NO Self-dealing activity.
.
Directors may defend a self- dealing claim by obtaining independent ratification through:
i. Majority vote of independent directors;
ii. Majority vote of committee by 2+ independent directors;
iii. Majority of shares held by independent shareholders; OR
iv. Tx was fair and reasonable to corp based on circumstances.
NO SUS activity.
Self-dealing
- Remedies to the corp: ______ profits, ______ trust (corp gets the ______ opportunity instead)
NO SUS activity.
Self-dealing
- Remedies: recover profits, constructive trust (corp gets the usurped opportunity instead)
OFFICERS
a. Same duties of ____ and _____ as ______.
b. Officers (president, secretary, treasurer) are _____ of corp; apply ______ concepts.
OFFICERS
a. Same duties of care and loyalty as directors.
b. Officers (president, secretary, treasurer) are agents of corp; apply agency concepts.
OFFICER/AGENT DUTIES
CARE(BJR) LOYALTY --NO \_\_\_\_\_\_ of \_\_\_\_\_\_\_\_\_\_\_ 1) No self-\_\_\_\_\_\_\_ 2) No usurp \_\_\_\_\_\_\_\_ authority 3) No \_\_\_\_\_\_\_profits 4) No \_\_\_\_\_\_\_ funds O\_\_\_\_\_\_ C\_\_\_\_\_\_ EXPRESS \_\_\_\_\_\_\_\_\_ DUTY
OFFICER/AGENT DUTIES
CARE(BJR) LOYALTY --NO COI 1) No self-dealing 2) No usurp principal authority 3) No secret profits 4) No commingling funds OBEDIENCE COMMUNICATE EXPRESS CONTRACTUAL DUTY
