Corp Flashcards
Pre-Incorporation Contracts
Entered into by promoter to bring corp into existence
Promoter
Fiduciary to corp and enters into contracts on its behalf prior to incorporation
Liability of Promoter
Personally liable for knowingly acting on behalf of corp before incorp and
jointly and severally liable for actions even after corp comes into existence unless subsequent novation
Actual knowledge corp not in existence necessary for liability
Novation of Pre Incorp K
Agreement that moves liability
From promoter to corp
Based upon agreement between all 3
Adoption of Pre Incorp K
Corp can be liable when Corp adopts the k Occurs when corp accepts Benefits of transaction or Gives express acceptance
Corp Formation
Articles of incorporation or charter
Must be filed with state
De Jure Corp
All statutory requirements satisfied
Ultra Vires
When corp has narrow purpose but Subsequently engages in activities Outside stated purpose. 3rd party involved Cannot assert corp acted outside to Escape liability
Mod Business Purpose
Corp allowed to engage
In any legitimate business purpose and
Not allowed to void k on ultra vires
Situations to Challenge Ultra Vires
Shareholder can enjoin
Corp can take action against who engages
State may initiate proceedings
De Facto Corp
Owner makes good-faith effort to comply and
Operates business as corp without
Knowing requirements not met
Corp by Estoppel
Person who deals as if corp
Estopped from denying its existence and
Cannot seek liability of owner
Securities for Corp
Ways corp secures financing
Board of directors must generally authorize issuance
Preferred Stock
Get distribution over general
Value of Stock
Board of directors must determine
Consideration received for stock
Adequate and not subject to challenge
Par Value Stock
Assigned to stock but
Does not need to be market value
Corp required to receive minimum that value
Watered Stock
Issued for less than par value
Preemptive Stock Rights
Gives right to purchase shares when Board of directors issue new shares To maintain their proportional ownership CL right automatic ML articles of incorporation must include
Exceptions to Preemptive Rights
Stocks issued as compensation
Authorized in articles of incorpor and
Within 6 months from the effective date
Stocks sold for payment other than money
Distribution of Stock
Generally in form of dividend
Shareholder generally cannot compel to authorize distribution because discretionary UNLESS board acts in bad faith or abuses its discretion
Exceptions to distribution of Stock
May not make a distribution if insolvent or would cause corp to be insolvent
Two Tests:
Equity test and balance-sheet test
10b-5
Plaintiff purchased or sold security
Transaction involved use of interstate commerce
Engaged in fraudulent or deceptive conduct: opinions and predictions not false unless made statement without reasonable basis or in bad faith
Related to material information
Acted with scienter
Plaintiff relied on defendant’s conduct
Suffered harm because of conduct
Types of Insiders
Insider
Constructive
Tippees
Misappropriators
Insider
Director, officer, or employee who uses nonpublic information for personal gain
Constructive Insider
Person with relationship to corp that gives them access to info not available to public
Tippees
Person given info by insider or constructive insider with expectation will be used to trade securities
Tipper must receive personal benefit from disclosure or intend to make gift
Tippee must have known info in violation of tipper’s duties
Misappropriators
Person who uses confidential info
Generally when trader has fiduciary duty
16(b)
Corp must be traded on national exchange OR
Assets of more than $10 million and more than 500 shareholders
Only against corp directors, officers, shareholders who hold more than 10 percent
During six month period
Corp insider who both buys and sells stock
Required to report change in stock to SEC
Shareholders
Annual and special meetings
Notice no fewer than 10 days and no more than 60 days
Notice can be waived by attending
Voting of Shareholders
Ownership of stock entitles vote
All outstanding stock has voting right when stock sold or transferred
Record date owner has vote
Quorum Voting
Majority of shares present
Then must be majority for action to pass
Right to Elect and Remove Directors
Shareholders
Cumulative Voting
Cast all votes for one candidate to allow minority shareholders to elect