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Corporation Flashcards

1
Q

How to form corp

A

Notarize articles of incorproation
Provide AOI to Sec. of State
Pay fees

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2
Q

Contents of AOC

A

Name corporation
Name & address of incorporators
Name & address of registered agent
Stock - authorized (max number) classes, number of shares per class, voting rights)

Sometimes says “for any lawful purpose”

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3
Q

Ulta Vires Act

A 
Act beyond business purpose
CL: void
MCBA: generally enforceable
- can only be raised in the following ways:
- SHH sues to enjoin
- Corpo sues officer/director for dmgs
- State dissolves corp
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4
Q

Initial Organizational Meetin

A
  1. Name BoD if not listed in AoI
  2. adopt bylaws
  3. name officers
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5
Q

De Facto Corporation

A

Must be unaware of failure to form de jure corp (inadvertently forms de facto/ partnership)
De Facto formed if:
1. incorporation statue (always present)
2. good fiath & colorable attempt to comply
3. exercise of corp privielges

No de facto ever formed for claim against government (quo warranto action)

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6
Q

Corporation by Estoppel

A

Only in contract cases (does not apply to torts)

If you dealt with entity as corp estopped from backing out of contract

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7
Q

Pre-incorproaiton contract

A

formed by promoter who has fiduciary duties
Corp not bound until it expressly or impliedly adopts contract
Promoter personally liable even after adoption absent novation - right to reimbursement

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8
Q

Breach of Fid. Duty by Promoter

A

completly ind. board must approve OR

subscribers knew of transaction when they subscribed or unanimosuly raitifed

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9
Q

If K expressly relieves promotor of liability…

A

no contract.
Constured as revocable offer to corp.
Promotor as no rights of liabilities

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10
Q

Requirement of foreign corp

A

Corp that is regularly transancting in normal course of intrastate business acitity
- register & pay
else cannot asesrt claims

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11
Q

Preincorporation subscription

A

irrevocable for 6 mo unless in sub. agreement or all subs. consent to revocation

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12
Q

When is payment of subscription due?

A

on demand

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13
Q

Post incororation sub

A

revocable until accepted by corp

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14
Q

Watered stock

A

when stock is issued for less than par value

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15
Q

Par value

A

MCBA: no par, any value is ok if valuation is made in good faith
CL: par

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16
Q

Preemptive right

A

right to maintain % of ownership anytime there is issurance of stock for money
MUST be in AOI

Even with rights, no preemptive rights for:
1. consideration otehr than cash
w/in 6 mo after incorproation OR
without voting rights but with distribution preference

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17
Q

Staggered Board

A

in AOI

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18
Q

Removal of Directors

A

witho r without cause
in some states if staggered only remove for cause
Cannot remove if votes cast against removal would be sufficient to elect her if cumulatively voted at election of directors
If D elected by voting group - only they can remove

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19
Q

Vacany

A

Board or shh (shh if they removed)

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20
Q

How board must act

A

As a group - no ability to bind corp individualyl

  • unanimous written consent
  • at meeting with quorum and voting
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21
Q

Ratify defective corp action

A
  1. state nature of defective action
  2. nature of failure of authorization
  3. approve ratification
  4. seek shh approval if necessary
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22
Q

Ntoice for board meetings

A

regular - no notice
special: 2 days written notice (need not state purpsoe)
else, voidable unless waive notice through writing or attending without objecting

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23
Q

Quorum & approval

- Board

A

majority (unless bylaw says otherwise)
no fewer than 1/3
no act if quorum broken

Approval: majority

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24
Q

Committee

A 
can act for board but board retains supervision
CANNOT:
1. declare distirbution
2. fill board vacancy 
3. fundamental change
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25
Duty of directors
Director must discharge their duties in good faith and with the reasonble elief that her actions are in the best interests of the corproation. (duty of loyalty) She must also use the care that a person in like position would reasaonbly believe appropraite under the circumstnaces (duty of care)
26
Duty of care
Use the care that a perosn in like position would reasonably bleieve appropraite under the circumstnaces. burden on challenger occurs for nonfeasance or misfeasance BJR
27
Business Judgment Rule
director who acted in good fatih will not be liable for corporate decisions that in hindsight turn out to be poor or erroneous
28
Duty of loyatly
Burden on Defendant | Conflcit of interest
29
Uphold conflcit of interest transaction
1. approved by maj. of disinterested directors (have material facts) OR 2. approved by maj of votes entiteld to be cast by disinterested shh OR 3. judged by circumstnaces at time to be fair to corproation (still set aside if waste)
30
Compensation
reasonable & godo faith
31
Competing ventures // Corp opporutnity
directors may engage in unrelated business cannot divert bus. opportunity from corp to themselves (usurpation of corp. opportunity) (look at expectancy, interest, line of business, no matter if lack of ability to pay; corp decides to accept/reject opportunity)
32
duty to disclose //Loans
duty to disclose: material corp info to other members loan from director: ok if reaonable expected to benefit corp
33
Limit director's liability
``` cannto elimite for liability for financial benefit received by director or intentionally inflicted harm on corp, unlawful distributions or intentional vionlation of criminal act ```
34
Director not laible if:
Dissent/abstnetion (otherwise presumed to concur)
35
indemnification of director/ officer / employee
No: liable to corp// recieved improper benefit Must: successful in indemnifying (either entire case or "to extent" they win) Permissive: unsuccessfully defend if: 1. good faith 2. believed in best interest of corp Decision to indemnify made by court, board, committee, counsel or SHH court may order indem. if justified but if director/ officer liable, reimbursement limited to costs & attorney fees
36
always liable for
1. intentional misconduct usupr corp opportunity unlawful distribution improper personal benefit
37
advances
may advance expese to director to defend if they agree to repay
38
Clsoe corporation Management
Governed by shareholder management agreement which set set up in: - articles approved by SHH OR - unanimous written SHH agreement Fact of shh mgmt agreement must bee conspicuoulsly noted on front & back of stock certificate Manager owes fiduciary duties
39
Fiducary duties of closely held corp
fid. duties on shareholders to other shareholders - controllign shh cannot use power to benefit at expense of minority shh minority can use controlling shh who oppress them for breach of fid. duty
40
Professioan corp
name includes PC or PA AOI states purpose is to practice profession Personally liable for own malpractice
41
shh laibilty for corp debt
not liable unless pierces corp veil
42
pierces corp veil
1. shh abused privilege of incorporating 2. fairness requires holding them laible (alter ego - ingore corp formaliteis so just alter ego and some injustice occurs ie commingle) Under capitalization - inadequatley capitalizd so at tiem of formation could not reasonbly cover prospective liabilities fraud, avoidance of obligations, evasion Only htoes actively involved are laible easily pierced for tort but not contract (b/c investegator could invesetigate) Creditors can pierce but Courts generalyl won't pierce for shh
43
Derivative Suit
1. Standing - owned stock & adequate representative 2. written demand - shh can't sue for 90 days unless a) shh has earlier been notified corp rejected demand b) irreparable injury if you wait OR c) no demand if futile 3. corp joined as D.
44
Dismiss derivative suit if:
Only with court approval 1. indep. investigation shows not in corp's best interest 2. court finds those recommending dismissal were independent and made reasoanble expectation BOP: shh must show decision was not made in good faith after reasonable inquiry if maj of directors have personal interest corp has bod to show as in good faith after reasonable inquiry
45
Record date
fixed by BOD not more than 70 days before meeting Holders can vote EXCEPT: - treasury stock - death of SHH
46
Voting by proxy
1. writing 2. signed by shh 3. directed to secretary of corp 4. authorizign other to vote shares
47
revocation of prox
revocable by shh usually irrevocable if coupled with interest or given as security (says irrevocable & holder has interst other than voting - ie buying)
48
Statutory proxy control
1. must be full & fair disclosure of material facts about managmenet submitted prosposals that shh are to vote on. 2. material mistatements/ omissions are prohibited 3. management must include certain shh proposalas on issues other than election fo directors
49
Voting Turst
1. written agreement 2. transfer to trustee 3. votes & distributes dividends valid for only 10 years renewable
50
How to shh vote
unainomous written consent annula meeting: earlier of 6 mo after end of fiscal year or 15 mo after last special meeting: calle by Bod, president, 10% of outstanding sh or anyone else autohirzed
51
Notice for SHH meeting
not less than 10 or more than 60 days date, time place, SPeical meeting: prupose (can only do that) Improper notice = voidable
52
What to shh vote on
elect directors/ remove | fudnamental corp change
53
voting for SHH
elect director: plurality (+1) remove: maj. entitled (modern: maj of shs that actually vote ) fundamental corp change: maj. entitled to vote (modern: maj of shs that actually vote ) other matters: maj of shs that actually vote
54
cumulative voting
only for electing directors
55
vote to amend AOI
only affected class gets to vote
56
restriction on stock transfers
valid if not undue restraint on alienation right of first refusal is valid Enforceable against transferee if conspicuously noted on stock certificate or info statement or shh had actual knoweldge
57
Inspection rights
Unqualified (5 business days notice): articles & bylaws, board resolution of classfication of shares, minutes of SHH meetings for 3 years , communication from corp to shh for 3 years, list of names & business addressed of directors/ officers, most recent annual report Qualified (proper purpose + 5 days): board minutes, corp's books, papers, accoutning records, shh records failure to provide: court order + attorney fee & expense
58
Right to distributions
at least one class of stock must have right to recieve corp's net assets on dissolution can only compel distribution for strong showing of abuse of discretion
59
Right after distribution
same sas creditors except distribution can be revoked if declared in violation of solvency limitation
60
Limitations of distributiosn
in articles | cann't distribute shares to other classes to shh
61
Which fundscan't be used for distibution
msut be able to pay debts or if total assets would be less than total liabilities
62
liability for unlawful distributions
directors J&S liable for improper distibution not laible if good faith, based on financial statementse, relied on experts can reiceve contribution from other directors and each shh who knew distirbutio nwas improper SHH liable if they knew.
63
Fundamental corp change
``` amend articles emrge/consolidating transfer sub. all assets converting to other form of business dissolving ```
64
Fund. corp change
1. board resolution 2. submit to shh 3. shh approval (maj of shares entitled to vote)
65
Dissenting shh right of approval
closely held only (non-closely held has 'market out exception) ONLY: merging/consolidating, transfering sub all assets, stock acquried in share exchange, converting to other form of business (not dissolving, amending AOI) 1. corp informs entiteld to dissent 2. shh provides written notice of ojbection & intent to demand pmnt 3. shh abstains from vote/ votes agianst 4. if approved, corp notifies w/in 10 days shh entitled to pmnt - gives time & place to submit shares 5. shh make written ddmenad to be bought out & deposit stock 6. corp pays dissenters 7. if inadequate amout, w/in 30 days, send corp estimate of value 8. if copr disagrees, within 60 days send to court to decide Sole remedy absent fruad for SHH
66
Merger // consolidation
Merger: blending of 1+ corps into other and one surviving (must be ok in surviving corp's state of incorproation) Consolidation: combine to form new
67
No sig. change to surviving corp?
No approval for surviving corp if: 1. aoi survive and won't differ 2. surviving shh will hold smae number oshs/ identical preferences/ limitations 3. voting power of new will be no more than 20% of voting power of surviving
68
short form merger of sub
no shh approval if parent owned 90% of outstanding shs of each class of sub parent mails copy of plan of merger to shh sub.

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