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Corporation Flashcards

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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
Q

Duty of directors

A

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)

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26
Q

Duty of care

A

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

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27
Q

Business Judgment Rule

A

director who acted in good fatih will not be liable for corporate decisions that in hindsight turn out to be poor or erroneous

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28
Q

Duty of loyatly

A

Burden on Defendant

Conflcit of interest

29
Q

Uphold conflcit of interest transaction

A
  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
Q

Compensation

A

reasonable & godo faith

31
Q

Competing ventures // Corp opporutnity

A

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
Q

duty to disclose //Loans

A

duty to disclose: material corp info to other members

loan from director: ok if reaonable expected to benefit corp

33
Q

Limit director’s liability

A 
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
Q

Director not laible if:

A

Dissent/abstnetion (otherwise presumed to concur)

35
Q

indemnification of director/ officer / employee

A

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
Q

always liable for

A
  1. intentional misconduct
    usupr corp opportunity
    unlawful distribution
    improper personal benefit
37
Q

advances

A

may advance expese to director to defend if they agree to repay

38
Q

Clsoe corporation Management

A

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
Q

Fiducary duties of closely held corp

A

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
Q

Professioan corp

A

name includes PC or PA
AOI states purpose is to practice profession

Personally liable for own malpractice

41
Q

shh laibilty for corp debt

A

not liable unless pierces corp veil

42
Q

pierces corp veil

A
  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
Q

Derivative Suit

A
  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
Q

Dismiss derivative suit if:

A

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
Q

Record date

A

fixed by BOD
not more than 70 days before meeting

Holders can vote EXCEPT:

  • treasury stock
  • death of SHH
46
Q

Voting by proxy

A
  1. writing
  2. signed by shh
  3. directed to secretary of corp
  4. authorizign other to vote shares
47
Q

revocation of prox

A

revocable by shh usually
irrevocable if coupled with interest or given as security (says irrevocable & holder has interst other than voting - ie buying)

48
Q

Statutory proxy control

A
  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
Q

Voting Turst

A
  1. written agreement
  2. transfer to trustee
  3. votes & distributes dividends
    valid for only 10 years renewable
50
Q

How to shh vote

A

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
Q

Notice for SHH meeting

A

not less than 10 or more than 60 days
date, time place, SPeical meeting: prupose (can only do that)

Improper notice = voidable

52
Q

What to shh vote on

A

elect directors/ remove

fudnamental corp change

53
Q

voting for SHH

A

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
Q

cumulative voting

A

only for electing directors

55
Q

vote to amend AOI

A

only affected class gets to vote

56
Q

restriction on stock transfers

A

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
Q

Inspection rights

A

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
Q

Right to distributions

A

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
Q

Right after distribution

A

same sas creditors except distribution can be revoked if declared in violation of solvency limitation

60
Q

Limitations of distributiosn

A

in articles

cann’t distribute shares to other classes to shh

61
Q

Which fundscan’t be used for distibution

A

msut be able to pay debts or if total assets would be less than total liabilities

62
Q

liability for unlawful distributions

A

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
Q

Fundamental corp change

A 
amend articles
emrge/consolidating
transfer sub. all assets
converting to other form of business
dissolving
64
Q

Fund. corp change

A
  1. board resolution
  2. submit to shh
  3. shh approval (maj of shares entitled to vote)
65
Q

Dissenting shh right of approval

A

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
Q

Merger // consolidation

A

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
Q

No sig. change to surviving corp?

A

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
Q

short form merger of sub

A

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.

Bar Prep (14 decks)

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