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Attack Cards > Corporation > Flashcards

Corporation Flashcards

1
Q

When does a corporation start to exist?

A

When Articles of Incorporation are filed with with the Secretary of State, unless a delayed effective date is specified.

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2
Q

Articles of Incorporation Requirements

A

MUST contain: “A PAIN”

  • Authorized shares (number, classes and series)
  • Purpose
  • Agent & Address of registered office
  • Incorporators
  • Name of corp
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3
Q

How to amend Articles of Incorporation

A

Can change/add/amend/delete provisions at any time

Requires a MAJORITY vote from the directors AND shareholders

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4
Q

What are Bylaws

A

Rules and regulations adopted by the Board that govern internal operations of the corp, like roles and duties of directors and officers

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5
Q

What happens when there is a conflict between Articles of Inc and Bylaws?

A

Articles control (filed with state as opposed to internal document like Bylaws).

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6
Q

Who can amend bylaws

A

Shareholders can amend or repeal bylaws.

Board may amend bylaws UNLESS:

  • Articles say only shareholders can, OR
  • Shareholders pass a bylaw that expressly prohibits an amendment of a SPECIFIC bylaw
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7
Q

What is a de jure corporation

A

If all requirements of formation of a contract are met. Then a corp is a de jure corp

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8
Q

What is a de facto corporation

A

Business doesn’t fulfill filing formalities may still be treated as a corporation if organizers have made a good faith, colorable attempt to comply with the corporate formalities and have no knowledge of the lack of corp status

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9
Q

What is a promoter?

A

Person who acts on behalf of a corporation that has not yet been formed

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10
Q

Corporation Liability for promoter’s contracts

A

Corp will be liable when it adopts the contract

Express adoption: by board action
Implied adoption: corp knows or has reason to know of material terms of promoter’s contract and accepts the benefit of the contract

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11
Q

Promoter liability

A

Promoter solely liable until Corp adopts the the contract

Promoter and Corp jointly liable even after corp adopts the contract

No more liability on promoter once there is a novation or the contract explicitly provides the promoter has no personal liability on the contract

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12
Q

What is a novation?

A

An agreement by all parties to substitute the corporation for the promoter and to relieve the promoter of the contractual obligation

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13
Q

General Shareholder liability

A

Shareholder is not personally liable for the liabilities and obligations of a corporation

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14
Q

What is Piercing the Corporate Veil

A

Reasoning/method used by the court in order to hold shareholders liable for corporate liabilities and obligations

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15
Q

When can a court pierce the corporate veil

A
  • corp is acting as the alter ego of the shareholders for personal reasons
  • shareholders failed to follow corporate formalities
  • corporation was inadequately capitalized at its inception, OR
  • to prevent fraud
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16
Q

Difference between common and preferred shares

A

Common: provides voting rights, last in priority to be entitled to company assets

Preferred: no voting rights, but first in priority to be paid out, preferred shares need to be described in Articles of Inc

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17
Q

Outstanding shares

A

Total number of shares issued by the corporation and held by the shareholders. Each outstanding share gets one vote UNLESS otherwise specified in AIO

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18
Q

Authorized shares

A

Maximum number of shares a corporation may issue as set forth in AIO

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19
Q

What type of Consideration can be given for Shares

A

Almost any type, including: money, tangible or intangible property, past performance of services to the corp, and future promises of service/payment

Board determines value of consideration that is not monetary. Absent fraud or bad faith, their valuation is CONCLUSIVE

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20
Q

Treasury stock

A

shares reacquired by the corporation. Considered authorized shares, but are not outstanding shares.

NOT allowed to be voted at a shareholders meeting.

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21
Q

Preemptive rights

A

Right of shareholder to maintain percentage of ownership each time new issuance is released. Must be expressly granted in articles, and consideration must be cash

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22
Q

Par Value

A

minimum issuance price. No par value means any valid consideration the board deems adequate

23
Q

Dividends

A

Money paid out to shareholders from earned surplus

24
Q

When are dividends distributed

A

Distributions are declared solely at Board discretion. Limited only if the corp is insolvent. Board is personally liable for unlawful distributions unless good faith reliance on financial officer’s report regarding solvency

25
Q

Restrictions on Share transfers

A

Restrictions on the transfer or sale of stock shares are permitted as long as it is reasonable (ie. not an und restraint on alienation)

Absolute restraint on alienation is invalid

26
Q

Who can hold a special meeting of shareholders?

A
  • Board of directors
  • anyone authorized in AOI
  • shareholders of at least 10 % of all votes entitled to be cast at the meeting
27
Q

Notice required for special meetnig

A
  • must be given more than 10 days in advance of meeting, but less than 60 days, AND
  • must state purpose of meeting
28
Q

Quorum required for shareholder meetings

A

Unless AOI gives a greater number, quorum exists when a majority of the shares entitled to vote are present

29
Q

Who can vote at shareholder meetings?

A

Only registered shareholders on record date are entitled to vote

If shares sold prior to meeting, still the shareholder registered on record allowed to vote. If irrevocable proxy is given, then shareholder will not be allowed to vote

30
Q

When can shareholder inspect books and records of corp?

A

Shareholder has right to inspect books and accounting as long as:

  • provides 5 days written notice
  • demand is made in good faith and proper purpose
31
Q

Proxy voting

A

Proxy allowed to vote shares if authority is in writing and signed by the record shareholder.

Revocable unless proxy agreement says it is irrevocable coupled with interest or legal right

32
Q

Cumulative voting

A

Must expressly granted in Articles and is only available when voting for directors.

Under cumulative voting, total number of votes a shareholder is number shares owned times number of director spots open for election (ie. 100 shares owned x 3 nominees = 300 votes).

All votes allowed to be cast for one nominee. No need to be spread out

33
Q

Who are officers of the corp

A

Agents of the corp like president, treasurer, sercretary, etc.
Selected by Board

34
Q

When can an officer be terminated

A

At any time with or without cause by the Board or anyone else authorized under the Bylaws

35
Q

How can a Board of directors act?

A

During Board meeting. Must have quorum and majority vote wins

36
Q

Notice requirement for Board of Directors meeting

A

Regular meetings: no notice required

Special meetings: at least 2 days notice and must provide date, time, and place

37
Q

How to waive notice for Board meeting

A

Signed writing or attend the meeting without objecting or abstaining from voting

38
Q

How to remove a director

A

Most jurisdictions: shareholder can remove with or without cause

Common law: need cause to terminate director

39
Q

Business judgment rule

A

Presumption that directors manage the corporation in good faith and in the best interest of the corp

40
Q

Duties owed by directors and officers

A

Duty of care and Loyalty

41
Q

Duty of care

A

Must act with the knowledge, care and skill of an ordinary prudent person in similar circumstances.

Also requires Directors to be reasonably informed on decisions they make and may rely on advice of professional advisors

42
Q

Duty of loyalty

A

Director may not receive an unfair benefit to the detriment of the corporation of shareholders, UNLESS there has been material disclosure and independent ratification

43
Q

What is self dealing?

A

Director receives unfair benefit in transaction with the corp

44
Q

What is usurping corporate opportunities

A

Director receives unfair benefit by usurping an opportunity that the corporation would have pursued

45
Q

Can D&O’s fiduciary duties be restricted or elminated

A

Yes, if stated in AOI or an Operating agreement, but must not be unreasonable.

Limitations do not apply in cases dealing wth

  • financial benefits improperly received
  • intentional infliction of harm to corp or SH
  • unlawful distributions
  • violation of crim law
46
Q

What is a derivative suit

A

When a shareholder is suing to enforce the corporations claim, not his own personal claim

47
Q

Requirements for shareholder to file a derivative suit

A
  • must own stock when claim arose and throughout litigation
  • demand Board to take suitable action
  • demand must be rejected or lapse 90 days
48
Q

What is a direct suit (direct action)

A

Suit brought bc director breached a fiduciary duty owed to individual as a shareholder

49
Q

Types of fundamental corporate changes

A
  • merger, consolidation
  • dissolution
  • fundamental amendments to articles
  • sale of substantially all corp assets
50
Q

Steps in order to approve a fundamental corporate change

A
  1. Board resolution
  2. Notice of special meeting to SHs
  3. approval by majority of ALL shares entitled to vote and by majority of any voting group adversely affected
  4. File notice with state
51
Q

Dissenter’s appraisal rights for fundamental changes

A

A dissenting shareholder can force a corporation to buy shares at fair value if they do not consent to a fundamental corporate change

52
Q

How to enforce dissenter’s appraisal rights

A
  • before the vote
  • file written notice of objection and intent to demand payment
  • vote objecting to change
53
Q

Dissolution

A

Approval by majority of Ds ad shares entitled to vote

54
Q

Judicial dissolution

A

Petition by SH to court to dissolve corp if he can show

  • deadlock of Ds and irreparable injury
  • Ds acted in manner that is illegal, oppressive or fraud
  • SH are deadlocked in voting power and failed to elect Ds for at least 2 consecutive annual meetings
  • OR corp assets have been wasted or misapplied

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