corporation flashcards - Sheet1
Directors & Officers - Duty of Care
Directors & officers must perform their duties in good faith, with such care as an ordinarily prudent person in a like position would use in similar circumstances, in a manner reasonably believed to be in the best interests of the corporation. This concerns the director’s decision-making process. A business judgment is presumed to be informed. Rebutted if uninformed without substantial research in gross negligence or in bad faith, illegal, fraudulent, or conflict of interest.
Director’s & Officers - Duty of Loyalty Competing with Corp
D must not engage in a competing corporation with own corporation.
Directors & Officers - Duty of Loyalty - Usurption
D must not benefit from any business opportunity that could benefit the corporation. Usrurpation if opportunity within corps line of business, corp has interest in opp, and corp is financially able to take opp.
Directors & Officers - Duty of Loyalty - Conflicting Interest Transaction
D/O has a duty to be loyal to a corporation, which means no conflict of interest. Conflicts of interest arise when a director is a party to the transaction when the transaction is reasonably expected to influence the vote, or has a partner, agent, or employee of another entity the corp is transacting with.
UNLESS disclose all material facts AND majority of disinterested directors or s/h vote in favor. Disinterested are those with no conflicting interest in the transaction or their relationship with the convicted party influences their vote OR transaction is fair and reasonable.
Shareholder Rights - Derivative Actions
A s/h holder may bring a derivative action on behalf of corp to enforce a corporate right (loyalty, care, usurption) that directors failed to assert.
Must be brought by the contemporaneous stock owners who owned at least one share when the claim arose and throughout the litigation. Must first make a demand and wait 90 days. UNELSS corp rejects or causes irreparable injury to corp resulting by waiting 90 days.
DEMAND NOT NEEDED if majority of BOD is interested in challenged transx OR BOD failed duty of care
Shareholder Rights - Direct
Direct Actions: S/H may sue corporation for direct damages, meaning they were directly harmed by the corporation such as not being allowed to vote, fraud, access to books.
Corporations - Personal Liability & Piercing the Veil
Creditors may disregard corp protection and hold shareholders jointly and severably liable for corporate obligations based on Unity of Interest + Injustice or fraud
Unity of Interest occurs when corporation is the alter ego of person & is shown where s/h commingles funds, or fails to observe corporation formalities, or inadequate capital at time of formation to cover forseeable liabilities.
Fraud: piercing necessary to prevent fraud or avoiding personal responsibilities.
Shareholder Rights - Shareholder’s Right to Inspect Books and Records
A Shareholder has a unqualified right to inspect and copy corporations records. A shareholder has right to inspect and copy certain accounting records if inspection made during regular business hours, 5 day notice, demand is made in good faith for a proper purpose that is described with particularity, and directly connected with the purpose. A proper purpose is reasonably relevant to shareholder’s interest as shareholder.
Fundamental Corporate Changes - Dissenter’s Appraisal Rights for Fundamental Changes
A dissenting s/h is entitled to appraisal rights and FMV of shares for certain fundamental changes concluding right to vote on mergers. Appraisal rights are not available to s/h of publicly traded companies.
S/h who do not consent to fundamental change may force corp to purchase their shares if notice is given before the vote, the change happens, and s/h did not vote in favor of the change.
Corporations - Liability of Promoter for Pre-Incorporation Contracts
A promoter acts on behalf of a corp not yet formed. They are jointly and severally liable for obligations under pre-incorporation K, even after corp is formed. Remain liable as fiduciaries until notation. However, corp. may become bound by express or implied adoption of promoter’s K.
Corporate finance - Dividends & Distributions to Shareholders
BoD decides to declare dividends. Once declared s/h has right. S/h has no right to force dividends unless granted by articles. Court may order dividends if bad faith (hostility, exclusions, high salaries) AND funds are available for the dividend.
Directors & Officers - Board of Directors Meeting: Quorum
A corporation can only act if a meeting is called with a quorum (majority of all d) and a majority vote of quorum.
Authority - Authority of Officers
BoD elects officers to manage company’s day to day business. An officer has actual authority provided by bylaws or via BoD. Apparant authority as well.
The president has authority to bind for ordinary business (normal & necessary like lawsuits), but not extraordinary busines. Secretary has authority to maintain and authenticate corporation’s records.
Authority of Members and Managers of an LLC
Each member or manager is an agent for the LLC and has authority to bind company if within ordinary course of business (normal and necesasry– reasonable person standard)
Express authority through operating agreement or via other members. Implied A is what is reasonably necessary to fulfill duties.
Differences for actions within ordinary course of business decided by majority. Extraordinary acts must be unanimous.
Fiduciary duties - Fiduciary Duties Owed by Members/Managers of an LLC
Duty of Care: Act with reasonable care like a person in similar position in similar circumstances. Act in the best interests of the company. Be reasonably informed and rely in good faith on competent and reliable sources
Dissolution & Dissociation - Dissolution & Winding Up of an LLC
An LLC is dissolved upon:
The occurrence of an event in the Operating Agreement causing dissolution. The consent of all members.The passage of 90 consecutive days without any members OR
Judicial dissolution, which is granted when Managers or controlling members act in an illegal or fraudulent manner. Managers or controlling members act oppressively and harmfully to the member.
The LLC’s activities are substantially unlawful. It is not reasonably practicable to continue the LLC’s activities per the Certificate of Organization and Operating Agreement.
Dissolution requires notice to creditors which outlines steps creditors must take to enforce their claims. If not followed, creditors can enforce claims against members personally up to the value of assets they recieved.
Formation - Bylaws
The Bylaws are rules and regulations adopted by the Board of Directors to govern the internal operations and management of a corporation, including the roles and duties of directors and officers. The Bylaws may contain any provision that is not inconsistent with the Articles of Incorporation or the law of the jurisdiction.
If there is a conflict between the Articles of Incorporation and the Bylaws, the Articles control.
Powers of a Corporation
Under the RMBCA (and most states), a corporation has the power to do all things necessary or convenient to carry out its business and affairs, including:
To sue and be sued.
To own, lease, or convey real or personal property.
To make contracts, incur liabilities, borrow money, and issue notes or bonds.
To lend money and make investments.
To own or be involved with another business entity.
To fix the compensation of directors, officers, and employees.
To lend money to directors, officers, and employees.
To make charitable donations.
To make payments or donations that further the business and affairs of the corporation.
To pay or engage in lobbying to aid governmental policy.
Liability of Corporation for Pre-Incorporation Contracts
A corporation is not liable on pre-incorporation contracts entered into by a promoter unless the corporation expressly or impliedly adopts the contract post-incorporation.
Express Adoption: The corporation adopts the contract through Board of Director action or by reference in the corporation’s formation documents.
Implied Adoption: The corporation knows or has reason to know the material terms of the contract and accepts some benefit from the contract.
Authorized, Outstanding, & Reacquired Shares
Authorized Shares:
Authorized shares are the maximum number of shares a corporation may issue, as set forth in the Articles of Incorporation. A corporation cannot issue more shares than authorized. To increase the number of shares allowed to be issued:
The Articles of Incorporation must be amended.
The changes must be adopted by the Board of Directors.
The changes must be approved by a majority vote of the shareholders.
Outstanding Shares:
Outstanding shares are the total number of shares issued by the corporation and held by the shareholders. Under the RMBCA, each outstanding share is entitled to one vote, unless otherwise provided in the Articles of Incorporation.
Reacquired Shares:
Reacquired shares (also called treasury shares) are considered authorized shares but are not outstanding shares. These reacquired shares cannot be voted at a shareholders meeting.
Shareholder Meetings: Right to Vote & Record Date
Only shareholders registered on the record date are entitled to vote at a shareholders meeting. The owner of shares on the record date can vote those shares at the upcoming meeting, even if the shares are sold before the meeting (the transferee cannot vote). However, if the shareholder executed an irrevocable proxy in favor of the buyer, then the buyer can vote the shares at the meeting.
Under the RMBCA, the Bylaws may fix or provide the method for fixing the record date, but it cannot be more than 70 days before the shareholder meeting. If not fixed, the record date is the day before the first notice is delivered to shareholders.
Shareholder Meetings: Quorum & Voting
A quorum must be present for shareholders to take action at a meeting. A quorum exists when a majority of the shares entitled to vote are present, unless the Articles of Incorporation specify a greater number.
If a quorum exists, action on a matter (other than the election of directors) is approved by a majority of votes cast, unless the Articles of Incorporation require a greater number. Each outstanding share is entitled to one vote on every matter at a shareholders meeting, unless otherwise provided in the Articles of Incorporation.
Board of Directors Shall Exercise All Corporate Powers
Board of Directors’ Authority:
A corporation’s Board of Directors generally makes decisions for the corporation. All corporate powers shall be exercised by the Board of Directors unless:
The Shareholders’ Agreement provides otherwise, and/or
Such powers are limited by the Articles of Incorporation.
Board of Directors Meeting: Voting & Objection to Actions
Board of Directors Meeting: Voting & Objection to Actions
If a quorum of the Board of Directors is present when a vote is taken at a meeting, an act is approved by the affirmative vote of a majority of directors present unless the Articles of Incorporation or bylaws require a greater number.
A director present at a meeting where corporate action is taken is deemed to have assented to the action unless:
The director objects at the beginning of the meeting (or upon arrival) to holding it or transacting business.
The director’s dissent or abstention is entered into the meeting minutes.
The director delivers written notice of dissent or abstention to the presiding officer before adjournment or to the corporation immediately after adjournment.
The right of dissent or abstention is not available to a director who votes in favor of the action.
