Corporations Flashcards
Promoter liablity exceptions
- 3rd party knows the C doesn’t exist but promises to look to C only for liability
- Novation w/ 3rd party
Corporate liability for pre-incorporation agmts
Not liable, unless:
- Express adoption
- Implied adoption
- w/ full K of K, accepts bennies
Lack of good faith effort to incorporate
You are a promoter and personalyl liable
De Facto Corp.
- Good faith effort
- Operate as if it were a corp
- Not know that incorp reqs failed
Piercing the corporate veil
“Necessary to prevent fraud, illegality, or acheive equity”
- Excessive domination
- Personal vs corporate gain
- illegal biz or fraud
- No corporate formalities
- Inadequate capitalization
Amending the certificate of incorp
Majority of SHs
Amending by-laws
- SHs via majority vote
- BOD if in articles of incorp
SHs entitled to vote on . . .
- directors
- Amendments to articles of incorp
- sale of all or substantially all of assets
- Mergers and consolidations
- Dissolution
Adversely affect a class?
They get to vote as a class
Revoking a proxy vote
- request in writing
- turning in another proxy
- attending mtg in person
- Death/Incompetence only if written notice received before proxy vote
Irrevocable proxy
- State so
- Given to someone w/ a coupled interest
Inspection of records
- During normal biz hours
- 5 days written notice
- proper purpose
NY limits records to:
- MInutes of SH mtgs
- List of SHs of record
Demand upon bd
Not required if:
- Futile
- self interest or otherwise harming the corp
Removing a director
- For cause by SH
- self- dealing
- waste
- usurping corp opps
- W/o cause by SH
- if allowed in articles or SH approved by-law
- Directors for cause
- if allowed in SH by laws
Fidiciary Duties
- DUty of care
- Duty of loyalty
- self-dealing
- usurpation
- entrenchment
NY Interested director cleansing statute
- Conflict disclosed and approved (via normal process) by bd w/o counting interested Ds
- Conflict disclosed and disinterested Ds approved unanimously
- Conflict disclosed to SHs, and they approve by majority
Saving an interested Director deal
- NY saving statute
- Otherwise fair and reasonable
- look to see if corp received something of comparable value
Usupration of corp opp
- Tangible expectancy test
- existing interest
- expectancy
- actively seeking - Line of business test
- broader
- w/n current/expected line of business
Director indemnification
- Mandatory
- successful defense
- ct ordered - Permissive -
- good faith
- no reasonable belief that conduct was unlawful - Probited -
SH derivative suit
Procedure for merger
- Boards of each corp must approve
- SHs of each corp must approve
- certificate of merger delivered to NY Dept of State
SH approval for merger/asset sale
- Before 2/22/1998 –> 2/3 of shares
- After 2/22/98 –> majority
Short form merger
If parent owns 90% or more –> merger w/o approval of subsidiary
When a buyer becomes liable for seller corp’s liabilities
Four situations:
- Expressly assumes
- when asset sale = de facto merger
- mere continuation
- designed to defraud seller’s creditors
Dissenting SH right of appraisal
Three situations:
- Dissent in merger/consolidation
- Sale of all or sub all of assets
- Amendment to article where such amend materially and adversely affects SH
Voluntary Corporate Termination
- SH authorization
- Corp formed B4 2/22/98 –> 2/3 SJ vote
- formed after 2/22/98 –> majority of SH
- Occurence of event w/n articles
Involuntary Corporate Dissolution
- State
- SHs
- Directors
Involuntary corp termination by state
- formation was based on fraud
- engages in illegal or fraudulent business
- abuse of corp power
- fails to pay fees/taxes
SH involuntary termination of corporation
- Insufficient assets
- Beneficial action
- Deadlock
- Requires at least 50%
- Oppressive conduct
- closely-held corp
- minority SH owns at least 20%
- “substantially defeats the reasonable expectations of the minority SH
- Controlling SHs may “buy out” minority at reasonable price
Director involuntary termination of corp
- Insufficient assets
- Beneficial action
Types of stock
- Common
- Preferred (only if articles authorize)
Preferred stock liquadation preference
valid only after all creditors of corp (employee wages have priority over outside creditors)
SH preemptive rights
Before 2/22/98 –> yes
After –> No
Distribution of dividends
At discretion of board of directors, unless:
- abuse of discretion
- bad faith
NY Legal Capital Rule
Before distribution of dividends:
- Insolvency determination (unable to pay debts)
- Surplus/Net Profits determination
- Surplus? max distribution is that surplus
- Zero/negative? max distribution is net profits of that year or previous year
Close Corps
- Not traded publicly
- Directors = Officers usually
- Alienation of shares restricted
- 10 largest SHs = personally liable for all debts/wages owed to emps but not ICs
Futile
- when the board is comprised of a majority of interested directors,
- controlled by an interested director, or
- the terms of the deal are so egregious that the Board must not have made a valid inquiry into the deal in the first place.
