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Business Associations > Corporations > Flashcards

Corporations Flashcards

1
Q

O’s powers

A

O’s auth to act may be actual or apparent
Express auth may be granted by stat, AOI, bylaws, or board resolution, or such power may be implied
O may have apparent auth to act where corp “holds out” O as possessing auth - 3rd pty must reas rely on “holding out”

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2
Q

Pre-incorporation K’s

A

Promoters act on behalf of corp not yet formed
Corp becomes liable when adopts K by
- express board resolution or
- implied ratification thru knowledge and acceptance of benefits
Promoters remain liable until there’s been a novation - agmt betw promoter, corp and 3rd pty that corp will replace promoter under the K

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3
Q

Subscribers

A

Persons/entities who make written offers to buy stock from corp not yet formed
Pre-incorporation subscription offer to buy stock is irrevocable for 6 months

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4
Q

Promoters

A

FD’s of each other and corp and can’t make a secret profit on dealings w/ corp

  • sale to corp of prop acquired by promoter before becoming a promoter - profit recoverable by corp only if sold more than FMV
  • sale to corp of prop acquired by promoter after becoming a promoter - any profit recoverable by corp
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5
Q

De jure corp

A

General purpose and perpetual duration presumed unless specific purpose and duration stated
Specific stmt of purpose and ultra vires rules

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6
Q

Ultra vires

A

Beyond the scope of the AOI
K’s
- valid as to 3rd pty’s
- SH’s can seek an injunction to stop ultra vires act
- corp can recover losses caused by ultra vires acts of D’s/O’s

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7
Q

De facto corp

A

Exists when organizers made a good faith, colorable attempt to comply w/ corp formalities and have no knowledge of the lack of corp status

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8
Q

Corp by estoppel

A

1 who treats biz as a corp may be estopped from denying later that it’s a corp
Prevents improperly formed “corp” from avoiding liability by saying it wasn’t properly formed

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9
Q

Limited liability

A

D’s/O’s/SH’s aren’t liable for what corp does

SH’s can only lose amt invested

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10
Q

Corp is a separate legal person

A

Can sue and be sued, be a partner in a p/s, make charitable contributions, etc.
Double taxation - tax on profits, SH’s taxed on distribution

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11
Q

S corp’s

A

Avoid having to pay income tax at corp level
No more than 100 SH’s, all of whom are US citizens and residents
Only 1 class of stock
Not publicly traded

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12
Q

Bylaws

A

Not req, but usually do for internal governance purposes
Board adopts initial bylaws at an organizational meeting
SH’s, and in some st’s, the board, may amend or repeal the bylaws
If bylaws and AOI conflict, then AOI controls

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13
Q

KSN for stock

A

Can be anything so long as board values it in good faith

Par value

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14
Q

Preemptive rt’s

A

Rt of an existing SH to maintain same % of ownership by buying stock whenever there’s a new issuance of stock for cash
Must be provided for in AOI

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15
Q

Stat req’s - D’s

A

Board must have at least 1 member
SH’s elect D’s at annual meeting
SH’s can remove w/ or w/o cause by maj of shares entitled to vote
Board vacancy may be filled by other D’s or SH’s - if SH’s created the vacancy by removing a D, SH’s generally must select the replacement

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16
Q

Effective board axn

A

Board can only act in 1 of 2 ways

  • unanimous agmt in writing or
  • meeting
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17
Q

Meeting

A

No notice req for regular meetings
Notice req for special meetings - must state time and place, doesn’t have to state purpose
Need quorum - must have maj of all D’s to take axn, unless a diff % req in bylaws
Maj of quorum wins - voting agmt’s and proxies aren’t allowed
Each D is presumed to have concurred in board axn unless dissent or abstention recorded in writing

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18
Q

D’s duty to manage corp

A

Board manages biz of corp
Sets policy, supervises O’s, declares distributions, determines when stock will be issued, recommends fundamental corp changes to SH’s

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19
Q

D’s may delegate

A

Mgmt functions to a committee of 1 or more D’s that recommends axn to the board - committees can’t fill board vacancies or declare dividends

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20
Q

FD

A

Duty of care

Duty of loyalty

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21
Q

Duty of care

A

D’s must perform in good faith in the best interest of the corp, exercising the care an ordinarily prudent person would use w/ regard to his own biz
BJR

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22
Q

Business judgment rule - BJR

A

Duty of care - doesn’t apply to duty of loyalty
Presumption that D’s manage the corp in good faith and in the best interests of the corp and its SH’s
D isn’t liable
- a ct won’t 2nd guess a biz decision if
–> was informed - did board do appropriate homework before making the decision/analyze info/deliberate?
–> was made in good faith
–> made w/o COI, and
–> had a rational basis

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23
Q

Duty of loyalty

A

D must not rec an unfair benefit to the detriment of the corp or its SH’s, unless there has been material disclosure and independent ratification
Self-dealing
D can’t compete w/ the corp
Corp opportunity doctrine

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24
Q

Self-dealing - interested D transaxn

A

D breaches his duty of loyalty when he rec’s an unfair benefit for himself (or relative, or another of his biz’s) in a transaxn w/ the corp
OK if either
- fair to corp when entered into or
- if approved, after full disclosure of material facts, by a vote of the disinterested D’s or shares
Some ct’s req a showing of fairness even if disinterested D’s/shares approve
Remedy is rescission

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25
Q

D can’t compete w/ corp

A

Remedy is CT on profits

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26
Q

Corp opportunity doctrine

A

D breaches his duty of loyalty when he rec’s an unfair benefit by usurping for himself an opportunity which the corp would have pursued
D can’t take a corp opportunity until
- tells board about it and
- waits for board to reject
Corp’s financial inability to pay for opportunity isn’t a defense
Remedies are damages, CT or corp gets opportunity at cost

27
Q

Ratification

A

D’s may defend a claim by obtaining independent ratification thru

  • maj vote of independent D’s - there must be a quorum/maj of the board in order for board to act
  • maj vote of committee of at least 2 independent D’s or
  • maj vote of shares held by independent SH’s
28
Q

No indemnification allowed

A

Corp is barred from indemnifying when D is liable to corp or held to have rec’d an improper personal benefit

29
Q

Mandatory indemnification

A

Corp must indemnify D if successful in defending, on the merits or otherwise

30
Q

Permissive indemnification

A

Corp may indemnify for anything not satisfying no indemnification or mandatory indemnification - ex. case against D settles
D must show that he acted in good faith w/ reas belief that his axn’s were in the corp’s best interests
Disinterested D’s/shares/independent legal counsel determine eligibility

31
Q

SH’s

A

Don’t manage the corp, board does
Can run corp directly in a close corp
Generally, aren’t liable for acts/debts of corp

32
Q

Close corp

A

Small # of SH’s
Stock isn’t publicly traded
If no board, bc eliminated by SH’s, then managing SH’s owe FD’s of care and loyalty to corp
Controlling SH’s owe FD’s not to oppress each other, especially minority SH’s
- can’t sell control to looters - w/o reas investigation of the B
- if there’s oppression, a harmed minority SH can sue the controlling SH who oppressed her - minority SH’s have no way out bc there’s no mkt for stock

33
Q

Piercing the corp veil

A

Only in close corp’s
Done in order to avoid fraud or unfairness
Holds SH’s personally liable bc SH’s abused privilege of incorporating and fairness req holding them liable
Alter ego theory
Undercapitalization
Fraud
More likely to be done for tort victim than for K victim

34
Q

Alter ego theory

A

Corp veil may be pierced when there’s a failure to observe suff corp formalities

35
Q

Undercapitalization

A

Corp veil may be pierced when there’s a failure to maintain suff funds to cover foreseeable liabilities

36
Q

Fraud

A

Corp veil may be pierced when nec to prevent fraud or prevent an individual from using the corp to avoid existing personal obligations

37
Q

Derivative suits

A

SH sues to enforce corp’s c/a, not his own
- ask - could corp have brought this suit? if so, then prob derivative, if not, then prob direct
1. contemporaneous stock owner
2. adequate rep’n of corp’s interest
3. written demand - may not need to demand if it would be futile
Remedy goes to corp, not SH

38
Q

Direct suits

A

SH enforcing SH rt’s

Remedy goes to SH, not corp

39
Q

Annual meeting

A

Must be properly noticed
Elect D’s
If none held in 15 mnths, SH can petition ct to order meeting

40
Q

Special meeting

A

Called by board, pres or 10% SH’s
Vote only on proposals or fundamental corp changes
Notice - state time and place, must contain special purpose or else not heard

41
Q

Effective SH axn

A

Quorum nec

Quorum req maj of outstanding shares when meeting begins, UOA provided in AOI

42
Q

Proxies

A
  1. written
  2. signed by record SH
  3. directed to corp secretary
  4. auth another to vote
    Valid for 11 mnths
    Revocable unless conspicuously made irrevocable and coupled w/ an interest
43
Q

Pooling agmt’s

A

Written agmt to vote shares as req in agmt
Binding and enforceable
No time limit

44
Q

Voting trusts

A

Formal written agmt delegating voting power to a ttee
On file
Expires in 10 yrs
Cumulative voting - multiply # of shares X # of D’s to be elected, must be granted in AOI

45
Q

Dividends

A

SH’s have no rt to dividends

46
Q

Inspection rt’s

A

SH’s may only inspect records, books, SH lists, etc.

Any SH shall have access upon notice and at proper times

47
Q

SH liabilities

A

SH’s generally aren’t liable for corp obligations
Exceptions
- PCV
- controlling SH’s owe FD’s to minority SH’s
- controlling SH’s liable for selling corp to a looter, unless reas measures were taken to investigate

48
Q

Fundamental corp changes

A

Extraordinary, so board can’t do them alone - mergers, sale of assets, amendment of AOI, dissolution and liquidation

  • board axn adopting resolution of fundamental change
  • board submits proposal to SH’s w/ written notice
  • must get SH approval - maj of SH’s entitled to vote
49
Q

Dissenting SH rt of appraisal - fundamental corp changes

A

Rt to force corp to buy stock for fair value
Triggered by - merger or consolidation, xfer of substantially all assets not in the ordinary course of the biz, or xfer of shares in a share exchange
Not available if stock is listed on nat’l exchange or has more than 2K SH’s - rt only exists in close corp
SH’s only remedy for these changes, absent fraud

50
Q

Mergers

A

Surviving corp succeeds to all rt’s and liabilities of the constituents - successor liability

51
Q

Sale of assets

A

If sale, lease or exchange of substantially all of the corp assets is outside the ordinary course of biz, then maj of D’s and maj of shares entitled to vote must approve

  • fundamental corp change for selling corp only
  • appraisal rt’s for selling corp only
52
Q

Amendment of AOI

A

Board axn and notice to SH’s
SH approval - maj of shares entitled to vote
No SH rt’s of appraisal

53
Q

Voluntary dissolution and liquidation

A

Board axn and approval by maj of shares entitled to vote
Corp stays in existence to wind up
Notify creditors so they can make claims

54
Q

Involuntary dissolution and liquidation

A

Ct order
SH can petition bc of
- D abuse, waste of assets, misconduct
- D deadlock that harms the corp or
- SH’s have failed at 2 consecutive annual meetings to fill a vacant board position
Alternatively, ct might order buyout of objecting SH, especially in a close corp

55
Q

Wind up/liquidate

A

Gathering all assets
Converting to cash
Paying creditors
Distributing remainder to SH’s, pro rata unless there’s a liquidation preference

56
Q

Fraud

A 
False stmt
Material fact
Scienter - intent to deceive
Reliance
Damages
57
Q

Misrepresentation

A 
Misrep'n by ∆
Scienter - intent to deceive
Intent to induce reliance on misrep'n
Causation
Justifiable reliance
Damages
58
Q

10b5

A

Private π must show

  1. fraudulent conduct - false stmt or omission to state a material fact
  2. materiality - something a reas investor would consider imp in making a decision to buy or sell
  3. scienter - pty must have knowledge that stmt was false or have an intent to deceive
  4. in connection w/ purchase or sale
  5. in IC - using phone, mail or some other instrumentality in IC
  6. reliance
  7. damages
59
Q

Insider trading - 10b5

A
  1. person must be an insider
  2. purchase/sale of stock in IC
  3. based on non-public info
60
Q

Tipper liability - 10b5

A

If an insider gives a tip of inside info to someone else who trades on the basis of the inside info, tipper can be liable under 10b5

  1. tipper must be an insider or w/ FD obligation to corp
  2. tipper must have an improper purpose
  3. tipper must rec some personal gain - $ or reputation or giving a gift
61
Q

Tippee liability - 10b5

A
  1. tipper breached
  2. tippee knew that tipper breached
  3. purchase/sale in IC by tippee
62
Q

Misappropriation

A

Brought by gov’t

  1. misappropriated info from any source
  2. in breach of duty of trust and confidence owed to the source of the info
63
Q

16b

A

Derivative claim
1. large corp - traded on nat’l exchange or 500+ SH’s and $10M in assets
2. ∆ is O, D, or 10% SH’s (before and after sale)
3. purchase and sale of stock w/in 6 mnth period - highest sales are matched w/ lowest purchases
No defense

Business Associations (3 decks)

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