Corporations Flashcards

1
Q

Business Judgment Rule

A

Presumption that a director’s decision may not be challenged if the directors

(1) acted in good faith,
(2) with the care that an ordinarily prudent person would exercise in a like position; AND
(3) in a manner the director reasonably believe to be in the best interest of the corporation
(4) court will not second-guess their decisions

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2
Q

Director may rely on what information

A

May rely on reports from

(1) corporate offers whom the director reasonably believes to be reliable and competent and
(2) corporate outsiders as to matters that the director reasonably believes to be within the outsider’s professional competence
3. committee of the board in which director is not a member

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3
Q

Personal interest in a transaction

A

A transaction cannot be set aside merely because a director had a personal interest in the transaction if

(1) the director disclosed the material facts of the transaction to disinterested members of the board who approved the transaction (or shareholders) OR
(2) the transaction was fair to the corporation

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4
Q

Exculpatory Provisions for Directors

A

corporations articles of incorporation may limit or eliminate directors personal liability for money damages to the shareholders or corporation for actions taken
UNLESS: the director
(1) received a benefit to which he was not entitled
(2) intentionally inflicted harm on the corporation or its shareholders
(3) approved unlawful distributions, or
(4) intentionally committed a crime

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5
Q

Which shareholders are eligible to vote

A

shareholders of record on the record date may vote at the meeting
- fixed by the board but may not be more than 70 days before the meeting OR the day the notice of meeting is mailed if not record date is set

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6
Q

How can a shareholder vote

A

(1) a shareholder may vote her shares in person
OR
(2) by poxy, shareholding given another a written and signed proxy giving the other the right to vote the shares

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7
Q

proxies and revocability

A

Proxies are generally revocable UNLESS they say they are irrevocable and coupled with an interest or given as security

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8
Q

When are proxies coupled with an interest

A

if the proxy holder essentially pays for the right to be a proxy

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9
Q

Quorum of Shareholder voting

A

usually a marjoity of outstanding shares entitled to vote UNLESS articles or bylaws require greater number

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10
Q

Vote number required can be set by

A

articles or bylaws

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11
Q

if the articles and bylaws conflict

A

articles control

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12
Q

authorized stock

A

number of shares the corporation may issue (set in the articles)

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13
Q

issued stock

A

number of shares the corporation has sold

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14
Q

outstanding stock

A

shares company has issued and has not reacquired

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15
Q

what do shareholders vote on

A

(1) electing directors
(2) removing directors
(3) fundamental corporate changes

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16
Q

promoter

A

person who procures commitments for capital and instrumentalities on behalf of a corporation that will be formed in the future

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17
Q

Promotors liability

A

personally liable on all such contracts they enter into on behalf of the corporation to be formed

liable even after formation and even if the corporation adopts UNLESS the agreement in the pre-incorporation contract expressly indicates that the promoter is not to be bound (considered an offer to the proposed corporation)

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18
Q

Nonexistent corporation

A

no agency applies and no agents

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19
Q

Corporation liability for promoter

A

GR: not liable UNLESS it adopts the contract

express: official action to adopt the contract with knowledge of the material facts such as a resolution by the board of directors
implied: requires someone in authority to accept the benefits of the contract with knowledge of the material facts

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20
Q

promoters duty

A

fair disclosure and good faith

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21
Q

business judgement rule presumption

A

directors decisions are (1) made in good faith and (20 in the best interests of the corporation

challenging person has the burden

22
Q

conflict of interest rule for directors

A

directors owe duty of loyalty that prohibits directors from profiting at expense of corporation

23
Q

directors conflicting interest transaction will not be set aside if

A

(1) director discloses all material facts and deal is approved by disinterest majority of directors or shareholders

OR

(2) deal is fair

24
Q

de jure corporation

A

all statutory formalities have been met

25
can corporate veil be pierced?
i. corporate formalities have been ignored and injustice has resulted ii. the corporation was inadequately capitalized; OR iii. necessary to prevent fraud
26
de facto corporation
colorable good faith compliance with most statutory requirements AND not notice that not followed
27
corporation by estoppel
contractual situation where parties have acted as if they were a corporation if yes- shareholder not liable if no- shareholder can be liable
28
par value stocks
if directors authorize sale of stock for less than the stated par value, shares will probably be treated as validly issues but directors liable for breach of fiduciary duty
29
shareholders run corporation?
unless in corporation articles no such power- that power is vested in board of directors and shareholders have power to elect them
30
quorum
simple majority of outstanding voting shares entitled to vote
31
no cumulative voting
each shareholder gets one vote per shared and no more than one vote can be case for any one position
32
cumulative voting
sharehodler gets as many votes per share as there are directors being elected
33
voting trust
any proper purpose - 10 year maximum legal ownership transferred to trustee; shareholders retain beneficial ownership
34
voting agreement
any proper purpose- perpetual shareholder retain both legal and beneficial ownership
35
director authority to bind corporation in contract
not allowed unless actual authority actual authority arises if: I. proper notice was given for a directors meeting, quorum, and majority of directors approved OR ii. unanimous written consent of directors
36
duty to disclose
material corporate information to other members of the board
37
duty of loyalty
conflicting interest transactions- either a party to the transaction or has a beneficial financial interest or part of another entity. upheld if I. approved by majority of directors and shareholders without a conflicting interest after all material facts have been disclosed OR II. transaction was fair to the corporation
38
remedies for director improper conflicting interest
enjoining transaction, setting transaction aside, damages
39
authority of corporate president
agent of corproation and has whatever actual authority corproatio ngrants power to enter into ordinary contracts involving day-to-day operation of the corporation extraordinary transactions must be authorized by the board (board has to have authority)
40
when can a directors meeting take place
if quorum consisting of majority of directors
41
fundamental corporate changes from board
board does not have power to authorize fundamental corporate changes without shareholder approval
42
fundamental corporate change allowed
(1) if directors first pass resolution to implement plan | (2) shareholders approve the plan
43
appraisal remedy
shareholders dissenting from fundamental corproate change can force corporation to purchase their shares IF (1) file an objection to the transfer before or at meeting which vote is taken (2) vote against (3) written demand for fair value of shares
44
what number of votes is required to elect directors
unless articles or bylaws provide otherwise- directors are elected by a plurality of votes case- receiving the most votes win even if they don't receive a majority
45
board issuing options
board has a right to issue options to purchase shares on whatever terms
46
may a corporation issue more stock than authorized in articles of incorporation
no would have to amend
47
how to ament articles of incorproation
board must first adopt resolution to ament - shareholders must vote at meeting must be approved by shareholders and then filed with secretary of estate
48
shareholder premptive rights
shareholders do not have any preemptive right (rights to buy sufficient number of newly issues shares in order to maintain current voting strength) UNLESS articles provide for such right
49
removing a director
can be done iwth or without cause at a special meeting unless articles provide otherwise.
50
cumulative voting removal
when a director is elected through cumulative voting, director cannot be removed if votes case against moval would be sufficient to elect director if cumulatively voted at an election
51
business judgement rule does not apply
to directors who have a conflicing personal interest in the transaction
52
duty of loyalty and care
loyalty- directors have a duty to not participate in self dealing duty of care- requires directors to act in best interest of corporation using care and prudence of reasonable person