Corporations

Question 1

Business Judgment Rule

Answer 1

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

Question 2

Director may rely on what information

Answer 2

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

Question 3

Personal interest in a transaction

Answer 3

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

Question 4

Exculpatory Provisions for Directors

Answer 4

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

Question 5

Which shareholders are eligible to vote

Answer 5

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

Question 6

How can a shareholder vote

Answer 6

(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

Question 7

proxies and revocability

Answer 7

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

Question 8

When are proxies coupled with an interest

Answer 8

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

Question 9

Quorum of Shareholder voting

Answer 9

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

Question 10

Vote number required can be set by

Answer 10

articles or bylaws

Question 11

if the articles and bylaws conflict

Answer 11

articles control

Question 12

authorized stock

Answer 12

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

Question 13

issued stock

Answer 13

number of shares the corporation has sold

Question 14

outstanding stock

Answer 14

shares company has issued and has not reacquired

Question 15

what do shareholders vote on

Answer 15

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

Question 16

promoter

Answer 16

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

Question 17

Promotors liability

Answer 17

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)

Question 18

Nonexistent corporation

Answer 18

no agency applies and no agents

Question 19

Corporation liability for promoter

Answer 19

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

Question 20

promoters duty

Answer 20

fair disclosure and good faith

Question 21

business judgement rule presumption

Answer 21

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

challenging person has the burden

Question 22

conflict of interest rule for directors

Answer 22

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

Question 23

directors conflicting interest transaction will not be set aside if

Answer 23

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

OR

(2) deal is fair

Question 24

de jure corporation

Answer 24

all statutory formalities have been met

Question 25

can corporate veil be pierced?

Answer 25

i. corporate formalities have been ignored and injustice has resulted
ii. the corporation was inadequately capitalized; OR
iii. necessary to prevent fraud

Question 26

de facto corporation

Answer 26

colorable good faith compliance with most statutory requirements AND not notice that not followed

Question 27

corporation by estoppel

Answer 27

contractual situation where parties have acted as if they were a corporation

if yes- shareholder not liable

if no- shareholder can be liable

Question 28

par value stocks

Answer 28

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

Question 29

shareholders run corporation?

Answer 29

unless in corporation articles

no such power- that power is vested in board of directors and shareholders have power to elect them

Question 30

quorum

Answer 30

simple majority of outstanding voting shares entitled to vote

Question 31

no cumulative voting

Answer 31

each shareholder gets one vote per shared and no more than one vote can be case for any one position

Question 32

cumulative voting

Answer 32

sharehodler gets as many votes per share as there are directors being elected

Question 33

voting trust

Answer 33

any proper purpose - 10 year maximum

legal ownership transferred to trustee; shareholders retain beneficial ownership

Question 34

voting agreement

Answer 34

any proper purpose- perpetual

shareholder retain both legal and beneficial ownership

Question 35

director authority to bind corporation in contract

Answer 35

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

Question 36

duty to disclose

Answer 36

material corporate information to other members of the board

Question 37

duty of loyalty

Answer 37

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

Question 38

remedies for director improper conflicting interest

Answer 38

enjoining transaction, setting transaction aside, damages

Question 39

authority of corporate president

Answer 39

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)

Question 40

when can a directors meeting take place

Answer 40

if quorum consisting of majority of directors

Question 41

fundamental corporate changes from board

Answer 41

board does not have power to authorize fundamental corporate changes without shareholder approval

Question 42

fundamental corporate change allowed

Answer 42

(1) if directors first pass resolution to implement plan

(2) shareholders approve the plan

Question 43

appraisal remedy

Answer 43

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

Question 44

what number of votes is required to elect directors

Answer 44

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

Question 45

board issuing options

Answer 45

board has a right to issue options to purchase shares on whatever terms

Question 46

may a corporation issue more stock than authorized in articles of incorporation

Answer 46

no

would have to amend

Question 47

how to ament articles of incorproation

Answer 47

board must first adopt resolution to ament - shareholders must vote at meeting

must be approved by shareholders and then filed with secretary of estate

Question 48

shareholder premptive rights

Answer 48

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

Question 49

removing a director

Answer 49

can be done iwth or without cause at a special meeting unless articles provide otherwise.

Question 50

cumulative voting removal

Answer 50

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

Question 51

business judgement rule does not apply

Answer 51

to directors who have a conflicing personal interest in the transaction

Question 52

duty of loyalty and care

Answer 52

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