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Corporations > Corporations > Flashcards

Corporations Flashcards

1
Q

Requirements of Articles of Incorporation

A
  1. The name of the corporation 2. The maximum number of shares the corporation is authorized to issue 3. The names and addresses of: - the board of directors, - the incorporators executing the articles, and - the initial registered agent
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2
Q

Formation of the Corporation

A

Formed when the articles of incorporation are filed with the secretary of state

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3
Q

Amendments to the Articles

A

Articles of Incorporation may be amended if there is a majority vote from the directors and shareholders. Minor amendments may be made by the board of directors without shareholder approval

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4
Q

Corporate Bylaws

A

Written rules of conduct that must be initially adopted by the incorporators or board of directors. They provide for the ordinary business conduct of the corporation If there is a conflict between the bylaws and AoI, the articles govern

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5
Q

Amendments to Bylaws

A

May be amended or repealed by the corporation’s shareholders. Board of directors may also amend/repeal UNLESS the shareholders expressly specify otherwise

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6
Q

Promoter Liability

A

A promoter is personally liable for any contracts entered into on behalf of the corporation so long as both parties to the transaction know that the corporation has not yet been formed. Not personally liable if: 1. There is a novation where parties agree to release promoter from liability, or 2. Promoter is able to obtain indemnity from the corporation

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7
Q

Shareholder Liability

A

Generally, shareholders of a corporation are NOT personally liable for the debts of the corporation. Exception is the doctrine of piercing the corporate veil

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8
Q

Piercing the Corporate Veil

A

Courts will allow a creditor to pierce the corporate veil and hold a shareholder personally liable for the debts of a corporation when: 1. Shareholder utilizes the corporation for personal reasons (“alter ego”) 2. Shareholder failed to follow corporate formalities 3. Corporation was undercapitalized 4. There is fraud or illegality present Once the corporate veil has been pierced, courts generally hold ALL the shareholders liable

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9
Q

Common Stock

A

Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders have the lowest priority in the ownership structure.

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10
Q

Preferred Stock

A

Represents ownership in a corporation.

It does not always have voting rights.

Has preference over common stock with respect to:

  • dividends
  • liquidation
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11
Q

Authorized Shares

A

The maximum number of shares that a corporation is legally permitted to issue under its articles of incorporation.

To increase the amount, the AOI must be amended with a majority vote from the directors and shareholders.

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12
Q

Outstanding shares

A

Total number of shares issued by the corporation and held by the shareholders. Each outstanding share is entitled to one vote, unless otherwise provided in the articles

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13
Q

Treasury stock

A

Consists of shares that a company issued and subsequently reacquired.

Shares that the corporation reaquired are not considered outstanding and cannot be counted in a shareholder vote

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14
Q

Preemptive Rights

A

A right of a current shareholder to purchase additional shares in the corporation before outsiders are permitted to do so in order to maintain their percentage of ownership in the corporation

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15
Q

Preemptive Rights do not exist for:

A
  1. Preferred shares that cannot be converted to common stock 2. Shares sold for a consideration other than cash 3. Shares issued by majority shareholder vote to directors, officers, or employees
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16
Q

Distribution Rights

A

A shareholder normally does NOT have any right to receive distributions (either in form or dividends or something else) from the corporation

BUT if board of directors refuses to issue distributions in bad faith, the shareholders may be able to compel distribution.

17
Q

Annual Meetings

A

The corporation must hold an annual meeting of shareholders at a time that is stated or fixed in accordance with the bylaws. Shareholders who are entitled to vote must be provided with notice of the meeting.

18
Q

Special Meetings

A

Can be called by: 1. People authorized under the AOI 2. A demand from shareholdes that accounts for at least 10% of the votes entitled to be cast at the meeting; or 3. The board of directors for a limited purpose Must be given notice that states the purpose and be provided 10-60 days before the meeting

19
Q

Notice for Special Meetings

A

The notice must:

  1. State the purpose of the meeting and
  2. Be given 10-60 days before the meeting commences (in most states)

Insufficient notice can allow a shareholder to challenge any meetings taken at the meeting

  • But notice is waived by actually attending
20
Q

Vote by Proxy

A

Allows a shareholder to vote without physically attending the shareholder’s meeting by authorizing another person to vote her shares on her behalf. Valid proxy must exist in the form of a verifiable electronic transmission or a signed written appointment form. Freely revocable by the shareholder unless the recipient of the proxy has an economic interest in the shares.

21
Q

Definition of Corporation

A

A distinct legal entity that can conduct business in its own right by buying, selling, and holding property or by suing/being sued.

There is limited liability.

It can last forever.

22
Q

Shareholders:

Directors:

Officers:

A

Shareholders: Investors, ultimate owners in the residuary interest

Directors: Elected by shareholders; responsible for major decisions

Officers: Run the corporation on a daily basis

23
Q

Issue Shares

A

Number of shares from the authorized pool that the directors have actually sold

24
Q

Par Value Stock

A

A corporation may, but is not required, to issue stock at a par value.

If it does, it must sell the shares for at least the minimum par value amount.

If it is required, it will be set at a nominal amount.

25
Q

Stock Subscriptions

A

Ask people to agree in advance to buy stock before the corporation is formed.

Prior to incorporation - subscription agreements are irrevocable for up to 6 months

26
Q

Rule: Shareholders can sell shares to anyone at any time for any price.

EXCEPTIONS:

A
  1. Closely Held Corporations
  2. Federal Restrictions
27
Q

Board CANNOT declare dividends under two circumstances:

A
  1. Corporation is insolvent
  2. By issuing the dividend, the corporation would become insolvent
28
Q

Private Restrictions on the Sale of Securities

(i.e. closely held corporations)

A

This is to prevent outsiders from becoming involved in the corporation so that the initial shareholders can retain control over the shares.

Restrictions must be conspicuously noted (stock certificate must contain full/conspicuous statement of what the restriction is or say it will be provided upon request)

29
Q

Types of Restrictions for closely held corporations

A
  1. Outright prohibition on transers
  2. Requires company’s consent
  3. Company has an option to buy
  4. Company has the right of first refusal

Almost any shareholder in a closely held corporation agrees to these restrictions

30
Q

Rule 10b-5

A

The fraudulent purchase or sale of stock or other securities

For a private person to pursue a 10b-5 action, the following must be met:

  1. P has to have purchased or sold the security
  2. Transaction involves interstate commerce
  3. D engaged in fraudulent or deceptive conduct
  4. Conduct related to material information
  5. Defendant acted with scienteter
  6. P relied on D’s conduct and suffered harm
31
Q

Section 16b

A

Insider Trading

A corporate insider can be forced to return short-swing profits to the corporation

The reason for buying/selling/having non-public info is irrelevant

32
Q

Record Date

A

Used to determine which shareholders are eligible to vote.

The directors must fix a record date.

It must be no more than 70 days before the meeting.

ONLY shareholders who actually own shares on the record date are entitled to vote.

33
Q

Cumulative Voting

A
34
Q

Direct Lawsuits

A

Shareholder is suing in the shareholder’s own name for damages if they have been harmed in one of these ways:

  • interference in voting rights
  • misinformation about important information
  • tort injury

Damages go directly to the shareholder.

35
Q

Derivative Lawsuits

A

Shareholder is suing on behalf of the corporation

Claim must be made in the corporation’s name and any recovery belongs to the corporation

Must have:

  1. Standing
  2. First demand that the board of directors bring the lawsuit
36
Q

Requirements to bring a derivative lawsuit

A
  1. Standing (must maintain contemporaneous stock ownership)
    - Must have been a shareholder at the time of the harm
    - must hold the shares throughout the litigation; and
    - must fairly and adequately represent the interests of the corporation
  2. Demand Requirement
    - must have first demanded that the
37
Q

Closely Held Corporations

A

A corporation with few shareholders (generally less than 100)

Shareholders are typically also directors/officers

typically not publicly traded

Relaxation of rigid rules for corporations

38
Q

S Corporation

A

A corporation that gets special treatment for tax purposes

Only taxed once (like a partnership)

It is limited in the number of shareholders it may have

39
Q

Limited Liability Company

A

Analyze under general corporate law principles (there is a difference in terminology and taxing features though)

An LLC files articles of organization and an operating agreement with the state.

The owners are called members (rather than shareholders)

Presumed to be managed by ALL of its members

Corporations (1 decks)

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