Corporations Flashcards
What must be included in the articles of incorporation?
How may the AOI be amended?
(1) Name
(2) Maximum # of shares
(3) Name and addresses of (a) BOD (b) incorporators (c) registered agent
Majority vote of both shareholders and directors.
Minor amendments may be made by BOD without shareholder approval.
What are corporate bylaws and how may they be amended?
Written rules of conduct that must be inititally adopted by the incorporators of BOD. They provide for the ordinary business conduct of the corporation.
If there is a conflict, AOI govern.
Can be amdned or repealed by shareholders. BOD may also amend UNLESS shareholders expressly specify otherwise.
What is a corporate promoters and what is the rule governing their liability?
When is a corporation bound to a pre incorporation contract?
Acts on behalf of the corporation that has yet to be formed. They are personally liable for any K’s entered into on behalf of the corporation so long as borht parties to the transaction know the corporation has not been formed. However, a promoter will not be personally liable if
(1) novation or
(2) obtains indemnity from the corporation ( must show they did not violate fiducuary duties.).
If they adopt such contracts. An adoption can either be expressed or implied from the actions of the corporation or its agents ( accepting the benefits of a known pre incorporation K).
What is the piercing the corporate veil rule?
Generally, shareholders are not liable for liablities of the corporation. However, the doctrine of pirecing the corporate veil will allow a tort victim or creditor to go after shareholders if:
(1) shareholder dominates corporation to extent that corporation is considered their alter ego
(2) Shareholder failed to follow corporate formatlities
(3) undercapatzlied or
(4) fraud or illegality.
Once the corporate veil has been pierced, a creditor may go after all the shareholders. However, some courts limit this to active investors rather than passive.
What is common stock?
What is preferred stock?
What are authorized shares?
What are outstanding shares?
Lowest priority in ownership structure in the event of liquidation. however, they exercise control by electing a BOD and voting on corporate policy.
Preferred stockholder do not always have voting rights. A stock is preferred IF
(a) entitled to recieve dividends before any payment of dividends to other stockholders OR
(b) entitled, in the event of liquidation, to recieve any paymenrs or distributions before another class of stocholders.
Maximum number of shares corporation is legally allowed to issue under AOI. To increase, AOI must be amended with a majority vote from directors and shareholders.
Total number of shares issued by corporation and held by shareholders.
What is treasury stock?
Shares that a corporation issued and subsequently reaquired. Shares that a corporation reaquired are not considered outstanding and cannot be counted in a shareholder vote.
What is the shares within the same class rule?
What are preemptive rights?
All shares within a class of stock must have identical rights and prefrences unless the shares within a class are divided into seperate series.
A right of a current shareholder to purchase additional shares before outsiders are permitted to do so in order to maintain their percantage of ownership in the corporation. In most states, a corp must opt in to create preemptive rights expressly by including such rights in the corporations AOI. In others, preemptive rights are presumed unless opted out of.
Unless otherwise set forth in the articles, preemeptive rights do not exist for
(a) preferred shares that cannot be converted to common stock
(b) shares sold for a consideration other than cash
(c) shares issued by majority shareholder vote to directors, officers, or employees.
What is the rule on distributions?
Unless set forth in articles, shareholders do not have any right to distrubitoins and distrubutions are paid at the full discretion of the BOD.
However, if BOD deprive shareholders of distrubitions in bad faith, shareholders may be able to compel.
What is the consideration for shares rule?
BOD may authorize issues of shares for consideration of ANY tangible or intangible property or benefit to the corporation. Absent fraud or bad faith, the judgement of the board as to consideration recieved is conclsuive.
Shareholder meeting rule
A corporation must hold an annual meeting of shareholders at a time that is stated or fixed in accordance with the bylaws. Special meetings can generally be called by
(1) persons authorized under AOI
(2) A demand from shareholders that accounts for atleast 10% of votes entitled to be cast at the meeting or
(3) BOD for limited purposes.
Notice - For special meetings, notice must - (a) state the purpose (b) be provided 10-60 days before the meeting commences.
Qurom - unless set forth in AOI, quroum exists when at least a majority of the shares entitled to vote are present.
What is the record date for voting?
What is cumulitive voting?
A shareholder is only entitled to vote if she aquired shares no more than 70 days prior to the shareholder meeting.
Favorable to minority shareholders, where voters cast as many votes as there are seats, but voters are not limited to giving only one vote to a candidate, Instead, they can put multiple votes on one or more canidates.
What is a proxy vote?
Allows a shareholder to vote without physcially attending the shareholders meeting by authorizing another person to vote her shares on her behalf. A valid proxy must exist in the form of a verifaiable electronic tranmission or signed written appointment form.
A proxy is freely revocoable by the shareholder unless the recipient of the proxy has an econmic interest in the shares.
When is a shareholder entitled to inspect books and records? (corps)
Shareholder possesses right to inspect corporate books and reocrds so long as the purpose is proper. In order to be proper, the purpose must be resonably related to a persons interest as a shareholder. However, a shareholder mau inspect the AOI and bylaws without providing a prpoer purpose.
Procedural requirements -
(1) make written demand and allow resonable amount of time to respond (5 days) and
(2) Conduct the inspection during regular business hours at the corporations principal office
What is the authority of the BOD?
What is the authority of officers?
(1) subject to any limitaiton by law or the AOI, they have full control over the affirs of the corporation.
Qurom - Majority of the directors must be present unless otherwise set forth in the AOI or bylaws. They are considered present as long as the directors can simeltanously hear eathother.
Informal action - can be taken without quorum present so long as the board has unanimously consented to action in writing.
Notice - it is presumed that directors have notice of regular meetings. However, for special meetings, directors must be given 2 days notice. However, such notice is not required to provide the purpose of the special meeting.
Day to day management. They may be removed at any time with out without cause.
What is the duty of care for BOD and Officers?
What is the business judgement rule?
(1) Take reasonable steps to monitor corps management
(2) must be satisifed tha proposals are in the corporations best interest
(3) Disclose material information to the board AND
(4) The duty to make reasonably informed decisions. - In making such decisions, the direcotrs and officers may rely on information from others whom they reasonably believe are reliable.
In suits alleging a violation of the duty of care, courts will apply the BJR. Here, the court will not second guess the decisions of the board or officers so long as the decisions are made in (1) good faith (2) with the care of an ordinarily prudent person (3) In a manner the director or officer reasoanbly believes to be in the best intrests of the corporation. OThose who breach the duty of care may be personally liable, however, AOI may reasonably limit liability for bad judgement, but not for bad faith.
P must show gross negligence or bad faith to beat BJR.
