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Business Organizations > Corporations > Flashcards

Corporations Flashcards

1
Q

Piercing the Corporate Veil

A

Courts will disregard the corporate form whenever necessary to prevent fraud and achieve equity.

To Pierce the Corporate Veil, there must be:

(1) Unity of Interest between the shareholder & the corporation (a total disregard for the separate existence of the corporation); and
(2) Fraud or injustice

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2
Q

Van Dorn Test: PCV

A

4 Factors to show unity of interest:

(1) Failure to maintain adequate corporate records or comply with corporate formalities
(2) Commingling of funds or assets
(3) Undercapitalization
(4) One corporation treats the assets of the other as its own

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3
Q

Articles of Incorporation

A

Mandatory requirements (under MBCA):

  • name
  • authorized shares
  • registered agent
  • incorporators

Permissive requirements (under MBCA):

  • initial BOD
  • statement of purpose
  • class & series of shares
  • D&O indemnification & liability limitations
Optional requirements (beyond MBCA):
- Preemptive rights: the right to buy your proportional share of any new issue of your class of stock so as to keep their percentage ownership constant
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4
Q

Post-Incorporation Process

A
  1. Draft Bylaws (only for private corps)
    - an internal roadmap for how the corporation will operate, and deal with things like the number and role of officers, procedures for filing board vacancies, calling meetings of shareholders and directors, etc.
  2. First Organizational Meeting
    - Adopt the initial bylaws
    - Elect first BOD
  3. First BOD Meeting
    - issue stock
    - appoint officers
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5
Q

5 attributes of a corporation

A

(1) Separate legal entity
(2) Limited Liability
(3) Separation of ownership & control
(4) Liquidity
(5) Flexible Capital Structure

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6
Q

Authorized Shares

A

the articles must specify the maximum number of shares the corporation is authorized to issue

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7
Q

Issued Shares

A

Shares that have been sold to shareholders

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8
Q

Outstanding Shares

A

Shares the corporation has sold/issued and not repurchased

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9
Q

Treasury Shares

A

Shares that were once issued & outstanding, but have been repurchased by the corporation

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10
Q

Issuance of Stock

A

BOD prerogative

SHs only involved if:

  • BOD wants to sell more shares than authorized in AOI (AOI amendment requires SH approval)
  • BOD wants to issue a new class of stock

*If the AOI authorizes the class of shares in question and there are sufficient authorized but unissued shares, the BOD is free to sell shares for any valid purpose as long as the corporation receives adequate consideration for the shares

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11
Q

Incorporation Process

A
  1. Draft Articles of Incorporation
  2. File Articles with SOS who approves with certificate of incorporation
  3. Post-Incorporation
    - Draft bylaws
    - First Organizational Meeting
    - First BOD Meeting
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12
Q

Articles of Incorporation: Mandatory Requirements

A
  • name
  • authorized shares
  • registered agent
  • incorporator
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13
Q

Post Incorporation

A
  • draft bylaws
  • first organizational meeting
  • first BOD meeting
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14
Q

First Organizational Meeting

A
  • adopt bylaws

- elect first BOD

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15
Q

First BOD Meeting

A
  • issue stock

- appoint officers

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16
Q

Who can adopt, amend or repeal bylaws?

A

Shareholders, but the BOD can vest this power is themselves in the AOI
- but this does not take away anything from SHs: a majority of the SHARES can repeal or amend a BL the BOD adopted

17
Q

Bylaws

A

May contain any provision, not inconsistent with the law or the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers of its stockholders, directors, officers, or employees

  • Have to be procedural & process-oriented in nature. Can’t contain substantive mandates
  • can’t direct what actions the BOD and SHs can take - only how they take them
18
Q

Enterprise Liability

A

Used to impose liability upon a larger enterprise when multiple smaller corporations are sister corps of a single enterprise. Depends on proof that the owner of multiple corporations did not respect the separate identities of the corporations.

Factors to consider in determining whether 2 or more corps have been operating as a single business enterprise:

  • common employees
  • common record keeping
  • centralized accounting
  • payment of wages by one corp to another corp’s employees
  • common business name
  • undocumented transfers
  • same officers
  • same shareholders
  • same telephone number
  • services rendered by the employees of one corporation to another
  • unclear allocation of profits & losses between the corporations

Business Organizations (7 decks)

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