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MEE GMW > Corporations > Flashcards

Corporations Flashcards

1
Q

Shareholders

A

owners of the corporation

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2
Q

Board of directors

A

group in charge of management of the corporation

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3
Q

Officers

A

agents of the corporation appointed to carry out corporation’s policy

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4
Q

What are the requirements to organize a corporation?

A
  • Person (incorporator)
  • Paper (articles of incorporation)
  • Act (incorporator will have notarized articles delivered to SOS)

Corporation will also hold organizational meeting to appoint officers and adopt initial bylaws.

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5
Q

What should the articles of incorporation contain? (paper requirement)

A
  • Name of corporation, including “corporation, company, incorporated, or limited”
  • Name and address of incorporator
  • Name and address of registered agent and office in the state
  • Info regarding stock, including authorized stock (the maximum shares)
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6
Q

What are the consequences of incorporation?

A
  • Entity stauts
  • Double taxation
  • Limited liability
  • Internal affairs doctrine
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7
Q

What doctrines apply to defective incorporation?

A
  • De facto corporation
  • Corporation by estoppel

*anyone asserting must be unaware of failure to form de jure corporation

**abolished in many states

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8
Q

Who is liable on pre-incorporation contracts?

A

The promoter is personally liable (unless a novation occurs). The corporation is liable if it adopts the contract.

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9
Q

Debt security

A

Issued when the corporation borrows money. Called a bond. The holder is a creditor.

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10
Q

Equity security

A

Issued when the corporation sells an ownership interest to an investor. Called a stock. Holder is an owner.

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11
Q

Issuance

A

Occurs when a corporation sells its own stock.

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12
Q

Subscription

A

A written offer to buy stock from a corporation.

Pre-incorporation subscription is irrevocable for 6 months. Post-incorporation subscription is revocable until accepted by the corporation.

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13
Q

What is valid consideration for a stock/bond?

A

Any tangible or intangible property or benefit to the corporation (ie. money, property, services already performed, discharge of debt)

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14
Q

What amount should stock be issued for?

A

Par (minimum issuance price)

Watered stock is par value stock issued for less than its par value

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15
Q

What are preemptive rights?

A

The right of an existing shareholder to maintain a percentage of ownership in the company by buying stock whenever there is a new issuance of stock for money.

**Right MUST be stated in the articles.

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16
Q

What are the qualifications to be a director?

A
  • adult natural person
  • one or more directors
  • initially named in the articles or at the organizational meeting
  • shareholders can elect annually thereafter
  • shareholders can remove with or without cause
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17
Q

The board of directors (BOD) must act as a group through:

A
  • unanimous agreement in writing
  • OR at a meeting
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18
Q

Is notice required for regular board meetings?

A

No.

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19
Q

Is notice required for special board meetings?

A

Yes, must give 2 days notice in writing, or anything that happens at the meeting will be voidable.

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20
Q

Can directors give proxies?

A

No.

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21
Q

What constitutes quorum for a board meeting?

A

Majority of all directors.

22
Q

Duty of care

A

Must use care that a person in a like position would reasonably believe appropriate under the circumstances.

  • Owed by directors to the corporation
  • Subject to the business judgment rule
  • Can be eliminated
23
Q

Duty of loyalty

A

Must discharge duties in good faith and with reasonable belief that actions are in the best interest of the corporation.

  • Owed by directors to the corporation
  • Cannot be eliminated
24
Q

How can a director breach the duty of care?

A
  • Nonfeasance: director does nothing
    • liable only if breach causes loss to the corporation
  • Misfeasance: board makes decision that hurts business
25
Q

What is the business judgment rule?

A

A presumption that the director’s decision may not be challenged if the director 1) acted in good faith 2) with care that an ordinarily prudent person would exercise in like position and 3) in a manner that the director reasonably believed to be in the best interest of the corporation

26
Q

How can a director breach the duty of loyalty?

A
  • self-dealing
  • competing ventures
  • usurping corporate opportunities (corporate opportunity doctrine)
27
Q

An interested director transaction must be set aside unless

A
  • the deal was fair to the corporation when entered
  • OR the director’s interest and relevant facts were disclosed/known and the deal was approved by a majority of disinterested directors/shares
28
Q

T/F A director is presumed to concur with board action unless dissent or abstention are noted in writing in the corporate records.

A

True

29
Q

What duties do officers owe to the corporation?

A

Duties of care and loyalty

30
Q

When must a corporation indemnify directors/officers?

A

When D/O is successful in defending a proceeding on the merits.

31
Q

When will a corporation never indemnify a D/O?

A

D/O held liable to corporation or held to have received an improper benefit.

32
Q

When might a corporation indemnify a D/O?

A

D/O unsuccessful in defending and D/O acted in good faith and believed conduct was in best interest of the corporation.

33
Q

Do shareholders manage the corporation?

A

No, unless it is a close corporation.

Close corporations have

  • small # of shareholders
  • stock that is not publicly traded
34
Q

What fiduciary duties do shareholders owe in a close corporation?

A
  • duties of care and loyalty (if managing)
  • AND fiduciary duty of utmost good faith to other shareholders
35
Q

Are shareholders liable for corporate debts?

A

Generally no, unless the court pierces the corporate veil.

36
Q

Piercing the corporate veil

A

ONLY in close corporations. Occurs when shareholders abuse the privilege of incorporating and fairness requires holding them liable.

  • Alter ego
  • Undercapitalization
  • Fraud
37
Q

When can a shareholder bring a derivative suit?

A

When the corporation could have brought the suit itself.

38
Q

What are the requirements for a shareholder derivative suit?

A
  • shareholder must have stock ownership at the time the claim arose
  • shareholder adequately represent corporation’s interest
  • shareholder must make a written demand on the corporation to take suitable action
  • corporation must be joined as a defendant
39
Q

Authorized stock

A

number of shares the corporation can issue

40
Q

Issued stock

A

number of shares the corporation sold

41
Q

Outstanding stock

A

shares company issued but has not reacquired

42
Q

The record owner on the record date is who votes, unless

A
  • the corporation reacquires stock before the record date
  • the shareholder dies
  • voting by proxy
43
Q

What are the requirements for a valid proxy?

A
  • In writing
  • Signed by the record shareholder
  • Directed to the secretary of the corporation
  • Authorizing another to vote the shares

**also, good for 11 months unless stated otherwise and revocable unless coupled with interest.

44
Q

Number of votes needed to:

  • elect directors
  • remove directors
  • approve fundamental corporate change
A
  • plurality
  • majority of shares that actually vote
  • majority of shares that actually vote
45
Q

Shareholder’s inspection rights

A

Unqualified right of access for noncontroversial things. Must state a proper purpose for controversial things (ie. board minutes, corporation’s acccouting, shareholder records)

46
Q

How are distributions made?

A
  • At the director’s discretion
  • To the record shareholder as of the record date
  • If preferred stock → paid first

But the corporation cannot make any distribution if is insolvent or the distribution would render it insolvent.

47
Q

What are the types of fundamental corporate change?

A
  • amending the articles
  • mergers/consolidation
  • transferring substantially all assets
  • converting to another business form
  • dissolving
48
Q

What is the procedure for fundamental corporate change?

A
  • the board adopts a resolution of fundamental change
  • the board submits the proposal to shareholders with written notice
  • shareholders approve by a majority of the shares entitled to vote (traditionally)
49
Q

When do dissenting shareholders have a right of appraisal?

A

In close corporations ONLY and when:

  • merging/consolidating
  • transferring substantially all assets
  • stock being acquired in share exchange
  • converting to another form of business
50
Q

What are the steps to winding up a corporation?

A
  • written notice to creditors and in newspaper in PPOB
  • gather all assets
  • convert assets to cash
  • pay creditors
  • distribute any remaining sums to shareholders pro rata by share, unless there is a liquidation preference
51
Q

The articles may eliminate/limit a director’s liability for _______________.

A

Money damages

52
Q

The articles may not eliminate/limit a director’s liability to the extent the director. . .

A

1) received a benefit to which he was not entitled, 2) intentionally inflicted harm on the corporation 3) approved unlawful distributions or 4) intentionally committed a crime.

MEE GMW (8 decks)

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