Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Bar Exam > Corporations > Flashcards

Corporations Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards
1
Q

What are the most common issues on a Corps MEE question?

A

Shareholders 43%
LLCs 33%
BoDirectors 25%
Others: formation, governance, M&A, special types
NOT: officers and employees, termination of corp status, stock and corp securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a promoter? What is he liable for?

A

Promoter brings K into existence
Enters into Ks securing $ to do it
Personally liable on Ks entered before Corp existed UNLESS:
1. Novation. Corp and 3P agree that Corp is taking place of Pr
2. Adoption. Corp takes benefits of the K.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is an Ultra Vires act? Remedy?

A

When a Corp has a narrow purpose and acts outside the scope of that purpose.
Remedy: shareholder can sue to enjoin act OR take action against officer/director/employee who did the bad thing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the different ways to make a corporation?

A
  1. De Jure: when statutory requirements are met for incorporation 2. If good faith attempt to incorporate can still get corp protections if:
    a. de facto corporation: attempted to incorporate and ran business believing it was a corporation
    _b. corp by estoppe_l: 3P entered into K with non-Corp believing it was a corp; 3P is estopped from asserting it does not have corp protection
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

L and M improperly file articles of incorporation. They acted in good faith and they are now operating “Data, Inc.” as a business, believing it is incorporated. L and M obtain a business loan from Big Bank who looks at the Data, Inc.’s business records prior to issuing the loan. L and M’s business eventually fails and is unable to repay the loan. What happens to Big Bank’s claim?

A

Big Bank will be estopped from arguing that Data, Inc. is not a corporation because it dealt with Data, Inc. as if it were a corporation and had an opportunity to discover that is was not actually incorporated. Big Bank will not be able to recover from L and M as individuals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Who authorizes the issuance of stock?

A

A corporation’s board of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a par value for stock?

A

when a corp assigns a min value to its stock

if stock is sold for less than the par value, board is liable (so is a shareholder if they knew par value)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are the federal causes of action for the improper sale of securities (stock)?

A

Eule 10b-5 AND Section 16b

[not frequently tested]

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What happens at a shareholders meeting?

A

They are annual and required

Primary purpose: elect directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When can a shareholder inspect corporate records?

A
  1. Have right to inspect corp records, but must state proper purpose
  2. normal business hours
  3. 5d notice
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When do shareholders have a right to vote?

A
  1. board of directors elections
  2. approve fundamental changes to corp (merger, sale)
  3. PROXY VOTE IS OK with written agreement. Revocable unless stated irrevocable.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How to arrange for a proxy vote?

A

Must be written agreement

Revocable unless state irrevocable (which is allowed)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Wh can amend or repeal corporation bylaws?

A

Shareholder can amend, repeal, or pass new bylaws

Can slo limit Board’s ability to change the bylaws

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What can shareholders agree to do together as shareholders?

A

May enter into an agreement to vote their shares together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How can shareholder sue the corporation? (if this is the Q, address both methods)

A

Direct Action. Sue Corp for benefit of shareholder (remedy a personal wrong). Ex: shareholder denied rights, board failed to declare dividend, or board failed to approve/deny merger

Derivative Action. Suing on behalf of corp, usually a director or officer. Recovery goes to corp. Standing: must be SH when bad act occurred, must demand board action unless futile, ask for board dismissal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Process for a derivative action

A
  1. sue on behalf of corp, recovery goes to corp
  2. usually officer or director
  3. Standing: must be SH at time of bad act AND time action is filed
  4. DEMAND ON BOARD.
    1. FIRST, must demand board action.
    2. Board has 90d to act (unless demand rejected or waiting that long would cause irreparable harm)
    3. FUTILITY EXCEPTION: no demand required if would be futile (Ex: if SH is accusing Bd of wrongdoing, would be futile to ask Board to sue itself)
  5. Board dismissal: board can bring MTD if suit is not in Corp’s best interest, BUT the MTD can be challenged Bd was not disinterested or acting in bad faith re: dismissal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Piercing the corporate veil

A

Rule: shareholders not liable for corp acts UNLESS:

Court may hold SHs personally liable based on totality of circumstances, including factors:
1. undercapitalization of Corp at time of formation
2. disregard of corp formalities (no annual mtgs or votes)
3. use of corp’s assets as SH’s down assets
4. self-dealing with corp
5. siphoning funds and stripping assets
EXAM: discuss each fact that supports or negates idea the SH is abusing corp protections

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the fiduciary duty of a shareholder with a controlling interest in the corp?

A

-Duty not to use power to disadvantage of minority shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What makes a SHer “controlling?”

A

If they own more than 50% of the shares or otherwise control voting power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Board of Directors: what they’re like and what they do

A

Manage and direct corp’s business and affairs

Selected by SHs at annual SH meeting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How to remove a Board member

A

Removal:
CL: for breach of fiduciary duty OR:

Modern trend: without cause

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How does Board Of D voting work?

A
  • must have quorum present (majority usually)
  • presence: can include phone call so long as D can hear and participate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

how to call a special BoD meeting:

A
  1. need 2 days’ notice before the meeting
  2. notice must include date, time and place
  3. a director who did not receive proper notice can object BUT if director attends meeting and fails to object then it’s waived
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are a Director’s fiduciary duties to the corporation?

A

Care. ordinarily prudent, investigate and ask Qs
Business judgment rule (always discuss)
Loyalty. Act in best interest of Corp. No self dealing, usurping
. Self Dealing: transaction with corp that benefits D or fam, business
. Safe Harbor Rule: disclosure and approval
. Usurping: taking bus opp instead of offering to corp first

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What should a director do if offered a business opportunity that the corporation would also be interested in?

A

Don’t breach duty of loyalty by usurping a corp opportunity!
Present to corp first, if declines, then may take it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What must a director do if himself, business or family wants a transaction with the corporation?

A

Don’t breach duty of loyalty with self dealing! (self, close fam, or bus entity D is association with)

Safe Harbor: Transaction is protected if:
1. D discloses all material facts to shareholders or Board and gets approval from majority of either OR

Transaction is fair to Corp both procedural and substantively

27
Q

How can Director breach duty of loyalty

A

Self dealing without BoD or shareholder disclosure and approval

Usurping a deal without first presenting it to the corp for rejection

28
Q

Explain the Business Judgment Rule and its place in analysis

A

BJR: rebuttable presumption that Dir. reasonably believed actions were in best interests of corp
Means he did not breach duty of care if acted in good faith
TO OVERCOME PRESUMPTION:
-D did not act in good faith OR
-D was not informed to extend reasonably necessary OR
-D was not objective and had material interest in decision, OR
-D not timely investigate after being alerted to significant matter, OR
-Any other failure to act as reasonable Director

29
Q

What is the Safe Harbor Rule?

A

Transaction between Board member and Corp, normally prohibited, can be protected if:

  • disclose all material facts to Bd/SH and gets approval from same OR
  • Transaction is substantively and procedurally fair to Copr
30
Q

Officers: facts!

A

Elected by the board of directors to run day-to-day operations

Typical officers—president, secretary, and treasurer

Act as agents of the corporation

An officer can act with actual express authority, actual implied authority, and apparent authority. Can raise Agency issues regarding whether the officer (as an agent) had authority to bind the corporation (the principal) to a contract with a third party

31
Q

Dissolution of Corp

A

A corporation may voluntarily terminate its status.
• Winding Up—corporation exists for the limited purpose of winding up its affairs and liquidating
its business
• Order of distribution:
1) Creditors of the corporation
2) Shareholders of stock with preferences in liquidation
3) Other remaining shareholders of stock

32
Q

LLCs: how to form

A

Formation—requires filing articles of organization

33
Q

Who must manage an LLC

A

can be member-managed or manager-managed

34
Q

Why do an LLC?

A

Has the tax advantages of a partnership and the limited liability of a corporation

35
Q

Who can be a member of an LLC?

A

individuals or corporations

36
Q

Who has the authority to bind the LLC?

A

members of a member-managed LLC have authority to bind the LLC

37
Q

Who is liable for LLC obligations?

A

Members are generally not personally liable BUT

court can pierce the veil and make them liable

38
Q

To whom do members of an LLC owe fiduciary duties. and what are they?

A

Both to the LLC and to each other:
LOYALTY member-managed LLC:
• Must account to the LLC for any profit or benefit
• Must refrain from dealing with the LLC on behalf of an adverse interest
• Must refrain from competing with the LLC
From a recent question: An LLC had two corporate members. The question was whether a corporate member had a duty to bring a derivative action on behalf of the LLC against itself. ???

CARE: act reasonably, subject to Business Judgment Rule

39
Q

What actions may members of an LLC bring?

A
  1. direct action: suit against LLC or other members to enforce the suing member’s rights
  2. derivative action: on behalf of LLC against other members (or against themselves, hahaha)
40
Q

How does a member leave an LLC?

A

can withdraw for any time and any reason

must provide notice (not necessarily written)

41
Q

How to dissolve an LLC

A

-all members agree
-any other reason stated in the operating agreement
Involuntary dissociation: member can ask court. Must show: Controlling member has acted oppressively and harmed member seeking dissolution

42
Q

When dissolving an LLC, how to distribute assets?

A
  1. first must pay creditors
  2. then distribute assets to members
43
Q

Events that dissolve an LLC

A
  • 90d without members
  • consent of all members
  • court order
  • operating agreement contains event that triggers dissolution
44
Q

What must a member do to dissosicate from an LLC?

A

Can do it at any time, even in violation of operating agreement, by PROVIDING NOTICE to the LLC.
ULLCA does NOT require written notice.

45
Q

When might dissolving an LLC be mandatory?

A
  • by showing that a controlling member is acting in an oppressive way and harming the other member. The abused member will ask for this.
46
Q

What circumatnsces might justify piercing the corporate veil?

A

Must be on equiabtlae grounds:

commingling of assets

confusion of business affaiers

deception of creditors

47
Q

What is the “mere instrumentality” test for piercing the corporate veil?

A

it’s one test the courts use. Must show:

  1. Corp had no will of its own because member(s) dominated the entity
  2. members used domination to commit fraud or wrong, AND
  3. the control and wrongful acton proximately caused injury
48
Q

3 tests for piercing the corporate veil

A
  1. mere instrumentality test
  2. unity of interest and ownership test (similar to prong 1 above)
  3. If a SH is abusing protections of corporate status
49
Q

What is the unity and ownership test for piercing the corporate veil?

A
  • petitioner must demonstrate unity of interest and ownership between the Corp and the members that, in fact, the company did not have an existence independent of the members AND
  • failure to pierce would be unjust or inequitable.
50
Q

of Board votes required to pass something

A
  • a majority of the directors present at the time the vote is necessary for board approval. However, the articles of incorporation or bylaws may specify a higher level of approval.
  • also, must have quorum
51
Q

what is a duty of care

A

a duty to act like a reasonably prudent person under similar circusmtances

52
Q

To which duty does the business judgment rule apply?

A

Duty of care.

Rebuttable presumption that a corp director used their best business judgment when making a decision. Must overcome that presumption if alleging violation of duty of care.

53
Q

Officers’ duties

A

Officers are agent of the Corp; do an agency analysis

54
Q

Does a shareholder have to make a demand on the board before proceeding with a direct action?

A

NO, because a direct action he is suing the corp on behalf of himself

55
Q

what gives a SH standing for a derivative action?

A

Must have been SH both at the time of the wrong and at time action was filed, and must continue throughout litigation

56
Q

Can the Board interfere with a Shareholder-approved bylaw amendment?

A

In one circumstance: if shareholders approve a bylaw amendment that limits further board changes, the board could only amend or add to the bylaw to safeguard the voting process; it could not repeal the shareholder-approved bylaw.

57
Q

Can the Board amend bylaws on their own?

A

YEs, unless Art of Inc or a shareholder vote limits that power (but cannot limit Bd power to safeguard voting process)

58
Q

How would a director violate the NJR’s requirement of making a fully informed decision?

A

To violate the requirement of an informed decision, the directors must have been grossly negligent in gathering and considering information.

59
Q

when is a direct action available?

A

A direct claim “is available when (1) all shareholders share the same injury; (2) the shareholders would receive the benefit of the recovery or remedy; and (3) the injury is not suffered by the corporation.”

60
Q

reasons court might excuse demand on a Board before a derivative action due to futility

A
  • a self-interested director controls the transaction (familial conflicts. business ties)
  • the board did not fully inform themselves about the challenged transaction to a reasonably appropriate extent–no sound business judgment
  • when the transaction was “so egregious on its face that it could not have been the produce of sound business judgemen

whether the particular facts of a situation “create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.”

61
Q

What options if the Board refuses a SH demand?

A

REFUSED DEMAND.

  • can no longer can claim that demand was excused BUT:
  • if received “only a peremptory refusal,” he may examine corporate records to look for wrongdoing.
  • may continue with the suit, alleging wrongful refusal.
62
Q

what standard does a Court apply to a Board’s refusal of a demand put to them in a derivative action?

A
  • Court will apply the business judgment rule to the situation—unless the stockholder can allege facts that create a reasonable doubt that the board should get the presumption. A stockholder may allege wrongful refusal if they can show reason to doubt that the board acted independently or with due care in responding to demand.
63
Q

Wha standard does a court apply to a Board/Officer decision that was challenged. ratified, and is now being challenged in court?

A

If any of a director or manager’s dealings with the company is challenged, he has the burden to show that he acted in good faith and that the challenged action was inherently fair to the corporation. However, even if a duty was violated, a subsequent vote ratifying the relevant decision overrides any conflict of interest so long as the board was aware of the conflict and a majority of the disinterested directors authorized the action in good faith. After such a vote, the courts accord the decision the benefit of the business judgment rule.

Bar Exam (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions