Corporations Flashcards

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1
Q

Requirements to form a de jure corporation

A
  • person (incorporator)
  • paper (articles)
  • act (delivery to SoS)
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2
Q

pre-incorporation contracts ~ liability for promoter + corporation

A
  • promoter: liability continues even after corporation is formed absent a novation or express limitation in the contract
  • corporation: not liable unless it expressly or impliedly adopts the contract
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3
Q

defective corporations - 2 types

A
  • de facto corporation: colorable compliance with incorporation statute, exercise of corporate privileges
  • estoppel: people treating a business as a valid corporation are estopped from denying the corporation’s existence
  • person acting on behalf of the corporation can’t be aware of the failure to form
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4
Q

piercing the corporate veil (3 types + general rule)

A

general rule: shareholders aren’t liable for corporate debts unless then 1) abused the privilege of incorporating and 2) fairness requires piercing the veil

Types:

  1. alter ego doctrine: harm caused to third party because commingle funds, don’t treat corporation as a separate entity, use corporate assets for personal purposes, don’t hold meetings
  2. inadequate capitalization at inception: inadequate to meet prospective liabilities
  3. perpetrating a fraud
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5
Q

issuance of stock (subscriptions + consideration + preemptive rights)

A

-preincorporation subscriptions are irrevocable for 6 months; post incorporation subscriptions can be revoked up to acceptance

-consideration: can be any tangible/intangible property/benefit to corporation
~traditionally had to be more than par value
~today, directors can determine valuation, which is conclusive if in good faith

-preemptive rights: allow to maintain a % ownership in an issuance for cash
~must be stated in the articles; aren’t applicable to shares issued within 6 months after incorporation, shares issued for non money consideration, shares without voting rights

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6
Q

shareholder vs. director voting (who entitled, rules for meetings, thresholds)

A

BOTH

  • must give notice for meetings; if no notice is given actions are voidable unless expressly/impliedly waived
  • votes can occur at meeting or with unanimous written consent

SHAREHOLDERS

  • shareholders of record on the record date have a right to vote
  • thresholds: majority vote required for anything except directors (plurality is OK there)
  • quorum required = majority of outstanding voting shares (broken quorum is OK)

DIRECTORS

  • no notice needed for regular meetings, need for special meetings
  • quorum = majority of all directors (broken quorum is NOT OK)
  • directors are presumed to concur with the board unless they dissent in writing or are absent from a meeting
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7
Q

agreements for shareholder votes (3 types)

A
  • proxy votes: writing, signed, delivered to secretary
  • can be revoked in writing or by attending a meeting; unless they are irrevocable (stated + coupled with an interest); generally valid for 11 months
  • voting trust: 10Y maximum, written, give copy to corporation, transfer legal title to trustee, OG shareholders get trust certificate
  • voting agreement: in writing + signed
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8
Q

director liability

A

DoL: directors must act in good faith, in a manner reasonably believed to be in the best interests of the corporation
DoC: directors must act with the care that a person in a like position would exercise

DoC: can be breached through nonfeasance or misfeasance. Under BJ rule, court won’t second guess an action if it is done in good faith, informed, and rational.

DoL:
a self-dealing transaction won’t be set aside if:
1. director disclosed all material facts and transaction was approved by disinterested directors/SHs OR
2. transaction was fair to the corporation
corporate opportunity doctrine: a director may not divert to himself a business opportunity within the corporation’s line of business without first giving the corporation an opportunity to act

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9
Q

director indemnification

A

no indemnification if director was liable to corporation or received an improper benefit
compulsory indemnification if successful in defending on the merits
permissive indemnification if acted in good faith

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10
Q

fundamental corporate changes (types, requirements, remedy)

A
  • amending articles, mergers/consolidations, share exchanges, dispositions of substantiality of assets outside the regular course of business
  • general requirement: board resolution, notice to SHs, shareholder approval, articles of change filed with the state

-appraisal may be available to dissenters in a merger/consolidation
EXCEPTION: listed company with over 2,000 shareholders
EXCEPTION: merger of 90% subsidiary into parent company, if rights of surviving company aren’t significantly affected

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11
Q

dissolution

A

-voluntary dissolution: by fundamental change procedure; or by majority of incorporators/directors if business hasn’t begun
-administrative dissolution
-judicial dissolution:
~by AG
~SHs if directors are deadlocked, misconduct, waste
~creditors if corporation is insolvent and claim is due

-corporation continues, but just for the purpose of winding up assets. Can assert claims to the extent of undistributed assets unless notify creditors.

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12
Q

authority of corporate officers + directors

A

Directors have actual authority to act pursuant to a valid meeting or unanimous written consent

Officers are agents of corporation, so have actual authority to act with whatever power the board grants (in a proper vote, for authority that could properly be delegated)
–> president has apparent authority to bind corporation to contracts

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