corporations Flashcards
C corps and S corps
C: traditional corportaion
S: taxed like a partnership but
- limited to 100 shareholder
- shareholders are individuals
- one class of stock
key facts for corp question
organization of corp issuance of stock directors/officers shareholders fundemental corp cahnge
what are the three reqs for foramtion of a corp
a person
a paper
and an act
incorporators
Basically, they must
execute and deliver the articles of incorporation to the secretary
of state. Incorporators may be a person or an entity.
They do not need to be a citizen of the state of incorporation
articles of incorp
paper needed to form corp
must have
The name and address of each incorporator
• A registered agent and the street address of the
registered office. The registered office must be in the
state. The registered agent is the company’s legal representative,
meaning they could, for example, receive
service of process for the corporation.
• Information regarding the corporation’s stock. The
articles must give details about the corporation’s authorized
stock, which is the maximum number of shares
the corporation can sell. If the company has different
classes of stock or series within a class of stock, many
states require that the articles state the number of
shares per class;
ultar vires acts
no actions outside the stated business purposes
must a corp be filed
yes with sec of state
initial organizational meeting
by named board members OR (if not named) the incorporators
adopt bylaws
appoint officers
bylaws
internal operating manual
internal affairs doctrine
internal affairs of a corp are governed by the law of state of incorporation
de facto corp
when a corp wasnt properly formed, can still have IF
relevant incorp stattue
good faith and colorable attempt to comply
exercise of corp privileges (acting like in a corp)
corp by estoppel
if dealing with corp like it was a corp, then cant say later it wasnt a corp
promoters raising capital and doing stuff for a copr before there is formation
- partners
- fiduciary duty of disclsure and good faith dealing
- PERSONAL liablity if enter into contract on behalf of corp before formation
- only relased from laiblity by express or implied novation (assumption and replacement of promoter by corp)
debt secuirty
a loan taken giving a creditor an interest to repayment plus interest
equioty security
stock
ownership investment
share option
option to purchase share in future under terms predetermined
issuance
when corp sells its own stock
subscription, preincrop sub,
sub: written offer to purchase stock from corp
preissuance: irrevocable for 6 months, payment due on demand by board
post issuance: can receive any tangible/intangibel property or services that benefit corp
what is the minimum consideration needed for stcok issuance
par: stated inital value. if less, than watered stock and violation in which shareholders can seek remedy
if no par price: than any price the board sets
preemptive right to percentage of owernship for shareholder
must be stated in articles
right to purchase newly issued stock equal to their existing percent ownership of corp
UNLESS
- consideration other than cash
- six mothns of incorp
- non-voting rights with distribution preference
qual for a director
natuarl person
adult
legal capcicty
how many directors are needed
at least one, no limit on how many
election or director
yealry, unless staggered
can sharehilder remove a board member without cause
yes
who fills vacancies on the baord
either board or sharholders
if shareholders created vacancy, then they must fill, board cant fill
can a single board member act on behalf of corp
no, only as a group
act as a group rules for board
unanimous written agreemnet (email, sep dcos fine) OR
at a board meeting,
- -satisfy qurom and
- -majoirty vote of those present
can a board act if quorum is broken mid meeting
NO
whats need for quorom
majooriyt of directors
what acts can’t a board delegate
dcalration of a distribution
fill a board vacany
recommend fund change to shraeholders
fiduciary duty of board and officers
duty of loyalty
duty of care
duty of care
A director must discharge her duties in good faith and with
the reasonable belief that her actions are in the best interest
of the corporation.
burden on p
two isseus: nonfeasance, misfeasance
non: director does nothing/lazy
mis/ director makes decision that hurts board
what does director need to protect against call of misfeasance
made a business decision in good faith and sound business judgment
may director rely on info of others in corp
yes if prepared by
- officers
- legal counsel
- other committees
all req reasonable belief in competence, needed skill, and knowledge
when is a conflicting transaction (self dealing) by a director ok
- approved by maj of disinterest board OR
- approved by maj of votes entitled by disinterest sharholders OR
- as jduged at entry of transaction by corp, was fair to corp
what maj is needed for a conflict transaction board vote
maj of DISINTERSTED board members
when analzying fairness of transaction…
always add “some court require a shwoing of fairness”
factors:
adequacy of comp
finacnial postiinong of corp
available alts
remedies for conflciting transactions
enjoinment setting asside damages loss profits unjust enrichment
cna directors set their own compensetiaon
yes
can directors engage in competing businesses
it would raise a serious loyalty issue
corporate opp doct
a director can’t deprive the corpo of a business opp (something the copr would want to take advantage of) without
- notiifcaiton
- opp for corp to act
directors duty to disclose
material corpoarte info to other board members
what are the entire board of directors laible for
ultra vires improepr loans breach of fiduairy duty -duty of loaylyt -duty of care
how to know which directors are respon for liabille conduct
presumption to act with board UNLESS
- dissent noted in minutes
- dissent delviered in writing to presiding board member
- written dissent to corp RIGHT after meeting
do shareholders fire hire officers
no, only the board can
indemnification of officers
cant: officer/director laible to corp AND recieved an improper benefit
Must indemnify: d or o who successfully defended on merits (some states whole case, others to extent they win)
may indemn: if director loses or won not on merit IF: good faith, believed conduct was in best itnerst of corp
derivative suit
a shareholder is suing to enforce the CORP claim. NOT thier own (that would be a shareholder suit)
ask: could corp have brought suit, if yes, then good
difference bw breach of fiduciary duty to corp vs shraeholder
who suffers the most immediate harm
who did the duty run to
who gets paid for a derivative suit
the corp
standign for a derivative suit
stock ownership at time of wrongdoing
fair and adequate representation of corp interest
how to initiate suit
must first make written demand to the corp (usually the board), can’t sue until 90 days after unless
- demand rejected
- irreprabable harm
copr must be joined as D
can you dismiss or settle derivative suit without court approval
no
outstanding stock
stock issued but not reacquired
who votes in shareholder votes
outstnading stock and record shareholders
rcord: set by board, no more than 70 days before meeting
are voting trusts allowed for shareholders
yes•
A written trust agreement, controlling how the shares
will be voted;
• A copy of the agreement (including names and addresses
of the beneficial owners of the trust) is given
to the corporation;Legal title to the shares is transferred to the voting
trustee; and
• The original shareholders receive trust certificates and
retain all shareholder rights except for voting.
can you have a voting aggreement
yes, signed and in writing
type of shareholder meetings
special and annual
notice for sharehodlers meeting
between 10-60 days of meeting
date, time, place
if special meeting: purpose
what happens if bad notice to sharholder meeting
any action taken is vaoibalbe
quorum for shareholder meeting
number of shares represented
what maj is needed to pass general measures at a shareholder meeting
maj of shares present
what maj is needed for special matters at a shareholder meeting
traditionally maj of shares entitled to vote, BUT view is changing and can be expressly diff
stock tranfer restrictions
fine is reasonable
stock transfer rights to enforec agasint
transferee, third party IF
limitation is conspious on stock certificate OR transferee knew of limitation
fundemental corp changes
amending the article merging asset transfer convert to another business form disolving
whats need for fund corp changes
- board action adopting
- board submission to shareholders WITH writtne notice
- shareholder approval
can a shareholder taht dissents to a fund cahnge force corp to buy back their stock at fair value
yes IF merger asset transfer stock exchange acqui converting to another biz
who needs to approve the merger
merging (non-survivng) company
